CBDT Clarifies Tax Treatment of 15% Donations for Charitable and Religious Purposes

 

New Delhi:  The Central Board of Direct Taxes (CBDT) has addressed concerns raised by various entities regarding the tax treatment of the balance 15% of donations made to other trusts or institutions, as stipulated by the Finance Act, 2023.

In a circular released today, the CBDT has provided clarity on the matter through illustrative examples to ensure a comprehensive understanding of the implications. The circular, designated as Circular No. 3/2024 in F.No.370142/5/2024-TPL, aims to shed light on the tax treatment of donations made by trusts or institutions, excluding those towards corpus, as outlined in the Income-tax Act, 1961.

Under the provisions of the Finance Act, 2023, donations made by a trust or institution, excluding those earmarked for the corpus, are considered as applications for charitable or religious purposes, but only to the extent of 85% of such donations. This raised concerns among stakeholders as to whether the remaining 15% would be subject to taxation or eligible for accumulation.

In response to these concerns, the CBDT has examined the matter and has provided clarifications to ensure a transparent and uniform approach in dealing with such scenarios. The circular includes illustrative examples to facilitate a clearer understanding of the tax treatment of the 15% balance of donations made by trusts or institutions.

The CBDT’s circular comes as a significant step towards providing guidance to entities falling under the specified sub-clauses of section 10 (23C) of the Income-tax Act, 1961, or those registered under section 12AA/12AB of the Act. The intent is to ensure that these entities can navigate the complex tax landscape with confidence and adhere to the provisions laid out in the Finance Act, 2023.

Stakeholders, including funds, institutions, trusts, universities, educational institutions, hospitals, and medical institutions, are encouraged to carefully review the circular to gain a comprehensive understanding of the tax treatment of donations in light of the recent legislative changes. The CBDT remains committed to fostering clarity and ease of compliance in the tax regime, contributing to a more transparent and predictable environment for taxpayers.