Dear friend
Greetings from Ashok Shamala, CRIDA. Andhra Pradesh.
Please clarify my doubt about corpus funds of social service organizations. one
organization how to develop the corpus fund and can corpus fund collect from
public and individuals? what are tax laws will applicable to this fund. How it
will spend to project. who can maintain and handle in the organization. Can take
Capital fund under the CORPUS ?
Thank You.
With Best Regards
Ashok Shamla
Dear Readers,
Corpus is a great opportunity for an organisations to conduct business where
1. Additional funds are to be infused
2. Get line of credit
3. Leverage loans
4. Get more grants; and
5. other benefits
Corpus can be created with designated purpose and or un-designated purpose. the sources of corpus can be multiple:
a. Solicit specific designated gratis funds
b. Unspent funds of grants can be designated provided the donor’s policy permits
c. corpus can be created through a policy of the governing board who can designate a percentage of the surplus funds or profits for a particular purpose
d. Other means
To create and manage corpus there is need to formulate a clear policy and institutionalise it which must focus on Governance ability to manage it transparently, compliance of rules made to manage corpus; and the selection of safe investment instruments that allow keeping the value of money above the inflation mark.
Corpus is a great factor that makes the Net Worth of the organisation/company attractive vital for attracting financial infusion of various forms i.e loans, grants etc.
Best regards
Harish chotani
Thankyou Soma for a very exhaustive and elaborate response.
If I may add, that from Income Tax angle, identification of a donation towards corpus has a major significance, since it cannot be treated as income and hence 85% application of income rule is not applicable to corpus donations. A corpus donation would remain corpus all the time and can not be treated as regular grant.
However if one would like to change corpus into a regular grant, express instructions from Donor for treating a corpus into regular is essential. Once a donor gives such an instruction, corpus grant can become regular grant and would be treated as income in that year !!
Corpus grant need not necessarily be cash grants. Say someone donates a piece of land to a Trust, that land could be treated as Corpus, provided instructions to this effect is given by the donar.
rgds
subhash
Thank Very Much Sir. I am very happy for this information. Clear my doubt about Corpus fund.
Dear Mr. Ashok,
Greetings from Hyderabad!
This term Corpus generally refers to money donated to a charity with the provision that the principle will not be spent, but the income from the principle or corpus will be used for the charity. Organizations receive restricted funds for starting a Corpus Fund.
For a charitable organisation corpus fund are of paramount importance. Corpus fund denotes:
Corpus funds are generally created out of corpus donation. A donation will be treated as corpus donation only if it is accompanied by a specific written direction of the donor. In the absence of any written direction of the donor, a contribution or grant cannot be transferred to Corpus Fund. It is difficult to create a corpus fund unless a written consent is received from the donor because creation of a corpus fund implies reduction of program activities to that extent. Therefore, the law does not encourage creation of corpus fund.
But for all practical purposes corpus fund is a permanently closed fund with no strings or restriction for future application attached. It is important to understand that in case of a corpus fund, the funds are restricted but the purposes are not restricted. Corpus fund is an unrestricted permanent fund. The restriction is on the use itself rather than the type of use. A corpus fund may be used in exceptional circumstances, where the survival of the NGO is at threat. Such decisions are rarely taken and should be taken at Board meetings. As such there is no legal bar on application of corpus funds for charitable purposes. But for all practical purposes corpus fund is a permanently closed fund with no strings or restriction for future application attached.
Any donation received through charity boxes will not be considered as corpus donation even if the donation box is marked with the word‘corpus’. Suppose, an NGO puts a donation box with a inscription ‘all donation will be towards the corpus of the organisation’, the donation so collected will not be considered as corpus donation because a specific direction from the donor has to come in writing in order to constitute a corpus donation.
The board of an NGO may create corpus fund from its internal accrual and surpluses. It is not necessary that a corpus fund will be created out of corpus donation only. A corpus fund can be created from the current years income. To create a corpus fund from the current years income the prevailing legal provisions and the bye-laws of the organisation have to be kept in mind. A sizeable corpus fund reduces the financial vulnerability and thus assures long term existence. At the same time a large corpus or the tendency to pile corpus fund may not be in the interest of the objectives of the organisation. Therefore it is necessary that a judicious balance is maintained between a corpus fund and the funds that are utilised, keeping in view the current and future activities of the organisation.
The income generated from corpus fund is treated as a part of the income of the charitable organisation along with other grants and incomes
I would also request some feedback from others on the issue.
Thanks and regards,
_____________________________________
B V Soma Sastry
Director – Finance and Admin
Centre for World Solidarity
12-13-438, Street No. 1, Tarnaka
Secunderabad 500 017
Andhra Pradesh