Republished with updates till July 2018
Definition of Corpus Fund
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.
A little trivia for the readers is that the corpus fund of Harvard University is reportedly around 20 billion dollars, which is close to INR 90,000 crore.
2. For a charitable organization, corpus fund is 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 or 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.
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 the creation of corpus fund. For instance, under the Indian Income Tax laws, 85% of the 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 only by way of giving a detailed application to the Assessing Officer before the due date of filing of ITR.
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.
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. Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall be deemed to be income derived from property held under trust wholly for charitable or religious purposes. Thus it is clear that any voluntary contribution to a charitable trust or institution with specific direction that the donation /contribution will be for Corpus purpose, that part of voluntary contribution shall be totally exempt from tax in hand of a trust or institution.
8. 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%. This is because the income is of revenue nature and should be included in the operating 85% expenditure.
9. 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.
10. 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.
Important Case Laws
- In the case of “Divine Educational Institute and Social Development Society Vs. ITO (ITAT Delhi)”, it was held that the Corpus fund which is meant for a specific purpose to meet out capital expenditure could not be part of annual receipts of an educational institution, even if no registration u/s 12AA has been granted.
- In the case of “CIT v Sri Durga Nimishambha Trust  205 Taxman 59 (Mag) (Kar)”, it was held that Corpus donations being capital receipt in the hands of the recipient trust are not the income of the trust. Section 11(1)(d) expressly grants an exemption to corpus donations to make the position clear beyond doubt. Contributions to corpus fund kept in fixed deposit cannot be taxed as income even if corpus fund is misused.
In common parlance, Corpus fund can also be attributed to various Corpus funds created by the Government such as:
“Corpus Funds to Maulana Azad Education Foundation (MAEF)”, the main objective of which is to formulate and implement educational schemes and plans for the benefit of the educationally backward minorities in particular and weaker sections in general.
“Nirbhaya Fund”, which is an Indian rupee 1000 Crores corpus announced by Government of India in its 2013 Union Budget. According to Finance Minister P. Chidambaram this fund is expected to support initiatives by the government and NGOs working towards protecting the dignity and ensuring safety of women in India.
A thought to ponder upon is about the rationale and necessity of creating large corpus funds. In the long run, do they really justify the vision and mission of the organisation?