Library / Income-tax Act, 2025: The Professional's Master Guide

56. Case Study 9: Educational Trust

Facts. Vidya Trust runs a school and is registered as an NPO. For Tax Year 2026-27: fees Rs. 3.5 crore; general donations Rs. 40 lakh; corpus donations with specific direction Rs. 1 crore; anonymous donations Rs. 12 lakh (total donations including corpus Rs. 1.52 crore); interest Rs. 18 lakh. Revenue expenses on the school Rs. 2.9 crore; capital expenditure on classrooms Rs. 60 lakh (from current income).

56.1 Step 1: income for application

Fees	3,50,00,000
General donations	40,00,000
Interest	18,00,000
Anonymous donations within the limit (see Step 3)	7,60,000
Income (excluding corpus donations and taxable anonymous donations)	4,15,60,000

56.2 Step 2: application

Revenue expenses on objects	2,90,00,000
Capital expenditure on objects (application)	60,00,000
Total application	3,50,00,000
Required 85% of 4,15,60,000	3,53,26,000
Shortfall in application	3,26,000

56.3 Step 3: anonymous donations

Limit = higher of Rs. 1 lakh and 5% of total donations (5% of Rs. 1.52 crore = Rs. 7.6 lakh). Anonymous donations above Rs. 7.6 lakh, that is Rs. 4.4 lakh, are taxed at 30%: tax Rs. 1,32,000 plus surcharge and cess. The balance of Rs. 7.6 lakh is treated like other income and included in Step 1.

56.4 Step 4: corpus

Corpus donations of Rs. 1 crore are not income, provided they are invested in the specified modes. They cannot be used for current expenses; if later spent, the spending is not application. The trust has a shortfall of Rs. 3,26,000 against the 85% requirement. It should file the accumulation form before the return due date, stating the specific purpose (for example, a science laboratory) and the period, failing which the shortfall is taxed at 30%.

Key point

Capital expenditure on the objects is application in the year of spending. Depreciation on such assets is not claimed again, to avoid double deduction. If capital assets are bought from borrowed funds, application is counted when the loan is repaid.