Corpus donation.

339

Corpus donation means any donation made with a specific direction by the donor that it shall form part of the corpus of the registered non-profit organisation where such donation is invested or deposited in any of the modes permitted under section 350 maintained specifically for such corpus.

Explanation

Section Summary:

Section 339 of the new income tax law defines corpus donation as a donation made to a registered non-profit organisation (NPO) with a specific direction from the donor that the donation must form part of the NPO's corpus. The corpus is the principal fund of the NPO, which is typically invested or deposited in permitted modes under Section 350. This section clarifies the treatment of such donations for tax purposes.

Key Changes:

• Explicit Definition: The new law provides a clear definition of "corpus donation," which was not explicitly defined in the prior income tax act. This brings clarity to how such donations should be treated.
• Specific Direction Requirement: The donor must explicitly state that the donation is intended to form part of the NPO's corpus. This ensures that the donation is not treated as regular income for the NPO.

Practical Implications:

• For Donors: Donors can ensure their contributions are used as intended by specifying that the donation is for the corpus. This may also provide tax benefits, as corpus donations are often treated differently from regular donations.
• For NPOs: NPOs must maintain separate accounts or records for corpus donations and ensure these funds are invested or deposited in permitted modes under Section 350. This ensures compliance and avoids potential tax issues.
• Tax Treatment: Corpus donations are typically not treated as income for the NPO, which may reduce the taxable income of the organisation.

Critical Concepts:

• Corpus: The principal or permanent fund of an NPO, which is not meant to be spent but is invested to generate income for the organisation's activities.
• Permitted Modes under Section 350: Refers to the specific investment or deposit options allowed for NPOs, such as government securities, mutual funds, or other approved instruments.
• Specific Direction: The donor must clearly state in writing that the donation is intended for the corpus. Without this, the donation may be treated as regular income.

Compliance Steps:

1. Donor Documentation: Donors must provide written documentation specifying that the donation is for the corpus of the NPO.
2. NPO Record-Keeping: NPOs must maintain separate records for corpus donations and ensure these funds are invested or deposited in permitted modes under Section 350.
3. Reporting: NPOs should report corpus donations separately in their financial statements and tax filings to ensure proper tax treatment.

Examples:

• Scenario 1: A donor contributes ₹10 lakh to an NPO and specifies in writing that the donation is for the corpus. The NPO invests this amount in government securities as permitted under Section 350. The ₹10 lakh is not treated as income for the NPO and is added to the corpus fund.
• Scenario 2: A donor contributes ₹5 lakh to an NPO but does not specify that it is for the corpus. The NPO treats this as regular income and uses it for operational expenses. The ₹5 lakh is included in the NPO's taxable income.

This section ensures clarity and proper handling of corpus donations, benefiting both donors and NPOs.