Our NGO has saved non-specific donations in FDs for a ‘rainy day’. Some have exceeded 5 years and we are now told that we have to pay 45% in taxes for under-utilization of funds and if we delay the process it will be 90%. How are we supposed to be self sustaining if this is the case?
Aziza Tyabji Hydari
You take a certificate from the donor that the said donation is made towards the CORPUS of the trust. They should quote their PAN and other details in the certification. Donation towards corpus is not taken into consideration while computing income.
Thank you Aziza Ji for asking this very valuable question and thanks a lot Shubhas ji for giving the reply so needed and apt.
However, I have a further query, ours is an NGO working for Disability Sector and specifically for AUTISM Spectrum Disorder, Teenagers and Adults. The NGO was registered under the Trust Act.
Now, we would like to know what document has to be taken from the Donor so as to show that the donation has been made to the CORPUS FUND…?
Dear Ruby,
You need a simple letter from your donor that these donations were made towards corpus fund, however you need to file Part IV of the Return of Income Form 3A (As per Annexure 25), which is the part where exempted receipts by trusts or institutions are to be shown.
Regards
Thank you Neeraj ji.
There are three types of financial inflows into an NGO –
1. Corpus grants
2. Restricted grants
3. Voluntary contributions
I am assuming that you have received these non-specific donations as voluntary contributions (and not the other two, which are treated differently).
The law is that the recipient has to spend 85 percent of voluntary contributions of a particular financial year during that financial year (if it has been received towards the end of the financial year, then a case can be made to the Income Tax (IT) department for spending in the next financial year). The remainder 15 percent or less can be used as you wish, including for ‘rainy days’.
If you have spent less than 85 percent, you need to have accumulated the funds (under section 11(2) of the IT Act) and filled a form (I think 10(b)) informing the IT department of this. Accumulated funds have to be spent within 5 years of their receipt. In addition, you cannot make onward grants from accumulated funds.
Hope this helps.
Thank you for your response. Can we save the 15% towards our corpus?
Aziza ji,
Yes 15% is your own income, i.e. after spending 85%. No questions regarding the same.
Is corpus referred to fd made with the bank?
Well there are several aspects, which you need to bear in mind, while saving funds for a ‘rainy day’ as you put it. All incomes earned during the year 85% of the same has to be spent. Thus 15% of the total income every year can be saved.
In case you are not able to spend, then you can carry the excess unspent (more than 15%) to maximum of next 5 years. If you are not able to spend this amount during these 5 years, then the first year after this 5 year period, unspent amount will be subject to tax at 30%, as it will be considered income for that year.
However if you feel you are not likely to spend any donation or grant then you should request the donor to give this donation towards corpus, so that this is not income at all. Then there will be no worry of paying tax on any donation received towards corpus.