Capital Expenditure by Charitable Trust

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This discussion clarifies how capital expenditure is treated for charitable trusts under Section 11, confirming it counts towards the 85% income utilisation rule. It explains that capital expenditure should be shown on the balance sheet as fixed assets, rather than the income and expenditure account. The surplus shown in the income and expenditure account is acceptable, with the 85% condition being calculated separately for tax returns. Further queries address donations for specific projects, distinguishing them from corpus funds, and how to account for donations made to other trusts for similar causes. It also touches upon tracking expenses funded by loans and the treatment of corpus funds received by the trust.

CA. Aditya Goel

CA. Aditya Goel (Querist)

15 May 2021 As per section 11, even capital expenditure will be allowed as application of income and fulfills condition of 85% utilization/application of income.

My query is:
1. If capital expenditure is allowed as application of income then whether we need to show this in income & expenditure account (Expenditure side) or in balance sheet (fixed assets)?
2. If shown in balance sheet then income expenditure account will show huge surplus and then how we will show that 85% condition has been met.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

17 May 2021 1 Show it in balance sheet.
2 85% condition separately work out and show in ITR.
No need to worry surplus in p and l.

CA. Aditya Goel

CA. Aditya Goel (Querist)

17 May 2021 thank you very much sir.
kindly help with couple of more queries w.r.t. charitable Trust
1. if donations received by trust for particular project or mission then will these be regarded as corpus fund (no letter mentioning it as a corpus fund and its just they are asking for donations on the name of project oxygen supply) - or these will be voluntarily donations only? what will be the accounting treatment here
2. similarly if this trust is making donation to another trust for the same cause i.e. oxygen supply to needy then will it be a corpus donation or normal donation? since only normal donation will be regarded as application of money
3. with finance act 2021, only repayment of loan will be application of money and not the expenses out of this loan amount. how can we keep a track of these expenses since loan money will be included in cash/bank only?
4. when a trust receives corpus funds, entry will be - Debit bank & Credit corpus fund (liability), corpus fund cannot be utilised for operating expenses or charity work so do we need to black this money in bank? or we can use the money?
5. funds received for specific cause are same as corpus funds or treated differenty?
apologies for too many questions.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

17 May 2021 1 Donation for oxygen supply to be spent immediately it will not fall under corpus donation.
2 It's not corpus donation.
3 Keep separate account for expenses on loan spending. Normally loans are obtained for capital expenditure, so automatically for capitalisation account maintained separately.
4 you can use it for the purpose for which it's donated.
5 yes, treat it as corpus donation.

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