Income tax on corpus donation
The Income Tax Act of 1961's regulations relating to corpus donation's taxability has undergone significant revisions as a result of the Finance Act of 2021. We are all aware that a trust is immune from paying income tax on corpus donations received.
The funds received as corpus donations are not counted toward the trust's overall revenue. However, the Government of India has made a significant modification in this area to close several legal gaps. Therefore, it is crucial to talk about corpus donation in light of the changes made by the Finance Act of 2021.
Some of you may be curious to learn "What is Corpus Donation" before continuing on to the study of the amendment. Therefore, we shall start by learning about the idea of "Corpus Donation."
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What is corpus donation?
You'll be shocked to learn that the term "Corpus Donation" is not defined anywhere in the Income Tax Act. Thus, we shall comprehend the definition of "Corpus Donation" in its broadest sense.
(a) A "Corpus Donation" is a gift that is made permanently and functions much like an organization's capital. A trust does not always receive corpus donations.
(b) A contribution only qualifies as a "Corpus Donation" when the donor expressly directs that it become a part of the organization's corpus. If the donor does not provide such a request, the donation will be classified as a "generic donation" or "voluntary contribution" for the purposes of the Income Tax Act.
The goal of corpus donation
As was already said, corpus donations are permanent and function as capital for organisations. So, the question of "Corpus Donation's" aim emerges.
(a) As all of us are aware, contributions and grants, which are irregular in nature, are the main source of funding for any trust or NGO. Therefore, any trust or non-profit organisation requires a consistent stream of income to cover its fixed expenses, such as salaries and rent.
(b) The corpus contribution aims to offer a fixed income in the form of interest or dividends from investments made using corpus money. The trust is able to handle its daily fixed expenses for administration and management of the trust and NGO thanks to this fixed revenue.
(c) Corpus donations are often not used to further the trust's or NGO's charitable goals. Such a contribution is solely used in accordance with the donor's instructions. The trust or NGO can use the money generated from the investment of the corpus contribution to further its social and philanthropic goals.
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