Donation by one trust to another trust: CBDT Clarification regarding 85% of amount as deduction
The Finance Act 2023 inserted clause (iii) in Explanation 4 to Section 11(1) w.e.f. Assessment year 2024-25.
By this amendment, only 85% of the eligible donations made by a trust or institution registered under Section 12AB to another trust or institution registered under Section 12AB or approved under Section 10(23C) shall be treated as the application of income. In simpler terms, if one charitable organisation provides a grant of Rs. 100 to another charitable organisation, only Rs. 85 will now be deemed as the application of income. Hence, this amendment has given rise to controversy regarding the potential tax liability attached to the remaining Rs. 15.
Now, the CBDT has issued Circular No. 03/2024 dated 06-03-2024. According to the circular, if a trust/institution donates Rs. 100 to another trust/institution, it will be considered to have applied 85% (Rs. 85) for the purpose of charitable or religious activity. It is clarified that 15% (Rs. 15) of such donations by the donor trust/institution shall not be required to be invested in specified modes under section 11(5) of the Act, as the entire amount of Rs. 100 has been donated to the other trust/institution and is accordingly eligible for exemption.
