As we know that the major portion of income of a Charitable Trust are donations. Donations may be corpus fund donations or voluntary contributions. Corpus fund donations are not included in the total income of a Charitable Organization, but taxability of voluntary contributions has been a big question among the organizations.
For the purpose of taxability of voluntary donations, donations are divided into anonymous and non-anonymous, i.e donations in which the identity of the donor is not known and donations in which the identity of the donor is known respectively.
Treatment of anonymous donations
Section 115BBC of the Income Tax Act, 1961 deals with the taxability of anonymous donations. Anonymous donations are taxable @30% in the hand of Charitable Trust from AY 2007-08 onwards. It is to be noted here that Section 115BBC is not applicable to Religious Trusts.
Treatment of non anonymous donations
Non-anonymous donations will be treated as per the provisions of section 11 and 12 of the Income Tax Act, 1961.
A Charitable Trust registered under section 12 of the Income Tax Act, 1961 is eligible for the exemptions under section 11 of the Act, in other words, 85% of the total income the trust is exempt from Income Tax if the same is applied for the charitable purpose in India during the financial year and it can accumulate 15% of the total income for the purpose of charitable purpose in India in subsequent years.
Applicability of Section 80G to the Charitable Trusts
A Charitable Trust can get it self registered under section 80G of the Income Tax Act, to provide the benefit of section 80G to its donors. Only charitable organizations are eligible for the registration under Section 80G , a religious organization is not allowed to get the registration under section 80G.
W.E.F AY 2018-19, Section 80G (5D) was amended by the Finance Act, 2017 Providing that for the purpose of claiming exemption under section 80G its necessary that any donations made in excess of Rs. 2000 must be made by mode other than cash.
If a Charitable Trust is receiving donations in cash in excess of Rs. 2000/- it will not affect the taxability in the hands of charitable trust, the taxability will depend upon the type of donation weather its anonymous or non anonymous, but the trust shall make sure that it shall not issue “eligible for Deduction under Section 80G” receipt for the amount received in cash in excess of Rs. 2,000/-
Applicability of Section 269ST to Charitable Trusts
Undoubtedly Section 269ST which was introduced by Finance Act, 2017 will be applicable to Charitable Trusts, hence as per Section 269ST, a person can not receive cash of Rs. 2 Lakh or more from a person in aggregate in a single day or in respect of a single transaction or in respect of transactions relating to one event or occasion.
Hence a Charitable Trust can receive non anonymous donations in cash upto Rs. 2 Lakh provided it doesn’t issue a receipt for 80G deduction which shall not be available to the Donor in excess of Rs. 2,000/-