Corpus donation

Not all donations an NPO receives are meant to be spent right away. Some are given specifically to build up the organisation's permanent capital base — its corpus. A donation made with that specific instruction is a corpus donation.

The workbook's own words: "Donations received with a specific direction that they shall form part of the corpus fund are exempt. However, such donations are required to be invested in specified investments."

Two conditions run together here. First, the donor must have given a specific direction — the exemption does not apply to an ordinary, unrestricted donation just because the NPO later decides to treat it as corpus. Second, once received as corpus, the money must go into specified investments, not general spending.

A corpus donation's tax treatment rests on the donor's stated intent, not the NPO's later choice:

1. The direction must come from the donor, specifically stating the money is meant to form part of the corpus fund — this is what distinguishes a corpus donation from an ordinary donation the NPO might otherwise choose to hold rather than spend.
2. The exemption is conditional on investment. A corpus donation is exempt from being counted as income that must be applied under the 85% rule, but only "required to be invested in specified investments" — the same category of investments the workbook requires for accumulated income under Section 11.
3. Corpus donations sit apart from the 85% application-of-income test. Because a corpus donation is not treated as income the NPO must spend on its objects that year, it does not count toward, or against, the 85% application threshold the way an ordinary donation received as income would.

This gives an NPO two distinct pools to manage: ordinary income, subject to the 85% application rule, and corpus, exempt but locked into specified investments.

Illustrative figures.

A donor gives Vidya Trust ₹50,00,000, with a signed letter specifying: "This donation is to form part of the corpus fund of Vidya Trust."

Because the direction is explicit, Vidya Trust treats the ₹50,00,000 as a corpus donation: it is exempt from tax, and it is not counted as part of the income Vidya Trust must apply 85% of to its objects that year.

Vidya Trust invests the full ₹50,00,000 in specified investments — say, notified government securities — rather than spending it on that year's programmes.

Had the same donor instead given ₹50,00,000 with no such direction, simply as a general donation, Vidya Trust would have had to count it as ordinary income and apply at least 85% of it (₹42,50,000) to its charitable objects that year, or accumulate the shortfall under Section 11's separate accumulation rules.

Chapter 10, section 10.3, states the corpus donation exemption in the same paragraph as the capital gains exemption, immediately after the 85% application and accumulation rules. Expect a question testing whether a donation needs a specific donor direction to qualify as corpus (it does), and what condition attaches to the exemption (investment in specified investments).

• The direction to treat a donation as corpus must come from the donor, not the NPO deciding unilaterally to set money aside.
• The exemption is conditional on investing the corpus in specified investments — an NPO cannot claim the corpus exemption and then spend the money on ordinary programme costs.
• A corpus donation does not count toward the 85% application-of-income test, because it is not treated as income requiring application in the first place — do not include corpus donations when calculating an NPO's 85% application threshold.
• Do not confuse corpus donation with anonymous donation — the two are entirely separate categories with opposite tax outcomes: corpus donations (with a clear donor and a clear direction) are exempt if invested properly; anonymous donations (where the donor's identity is unknown) are taxed at a flat 30%.