Inter-NGO Donation in India

  Inter-NGO Donations


01 => It has been held in various cases that donation made by one NGO to another shall be considered as application of income for the objectives of the organisation provided the receiving organisation also has objects similar to the object donor organisation.


02 => The Finance Act, 2002 has inserted an Explanation to sub-section (2) of section 11. This Explanation prohibits donations to other NGOs out of the accumulated funds. This amendment can have far-reaching practical implications. The new amendment puts restriction on donations to other NGOs only out of accumulated funds. In other words, funds once accumulated under section 11(2) can only be applied for charitable purposes directly by the concerned organisation and any inter-organisational transfer would not be possible.


03 => However inter-organisational donations are possible from current year's income, but the newly amended provision will certainly create hurdles for organisations, which were used as conduct for channel rising funds to other organisations. The new Explanation inserted by the Finance Act, 2002, to section 11(2) has debarred organisations from applying its accumulated or set-apart income by way of payment or credit to other such organisations. Now, payments or credits out of accumulated funds to any other organisation would not be treated as application for charitable or religious purpose. There is no apparent bar on payment or credit to such other organisations out of previous year's income subject to the provisions of section 11(1).


04 => In the light of the above, funds once accumulated are no longer available for credit or payment to any other NGO, though such transfer may still be possible out of the current year's income under section 11. CBDT has also issued a clarificatory circular no. 8, dt. 27.08.2002.

05 => In the light of the aforesaid and the amendments by virtue of Finance Act, 2002, donations to other Charitable Organisation are still possible but only out of the current years income. Once the funds are accumulated then it will not be permissible to make inter-trust donation and treat them as application.


06 => The Finance Act, 2003 has inserted another proviso to sub-section (3A) of section 11 which provides that inter-NGO donation out of accumulated funds will be permissible in case of dissolution of a Charitable Organisation. This amendment has been made to reduce the hardship of NGOs on the brink of dissolution.


07 => In the light of what is discussed in this chapter, the amended provisions with regard to inter-NGO donations will cause hardship to those organisations which act as a mother NGO to many small charitable organisations and funds through various foreign and domestic sources are routed through them. Many donors prefer to fund through one mother NGO which subsequently distributes the funds to smaller NGOs. After the amendment made in 2002 there is an apprehension in the fraternity of NGOs, that it may become difficult to disburse funds received towards the end of the year. And since accumulated income is not available for inter- NGO donations, the funds could neither be applied nor could be donated to other NGOs.

08 => For instance if a NGO receives funds in the month of March - which is required to be distributed to other NGOs - and is unable to make inter-NGO donations within the year of receipt, then it has to accumulate the same. Once the income is accumulated under section 11(2) then it is not permissible to make inter-NGO donations.

09 => Under the above mentioned circumstances, a NGO may exercise the option available under Explanation to section 11. The Explanation to the section 11 refers to two situations where the income applied falls short of 85% and still can be deemed to have been applied in the previous year other reason. Under the second situation, the assessee may exercise its option by applying in writing before the expiry of the time allowed under section 139(1) for filing of return. After exercise of the option, the income will be deemed to have been applied in the previous year even though it is spent in the succeeding or the year of receipt.

10 => Inter-NGO donations being valid application of income, there is no reason why option under Explanation 2 to section 11(1) could not be applied and the income be actually spent/disbursed in the succeeding year. But the reasons have to be genuine, the organisation must have valid reasons for not being able to apply the income as inter-NGO donations.

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