CBDT Circular No. 3/2024 Dated 6th March 2024: Eligible donations made by a trust or institution will now be considered as an application for charitable or religious purposes only to the extent of 85% of such donations.
LISTEN THE CIRCULAR HERE:
CBDT Circular 3/2024: The latest update from the Central Board of Direct Taxes (CBDT) brings significant changes for trusts and institutions involved in charitable or religious activities. In Circular No. 3/2024 dated 6th March 2024, the CBDT has amended Clause (23C) of Section 10 and Sub-section (1) of Section 11 of the Income Tax Act. According to this amendment, when one trust or institution pays or credits funds to another, only 85% of that amount will be considered as an application for charitable or religious purposes.
Let’s delve deeper into the details of this important CBDT circular:
Income Exemption for Charitable Institutions
The Income Tax Act provides exemptions for the income of funds, institutions, universities, educational institutions, hospitals, and medical institutions falling under certain clauses of Section 10. These exemptions are subject to specific conditions, including:
(a) At least 85% of the income should be applied for charitable or religious purposes.
(b) Trusts or institutions can fulfil this requirement by applying 85% of their income themselves or by making donations to trusts with similar objectives.
(c) Donations to other trusts or institutions should not be for the corpus to ensure the funds are used for charitable or religious purposes.
Amendments Introduced by Finance Act, 2023
To ensure the intended use of funds for charitable or religious purposes, the Finance Act, 2023 made amendments, including:
(a) Inserting clause (iii) in Explanation 2 to the third proviso of clause (23C) of Section 10.
(b) Inserting clause (iii) in Explanation 4 to sub-section (1) of Section 11.
These amendments essentially state that eligible donations made by a trust or institution will now be considered as an application for charitable or religious purposes only to the extent of 85% of such donations.
Clarification on Taxation of 15% Balance
There have been concerns raised regarding the tax treatment of the remaining 15% of donations to other trusts or institutions. The CBDT clarifies that the 15% balance will not be taxable. When a trust or institution donates Rs. 100 to another trust or institution, only 85% (Rs. 85) will be considered as applied for charitable or religious activities. The remaining 15% (Rs. 15) will not be required to be invested in specified modes under section 11(5) of the Act.
This amendment ensures transparency and clarity regarding the utilization of funds for charitable or religious purposes. Trusts and institutions can now make donations with the assurance that the 15% balance will also be exempt from taxation, further encouraging philanthropic activities.
For more information on this important update, download the CBDT Circular 3/2024 dated 6th March 2024. DOWNLOAD HERE
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