85% utilization

Dear All,

Greetings from Hyderabad!

This is with reference to the 85% utilization as per the provisions of the IT Act. My query is as under:

There are certain projects for which funds are not received in the FY as the funds of the previous years are still with the NGO. Do we have to consider the expenditure for calculation 85%. The receipt was already considered in the previous year and so that has been accounted for as part of the accumulation.

The second aspect is the interest earned on the NGOs own funds and the expenditure incurred from the said receipts. Should we treat the interest as receipt and the corresponding expenditure for working out 85% utilization.

Kindly respond.

Thanks and regards,

B V Soma Sastry

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3 Responses to 85% utilization

  1. Subhash Mittal says:

    Dera Soma,

    I think Bharat has already covered your query well.

    However another aspect, I would like to emphasis regarding your first query on grants is that Income Tax Act does not relate individual grants and their expenditures per se. It talks of total income and total application. Thus it is for the NGO to decide its accounting policy, however once the NGO decides to treat a particular grant as its income, it will be treated as income in that year as per the policy. In case the NGO has not spent 85% of the total income than it can just set part of its income aside and pass an appropriate resolution for accumulation / set off.

    Basic answer to second query is Yes, however it is already well covered by Bharat.


    S. Mittal

  2. Subhash Mittal says:

    Hello Freinds,

    I would like to put some facts on record.

    S. 80G benefit is available to any person (whether individual or corporate) who gives donation to an entity which has s. 80G registration. As all of you would be aware that as S.80G one gets 50% tax benefit. Apart from this if a company has S.35AC registration, then the donor can avail 100% tax benefit.

    The debate whether CSR funds attract tax benefits or not is rather academic, as Dr Upadhya stated above, at present there is no tax benefit available if a corporate spends money on CSR activities, though if the NGO it gives money to has S.80G / S.35AC registrations, it can claim the tax benefits as mentioned above. above.

    Although there is a school of thought, now that CSR is mandatory, perhaps corporates can claim the tax benefit under S.37, the remainder clause under Income Tax Act. Since one of the condition for claiming this benefit is that the expenditure should have been wholly and exclusively for business purposes, perhaps corporates may claim that since 2% CSR expenditure is mandatory, this is wholly and exclusively for business. However clarity from Ministry of Finance / CBDT in this regard would be welcome.

  3. Bharat Gupta says:

    Dear Somaji,


    Though you may already be aware, I feel that the ITR -7 form- A.yr. 2013-14, if read along with section 11 of the Income tax act 1961, may probably answer both your queries.

    In my opinion, you may kindly refer to the Part B- T1, s.no. 6 -deductions and s.no. 7- additions in the form, read along with schedule OS,… This is a bit complex though!
    Actually, in my working experience I seen that some NGO’s and their Auditor’s have not been filling up the ITR-7 properly. Maybe from A.Yr. 2013-14 onwards this compliance will get better as the same would have been filed electronically also where one is compelled to fill up the relevant areas correctly and not leave them ‘blank’…

    My views:
    Query 1: As per section 11(2), if less than 85% income is applied (or deemed to have been applied) for charitable purposes then the difference can be accumulated/set apart by way of resolution under IT form 10. This amount so set aside/accumulated for future use (in next 5 yrs.) will then not form part of the Total income for that financial year (provided form 10 for that amount is attached/ submitted already).
    However, this will become the income of the year in which it is used up/applied for stated activities as in form 10- maximum within the next 5 years- Section 11(3) !

    Query 2: Bank interest is part of Income from other sources as per ITR-7 , schedule OS, s.no. 1(d)… and this is added to Voluntary contributions and others…
    The total of the same as per s.no OS (5) will later appear under the main workings in Part -T1 as stated above, against s.no.4.

    There are many other relevant sections also . The ITR-7 form also seems to convey a lot more…. a bit complex though for us non-IT practitioners! You may please make further references to be absolutely sure..

    Hope this helps! Regret the long mail..


    Bharat Gupta

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