Deemed corpus donation.
340.
Where the property of a registered non-profit organisation includes any temple, mosque, gurdwara, church or other place notified under section 133(1)(b)(vii), any sum or sums received by such registered non-profit organisation as donation for the purpose of renovation or repair of such temple, mosque, gurdwara, church or other place, may, at its option, be deemed as forming part of the corpus under section 339, if it—
- (a) maintains such corpus as separate identifiable;
- (b) applies such corpus only for the purpose for which the contribution was made;
- (c) invests or deposits such corpus in any of the modes permitted under section 350; and
- (d) does not apply such corpus for making donation to any person
Section Summary:
Section 340 of the new income tax law in India deals with deemed corpus donations for registered non-profit organizations (NPOs). It allows NPOs that own religious or notified places (like temples, mosques, gurdwaras, churches, etc.) to treat donations received for the renovation or repair of such places as part of their corpus fund, provided certain conditions are met. This provision aims to encourage donations for the upkeep of religious or notified places while ensuring proper utilization of funds.
Key Changes:
- New Provision for Deemed Corpus: Previously, donations for renovation or repair of religious places were treated as regular income unless explicitly added to the corpus. This section now allows NPOs to opt to treat such donations as part of the corpus, subject to compliance with specific conditions.
- Focus on Utilization: The section emphasizes that the funds must be used only for the intended purpose (renovation or repair) and not for other activities or donations.
Practical Implications:
- For NPOs: This section provides flexibility to NPOs managing religious or notified places. By treating renovation/repair donations as corpus, they can ensure these funds are preserved and used exclusively for the intended purpose, without being treated as taxable income.
- For Donors: Donors may feel more confident contributing to such causes, knowing their donations will be earmarked for specific purposes and managed transparently.
- Compliance Burden: NPOs must maintain strict records and ensure the corpus is separately identifiable and used only for the specified purpose.
Critical Concepts:
- Corpus Fund: A permanent fund where the principal amount is preserved, and only the income generated from it is used for the organization's activities. Treating donations as corpus ensures the principal amount remains intact.
- Separately Identifiable: The corpus must be maintained in a distinct account or ledger, clearly separated from other funds.
- Permitted Modes of Investment: Under Section 350, the corpus must be invested or deposited in specified modes (e.g., government securities, fixed deposits with scheduled banks, etc.).
Compliance Steps:
- Maintain Separate Records: NPOs must create and maintain a separate account or ledger for the deemed corpus donations.
- Use Funds Appropriately: Ensure the funds are used only for the renovation or repair of the specified religious or notified place.
- Invest Wisely: Deposit or invest the corpus in permitted modes under Section 350.
- Avoid Diversion: Do not use the corpus for making donations to any other person or entity.
Example:
An NPO manages a temple and receives a donation of ₹10 lakh specifically for its renovation. Under Section 340, the NPO can choose to treat this ₹10 lakh as part of its corpus fund. To comply:
- The NPO opens a separate bank account for the ₹10 lakh and labels it as "Temple Renovation Corpus."
- It uses the funds only for temple repairs, such as fixing the roof or repainting walls.
- The NPO invests the unused portion of the corpus in a fixed deposit with a scheduled bank, as permitted under Section 350.
- The NPO ensures that none of the ₹10 lakh is donated to other organizations or individuals.
By following these steps, the NPO ensures compliance with Section 340 and avoids any tax implications on the donation.