Substantial contributor

Not every donor is treated the same way once money leaves their hands. A substantial contributor is a donor big enough that the taxman worries about them influencing, or benefiting from, the NPO they gave to.

The workbook sets one number for this: anyone who has given ₹50,000 or more to the NPO, measured by the end of the financial year, is a substantial contributor. This is one of the workbook's four specified person categories, an insider whose benefit from NPO income or property costs the NPO its tax exemption.

A one-time donor who gives ₹50,000 counts. So does someone whose gifts add up to ₹50,000 or more over the year. Either way, once that line is crossed, the same NPO cannot then quietly channel benefits back to them without risking its own exemption.

The threshold: ₹50,000 or more, measured cumulatively by the end of the financial year, not per single donation.

Where it sits. Substantial contributor is one of four specified-person categories in Chapter 10, alongside the NPO's author or founder, its trustees or managers, and a trustee's relatives. If the NPO's income or property is applied for the benefit of any of these four, the NPO loses its Section 11 exemption.

What crossing it does, and does not, do. Becoming a substantial contributor does not, by itself, forbid someone from donating more, sitting on a committee, or being thanked publicly. What it forbids is the NPO applying its income or property for that person's personal benefit, for example by paying them inflated fees, gifting them assets, or hiring their relatives at above-market rates.

Illustrative NPO; figures are made up.

Mr. Ashok Mehta donates ₹35,000 to Amar Jyoti Foundation in April, then another ₹20,000 in December, a total of ₹55,000 for the financial year.

Even though no single gift reached ₹50,000, his cumulative donations cross the substantial-contributor threshold by year end. He is now a specified person in relation to Amar Jyoti Foundation.

If Amar Jyoti Foundation later gives Mr. Mehta free use of its guesthouse, worth ₹40,000 a year, that direct benefit to a substantial contributor puts the foundation's tax exemption at risk, regardless of how small ₹40,000 is next to the foundation's total budget.

Had Amar Jyoti instead given the same free guesthouse use to Mr. Mehta's brother, the workbook's specified-person list would not catch it the same way: its "relative" category only reaches a trustee's relative, not a substantial contributor's relative. That gap is a fact to know, not a plan to exploit.

Chapter 10 (Taxation), section 10.3, sets ₹50,000 as the substantial-contributor threshold within its list of specified persons whose benefit from NPO funds triggers loss of exemption. Expect a question that tests the exact rupee figure, or one asking which of four categories a described donor falls into.

• ₹50,000 is a cumulative, by-year-end figure, not a single-donation threshold. Two gifts of ₹30,000 each make a substantial contributor; one gift of ₹40,000 alone does not.
• The workbook's "relative" category only reaches a trustee's relative, not a substantial contributor's relative, and not a founder's relative. Do not over-extend the rule.
• Substantial contributor is one of four specified-person categories, not a standalone category outside that list.
• Being a substantial contributor is not itself a problem. The NPO applying income or property for that person's benefit is what costs the exemption.