13 October 2009
I need a clarification in relation to a Charitable Society holding Registration Certificate U/S 12AA, 80(G)(V)(vi) and 10(23)(C) of the Income Tax Act.
Can the said Society invest the surplus funds with Mutual Funds during the year, before it spends 85% of its receipts any time before the financial year ends?
15 October 2009
Where 85% of the income is not applied for charitable purposes, the NGO is required to accumulate or set apart such income for future application. The incomes so accumulated will not be included in the total income of the NGO if the following conditions are applied :
i) the NGO has to given a notice to the assessing officer in Form No. 10, alongwith a certified copy of resolution passed by the governing body. This resolution should specify the purpose and the period for which the income is so accumulated. The period of accumulation cannot exceed five years under any circumstances. Earlier this period used to be ten years but has been reduced to five years with effect from 01.04.2002.
ii) the NGO has to enclose copies of annual accounts alongwith the details of investments of the money so accumulated before the expiry of six months from the end of each relevant previous year.
iii) the amount so accumulated should be invested in any one or more forms specified in section 11(5) within six months from the end of the each of the previous year.
FORMS ON INVESTMENTS SECTION 11(5)
02 The forms and modes of investing or depositing the money for accumulated income as per Income Tax Act is as follows :
i) investment in Government Savings Certificates and any other securities or certificates issued by the Central Govt. under the Small Savings Scheme ;
ii) deposit in any account with the Post Office Savings Bank Account ;
iii) deposits in any account with any scheduled bank or a co-operative society engaged in carrying on the banking business (including a co-operative land mortgage bank or a co-operative land development bank) ;
iv) investment in units of the Unit Trust of India.
v) investment in any security for money created and issued by the Central Govt. or a State Govt.
vi) investment in debentures of any company or corporation, the principal whereof and the interest whereon are guaranteed by the Central or State Government.
vii) investment or deposit in any public sector company.
viii) deposit with or investment in any bonds issued by a Central Government approved financial corporation engaged in providing long-term finance for industrial development in India.
ix) deposits with or investments in any bonds issued by any Central Government approved public Company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses
ixa) w.e.f. 01.04.2001, deposits in bonds issued by a public company engaged in long term finance for development of urban infrastructure.
x) investment in immovable property.
xi) deposits with the Industrial Development Bank of India (IDBI).
xii) any other form or mode of investment or deposit as may be prescribed. Rule 17C of the Income Tax Rules, 1962 have so far prescribed the following :
a) investment in the units issued under the Scheme of the Mutual Fund referred to in clause (23D) of Section 10 of the Income Tax Act, 1961 ;
b) any transfer of deposits to the Public Account of India;
c) deposits made with an authority constituted in India for the purposes of housing accommodation, planning & development of cities, towns and villages.
d) investment by way of acquiring equity shares of a depository as defined in clause (e) of sub-section (1) of Section 2 of the Depositories Act, 1996
15 October 2009
Thank you for such a detailed reply. One supplementary question:
Hypnotically say the Society gets the fund in July’09 and they have to utilize 85% of the income for charitable purposes before the financial year ends i.e. March’10.
1. Can the Society invest this 85% income in Mutual Funds between July’09, when they first received the money, and March’10, before which they have to utilize this 85% of the income.
2. And will there be any restriction on the remaining 15% amount on how, when and where it is invested.
01 August 2024
### **Investment of Surplus Funds by a Charitable Society**
For a Charitable Society with registration under Sections 12AA, 80G, and 10(23C) of the Income Tax Act, here’s how the investment of surplus funds is regulated:
#### **1. Investment of Surplus Funds:**
- **Surplus Funds:** Charitable societies are allowed to invest surplus funds in specified modes as per the Income Tax Act. The key is to ensure that the investments comply with the conditions laid out for charitable trusts and institutions.
- **Investment Options:** Generally, the society can invest surplus funds in various financial instruments, including mutual funds, subject to compliance with the conditions specified under the Income Tax Act and the rules applicable to charitable institutions.
- **Section 11(5):** This section stipulates the modes in which the trust or institution's funds can be invested. For investments, including mutual funds, the investment must be made in a manner and mode prescribed by this section. However, if the society is investing in mutual funds, it should ensure that these investments align with the prescribed investment modes.
#### **2. Investment of 85% Income:**
- **Utilization Requirement:** The society is required to utilize at least 85% of its income for charitable purposes within the financial year. The remaining 15% can be carried forward or invested in permissible securities.
- **Investment of 85% Income:** - **Between July 2009 and March 2010:** The society can invest the surplus funds (which should eventually be utilized for charitable purposes) in mutual funds or other permissible investments. - **Investment Conditions:** While the society can invest this 85% amount before it is utilized, the investments should be in accordance with the guidelines laid down under Section 11(5) of the Income Tax Act.
#### **3. Restrictions on the Remaining 15%:**
- **15% Utilization:** The remaining 15% of the income can also be invested in permitted securities or used for charitable purposes. The key restriction is that the investment should be made in compliance with the permissible modes of investment under Section 11(5).
- **Specific Investment Restrictions:** There are no specific restrictions on the type of investments for the remaining 15%, other than those outlined for charitable institutions. The focus should be on ensuring that the investments are made in permissible modes and that income is utilized as per the requirements of the Income Tax Act.
### **Summary:**
1. **Investment of 85% Income:** Yes, the society can invest this amount in mutual funds or other permissible investments before utilizing it for charitable purposes, as long as it complies with the investment modes under Section 11(5).
2. **Investment of Remaining 15%:** The remaining 15% can also be invested in permissible modes, with no specific restrictions other than ensuring compliance with Section 11(5).
**Happy Diwali to you too!** If you have any more questions or need further clarification, feel free to ask.
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