Dear Members,
Some NGO treat ” Grant utilised ” as Grant Receipt/Income in both – Financial statement and in ITR.
They do not show Grant Received as Grant receipt/ income.
Is it the correct way as per income tax act ?
Thanks & Regards
Amrut Mistry
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Whether Interest earned on endowment fund from FCRA account can be transferred to other account i.e .INR account(non fcra account) for utilizing the same as written in the contract/agreement. However, in the FCRA return we can show the income earned from endowment fund (investments)during the year and expenditure as income transferred to INR account (90% of interest- for the purpose mentioned in the contract) and 10% balance as reinvested. Otherwise we are never able to spend the income earned from an FCRA account.
Can you share your views
An interesting issue raised. Issue is relating to how to account for Grant as income in financial statements. You are right that some NGOs treat ‘Grant Utilised’ also as Grant ‘Receipt/Income’ in their financial statements. This is based on premise that Restricted Grant Funds are subject to various terms & conditions, which the Grantee has to fulfil. In case the Grantee is not able to fulfill these conditions, contract provides for cancellation of Grant contract, and can even demand refund of Grant. In view thereof and following basis of Prudence, many NGOs treat expenditure incurred as income and balance of grant rec’d as liability. In fact this treatment is somewhat based on Long-term contract principles as elucidated in the Accounting Standard AS7. In case where expenditures have been incurred, but grant amount not rec’d, Grants so spent could be accounted as recoverable, provided there is reasonable certainty that such amounts will be recovered. Of course unrestricted donations/grants should continue to be treated as income on receipt.
However in view of changes made under Income Tax provisions, effective FY 2021-22, application of income has to be arrived at on cash basis, i.e. expenditure as incurred on cash basis of accounting, can be claimed as application against income.