Section 12 of the Income-tax Act, 1961, deals with treatment of voluntary contributions received by charitable or religious trusts or institutions. Such contributions are considered income derived from property held under trust and are subject to provisions of Sections 11 and 13 relating to application, accumulation, and exemptions.

This section ensures that donations and contributions received by trusts are properly regulated, utilized, and disclosed for charitable or religious purposes.

Nature of Income from Contributions

A charitable or religious trust may receive contributions in different forms. Broadly, these are classified into four categories:

(A) Voluntary Contributions (General Donations) – Section 12(1)

• Any donation or contribution without a specific direction.
• Treated as income derived from property held under trust.
• Example: A donor contributes ₹1,00,000 without specifying purpose.

Treatment:

• Forms part of income of the trust.
• Must be applied at least 85% for charitable or religious purposes in India.

(B) Corpus Donations (Specific Direction from Donor) – Section 11(1)(d)

• Voluntary contributions received with a specific written direction from the donor that they shall form part of the corpus (capital fund) of the trust.
• Example: “₹5,00,000 donation for building a hospital”.

Treatment:

• Not regarded as income.
• Must be invested or deposited in the modes specified under Section 11(5) (like bank deposits, government securities, units of mutual funds, etc.).
• Cannot be treated as revenue income or applied for recurring expenses.
• If misapplied, exemption is lost and entire donation may be taxed.

(C) Anonymous Donations – Section 115BBC

• Donation where the trust does not maintain record of identity of donor (name, address, PAN).
• Taxable at 30% of such donation, in addition to regular application provisions.

Exceptions:

• Wholly religious trusts are not covered.
• Partly religious + charitable institutions are exempt only for donations made with a specific direction for religious purposes.

Exemption limit (for educational/medical institutions):

• Lesser of 5% of total donations received or ₹1,00,000 is exempt.

(D) Specific Purpose Donations (Other than Corpus)

• Donation given for a particular objective but not forming part of corpus.
• Example: “₹50,000 for free distribution of books to students this year.”

Treatment:

• Considered as income (like general donations).
• Must be applied for the specified purpose.
• Any unutilized balance must be carried forward for that purpose only.

Application and Utilization of Contributions

(a) For General Contributions

• Considered as income under Section 12.
• At least 85% of income (including voluntary contributions) must be applied for charitable or religious purposes in India during the year.
• Balance 15% can be accumulated without conditions.

(b) For Corpus Contributions

• Not considered as income.
• Must be invested or deposited in specified modes under Section 11(5).
• Cannot be used for administrative or other expenses unless permitted.
• If corpus donation is misused (not invested properly), exemption may be denied.

(c) Specific Purpose Contributions

• If donation is received with a specific direction (e.g., scholarship fund, medical relief fund), it must be applied strictly for that purpose.
• Treated as part of trust property but earmarked for that objective.
• Misapplication can lead to exemption being denied under Section 13.

Treatment of Contributions in Accounts

1. General Contributions → Credited to Income & Expenditure Account.
2. Corpus Contributions → Shown directly in Balance Sheet under Corpus Fund.
3. Specific Purpose Contributions → Shown under liability until utilized for the intended purpose.

Compliance Requirements

To claim exemption on income from contributions, a trust must comply with the following:

1. Registration under Section 12AB (mandatory).
2. Audit under Section 12A(b) if income exceeds basic exemption (₹2,50,000).
3. Filing of Return of Income in Form ITR-7 before the due date.
4. Filing of Statement of Donations (Form 10BD):
   • Every trust/institution approved under Section 80G or 35(1) must file Form 10BD by 31st May of the following year.
   • Donors must be issued certificate in Form 10BE.
5. Form 10 (Accumulation): If more than 15% of income is to be accumulated beyond 5 years.
6. Form 9A: For deemed application if income could not be applied due to non-receipt of income or other reasons.

Forms and Returns Required

Practical Example

• A charitable trust received during FY 2024–25:
  • General Donation: ₹25,00,000
  • Corpus Donation (for hospital building): ₹10,00,000
  • Anonymous Donation: ₹2,00,000

Treatment:

• ₹25,00,000 → Income, must apply 85% = ₹21,25,000.
• ₹10,00,000 → Not income, to be invested in Section 11(5) modes.
• ₹2,00,000 → Taxable @30% if trust is not wholly religious.

Conclusion

Income received by trusts or institutions from contributions is governed by detailed tax and regulatory provisions to ensure transparency, accountability, and alignment with charitable objectives. Trusts must distinguish between general, corpus, and specific-purpose contributions, applying at least 85% of non-corpus income to their approved objectives each year. They need to maintain meticulous records, comply with registration and reporting requirements (such as audit reports and forms like ITR-7, Form 10, Form 10A/10AB), and respect donor intent for project-specific or corpus donations.