MANU/DTCR/0004/2024

Ministry : Ministry of Finance

Department/Board : CBDT

Circular No. : 03/2024

Date : 06.03.2024

Explanation regarding circular under section 119 of the Income-tax Act, 1961

1. Income of any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 of the Income-tax Act, 1961 (the Act) (hereinafter referred to as the first regime) or any trust or institution registered u/s 12AA or 12AB of the Act (hereinafter referred to as the second regime) is exempt, subject to the fulfilment of certain conditions provided for the two regimes in the Act. These conditions inter-alia include the following for the entities (hereinafter referred to as trust / institution in the two regimes):-

(a) at least 85% of income of the trust / institution should be applied during the year for the charitable or religious purposes;

(b) Trusts or institutions are allowed to apply mandatory 85% of their income either themselves or by making donations to the trusts with similar objectives; and

(c) If donated to other trust / institution, the donation should not be towards corpus to ensure that the donations are applied by the donee trust / institution for charitable or religious purposes.

2. In order to ensure intended application towards charitable or religious purposes, Finance Act, 2023 has provided that eligible donations made by a trust / institution shall be treated as application for charitable or religious purposes only to the extent of 85% of such donations. Accordingly, Finance Act, 2023 has made the following amendments:-

(a) inserted clause (iii) in Explanation 2 to third proviso of clause (23C) of section 10 of the Act;

(b) inserted clause (iii) in Explanation 4 to sub-section (1) of section 11 of the Act.

These amendments read as under:-

(a) clause (iii) in Explanation 2 to third proviso of clause (23C) of section 10

"any amount credited or paid out of the income of any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or subclause (via), other than the amount referred to in the twelfth proviso, to any other fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), or trust or institution registered under section 12AB, as the case may be, shall be treated as application for charitable or religious purposes only to the extent of eighty-five per cent of such amount credited or paid. "

(b) clause (iii) in Explanation 4 to sub-section (1) of sectio........