28 October 2022

What is the meaning of corpus donations?

The term “corpus” literally means “the core part or organ of a body.” In a simple term, “corpus fund” can be defined as the organisation’s capital; the funds created and preserved for the organisation’s existence and continuation.

It may be interesting to know that the term “Corpus Donation” is not defined anywhere in the Income Tax Act. As a result, a generic idea of the term “Corpus Donation” may be established.

  • It is a long-term donation that functions similarly to an organisation’s capital.
  • It is not like every donation received by a trust can be classified as ‘Corpus Donation’.
  • A donation qualifies as a ‘Corpus Donation’ only when the donor specifies that it should be included in the organisation’s corpus. If the donor does not provide any such guidance, the money donation is classified as a “voluntary contribution” or “generic donation” or “donate to charity” for the purposes of NGO tax exemption.
  • It is normally not permitted to be used to accomplish any of the organisation’s core goals but only the interest/dividend earned on such a fund can be used or accumulated.

From the above definition, it can be concluded that the corpus fund is essential for any not-for-profit organisation to function and exist in the long run.

Is there a set period of time when corpus donations should be invested?

  • According to Section 11(5), there is no mention of the timing of making an investment from corpus donations. Donations of this type are often received straight into the bank accounts of the trust/NGO because donors are restricted from making cash donations upto to Rs. 2000.  Donations received in a bank account are an acceptable manner of investment under Section 11(5). As a result, there is no concern with the timing of investment from corpus donations in the specified manner.
  • It is strongly recommended that the trust/NGO ensure that corpus donations are received in a separate bank account so that they can be differentiated from the general NGOs fund and, therefore, can be proven properly before the tax authorities. It should also be highlighted that such an account might be either a current or a savings account, depending on the trust/NGOs preference. 

What are the modes of investments prescribed u/s 11(5) of the Income Tax Act?

  • Deposit at a Post Office Savings Bank
  • Investment in UTI units
  • Any investment or deposit in a public corporation
  • Investment in Government Savings Certificates, as well as any other assets or certificates issued by the Central Government under Small Savings Schemes
  • Deposit (savings/current/recurring/fixed) in any account with a scheduled bank or co-operative society engaged in banking activity.
  • Deposits in any bonds issued by a financial institution involved in providing long-term financing for India’s economic growth.
  • Investment in any bonds issued by a public corporation founded and registered in India with the primary purpose of providing long-term finance for the building or purchase of residential dwellings in India.
  • Investment in any bonds issued by a public corporation founded and registered in India with the primary purpose of providing long-term finance for the building or purchase of urban infrastructure in India.
  • Investment in any financial asset produced and issued by the Central or state governments.
  • Any other permitted investment or deposit method

So, the most important question is: Are Corpus donations tax deductible?

It should be noted that prior to the amendment by the Finance Act of 2021, corpus donations were completely free from income tax. However, following the amendment, corpus donations would be exempted from tax only if they are invested in the modes and forms specified in section 11(5) of the Income Tax Act of 1961.