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Investment by educational society

Sri Snigdha (Articles Assisstant) (499 Points)

01 October 2019

one of the educational society invested its surplus by the way of chit funds.. and the amount matured will be used only for the development of the society.. what is the tax implication in dividends from the chit fund?

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3 Replies

Kapadia Pravin (17259 Points)
Replied 01 October 2019

Assuming educational society is a registered trust. Trusts are required to invest as per trust deed and moreover in prescribed securities under 11(5) of I T Act
I am not chit fund is eligible investment under 11(5) .
Dividend will be taxable if no DDT paid.

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Sri Snigdha (Articles Assisstant) (499 Points)
Replied 01 October 2019

Sir it is registered under societies act.. will the same applicable?

Suresh Thiyagarajan (Student) (3986 Points)
Replied 02 October 2019

1. Education society could be registered and it may fall within the ambit of sec 11 and eligible for exemption provided conditions specified u/s 12A gets satisfied.
2. 85% of the income of the trust is to be applied for the object of the trust during the year or set apart such income u/s 11(2) by submitting form 10 within which such amount will be spent for the object of the trust.
3. The above amount will be only allowed to be invested under the modes specified u/s 11(5). Any investment made other than the one specified u/s 11(5) will not qualify for exemption u/s 11.
4. Investment in the Chit fund is not one of the modes of investments contemplated u/s 11(5). So the entire investment will be chargeable to tax and dividend income from such chit funds will also be taxable in the hands of the recipient under the head Income from other sources.
Please correct me if the above solution has an alternative view.