1. The term ‘corpus’ is often confused and misunderstood. The literal meaning of the term ‘corpus’ is the main part/organ of a body. The term ‘corpus’ also denotes the sum and substance of an issue/entity. From a layman’s point of view a corpus fund should be understood as the capital of the organization ; the funds generated and kept for the existence and sustenance of the organization.
2. For a charitable organization corpus fund are of paramount importance. Normally a corpus fund denotes a permanent fund kept for the basic expenditures needed for the administration and survival of the organization. The corpus fund is generally not allowed to be utilized for the attainment of the purposes, but the interest/dividend accrued on such fund can be utilized as well as accumulated.
3. Corpus funds are generally created out of corpus donation. A donation will be treated as corpus donation only if it is accompanied by a specific written direction of the donor. In the absence of any written direction of the donor, a contribution or grant cannot be transferred to But for all practical purposes corpus fund is a permanently closed fund with no strings or restriction for future application attached.
Corpus fund. It is important to understand that in case of a corpus fund, the funds are restricted but the purposes are not restricted. Corpus fund is an unrestricted permanent fund. The restriction is on the use itself rather than the type of use. A corpus fund may be used in exceptional circumstances, where the survival of the NGO is at threat. Such decisions are rarely taken and should be taken at general meetings. As such there is no legal bar on application of corpus funds for charitable purposes. But for all practical purposes corpus fund is a permanently closed fund with no strings or restriction for future application attached.
4. As discussed above, it is difficult to create a corpus fund unless a written consent is received from the donor because creation of a corpus fund implies reduction of program activities to that extent. Therefore, the law does not encourage creation of corpus fund. For instance, under the Indian Income Tax laws85% of voluntary contribution received are required to be applied for charitable purposes. In other words, only 15% of the income is available for accumulation every year. If the board of an NGO wants to create corpus fund then it cannot go beyond 15% of its income even if it is available for accumulation.
5. Any donation received through charity boxes will not be considered as corpus donation even if the donation box is marked with the word ‘corpus’. Suppose, an NGO puts a donation box with a inscription ‘all donation will be towards the corpus of the organization’, the donation so collected will not be considered as corpus donation because a specific direction from the donor has to come in writing in order to constitute a corpus donation. Any donation received through charity boxes will not be considered as corpus donation even if the donation box is marked with the word ‘corpus’.
6. The board of an NGO may create corpus fund from its internal accrual and surpluses. It is not necessary that a corpus fund will be created out of corpus donation only. A corpus fund can be created from the current years income or other available UFs. To create a corpus fund from the current years income the prevailing legal provisions and the bye-laws of the organization have to be kept in mind. For instance, under the Indian Income Tax Laws maximum 15% of the income can be transferred to the corpus fund each year.
7. The income generated from corpus fund is treated as a part of the income of the charitable organization along with other grants and incomes. Therefore, the income from corpus fund is also subject to the condition of applying 85%.
8. Building of a corpus fund is important, in order to ensure smooth sustenance of an organization. If a sizeable corpus exists, the core activities of the organization can still continue in the period when grants and external help are not available.
9. A sizeable corpus fund reduces the financial vulnerability and thus assures long term existence. At the The income generated from corpus fund is treated as a part of the income of the charitable organization along with other grants and incomes.
Published in Income Tax
Source : My own Article
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