CORPUS FUNDS AND CORPUS DONATIONS

What is Corpus Fund?

A Corpus Fund denotes a permanent fund kept for the basic expenditures needed for the
administration and survival of the organization. The corpus fund is generally not allowed to be
utilized for the attainment of the purposes, but the interest/dividend accrued on such fund can be
utilized as well as accumulated.

However a corpus fund may be used in exceptional circumstances, where the survival of the NGO is
at threat. Such decisions are rarely taken and should be taken at general meetings.

Sources of Corpus funds

Corpus Funds are generally created out of corpus donations. A donation will be treated as a corpus
donation only if it is accompanied by a specific written direction of the donor. In the absence of any
written direction of the donor, a contribution or grant cannot be transferred to the corpus fund.
Any donation received through charity boxes will not be considered as corpus donation even if the
donation box is marked with the word corpus. This is because a specific direction from the donor
has to come in writing in order to constitute a corpus donation. The Board of an NGO may create a
corpus fund from its internal accrual and surpluses. A corpus fund can be created from the current
years income or other available unrestricted funds. Of course, the prevailing legal provisions and the
bye-laws of the organization have to be kept in mind.
For instance, under the Indian Income Tax Laws, maximum 15% of the income can be transferred to
the corpus fund each year.

As discussed above, it is difficult to create a corpus fund unless a written consent is received from
the donor because creation of a corpus fund implies reduction of program activities to that extent.
Therefore, the law does not encourage creation of corpus funds. For instance, under the Indian
Income Tax laws, 85% of voluntary contributions received are required to be applied for charitable
purposes. In other words, only 15% of the current years income is available for accumulation. If the
Board of an NGO wants to create a corpus fund then it cannot go beyond 15% of its income even if it
is available for accumulation. Any balance income left unutilized will be liable to tax.

Building of a corpus fund is important, in order to ensure smooth sustenance of an organization. If a
sizeable corpus exists, the core activities of the organization can still continue in the period when
grants and external help are not available. A sizeable corpus fund reduces the financial vulnerability
and thus assures long term existence. At the same time a large corpus or the tendency to pile up
corpus funds may not be in the interest of the objectives of the organization. Therefore it is
necessary that a judicious balance is maintained between a corpus fund and the funds that are
utilized, keeping in view the current and future activities of the organization.




Some FAQs on Corpus Funds

Q1 : Whether all kinds of receipts (Capital or Revenue) are treated as a part of income ?
Whether any category of receipt is exempted?
Whether donations to corpus Fund is a "Revenue Receipt" or a "Capital Receipt"? Further, whether
it is exempted from being shown as income in the Income-tax Return or not?

Ans : All kinds of receipts, whether capital or revenue nature are treated as income in the hands of a
public trust or religious trust, except donations made with a written direction from the donor that
the donation made shall be treated as part of the corpus of the trust. Such a donation to corpus shall
not be included in the total income of a trust or institution. However, it shall be shown separately in
the Return of Income which is the part where exempted receipts by trusts or institutions are to be
shown.

Q2 : Whether interest earned on investments of Corpus Fund is taxable or is it exempt from
Income-tax Act ?

Ans : Interest earned on investment of Corpus Fund will be treated as income of a trust or
institution. Such income may be applied to charitable purposes, thereby saving it from income
tax.

Q3 : Whether a donor can make a contribution to the Corpus Fund with certain conditions and/or
qualification to be fulfilled by the recipient ? If so whether same will be treated as donation to
Corpus Fund or not ?

Ans : Donors may make a contribution to Corpus Fund with certain stipulations and conditions, such
as the purpose of the fund and its utilisation, and such conditions and stipulations will not in any way
change the nature of the Corpus Fund i.e. it will still be exempt from income-tax.

Q4 : Whether a donor who has made a contribution to the Corpus Fund has a right to call back the
amount of contribution to the Corpus Fund made by him ? If so what would be the treatment in the
year of refund?

Ans : A donation is by its very nature a completed gift and once the donation has been accepted by
the donee, the donor has no right to ask for the amount to be refunded. Donations to Corpus will
also be similarly treated.

Q5 : Define Corpus Fund. Whether Corpus Fund can be collected in a box written and marked
"Corpus Donation"?

Ans : The term "Corpus Fund" has not been defined in the Income Tax Act, 1961. It is the amount
donated by a donor with a specific direction that it shall form part of the Corpus of the Trust or
institution. The corpus is considered to be the capital of the trust or institution which should be kept
intact. It may be utilised for the purchase of assets such as land, buildings, furniture, fittings,
equipment etc. or it may be invested or deposited as per Section 11(5) of the Act, and the income
arising there from may be utilised for the objects specified by the donor to the Corpus Fund. Corpus
Fund cannot be collected in a box, since the Act requires the donor to give a direction (in writing) for
treating the donation as corpus.


Examples of Corpus funds created by Government

Corpus Funds to MAEF
The Maulana Azad Education Foundation (MAEF) was established in 1989 as a voluntary, non-
political, non-profit making society registered under the Societies Registration Act, 1860.
Aims & Objectives:
The main objectives of MAEF are to formulate and implement educational schemes and plans for the
benefit of the educationally backward minorities in particular and weaker sections in general, to
facilitate establishment of residential schools, especially for girls, in order to provide modern
education to them and to promote research and encourage other efforts for the benefit of
educationally backward minorities.
Schemes Details
The Schemes of the Foundation are mainly of two types, Viz; Grants-in-aid to NGOs for construction
and expansion of schools / hostels, technical / vocational training centres with emphasis on girl
students and Scholarships to meritorious girl students. The various schemes run by the Foundation
are as under:
Financial assistance to establish/expand schools/residential schools/colleges;
Financial assistance for purchase of laboratory equipment and furniture etc;
Financial assistance for setting up/strengthening vocational/technical training
centre/institutes;
Financial assistance for construction of hostel buildings;
Maulana Azad National Scholarships for meritorious girl students;
Maulana Abdul Kalam Azad Literacy Awards.
Corpus Fund
The Foundation is implementing its schemes out of the interest earned on its Corpus Fund, which is
its main source of income. The Corpus Fund has been provided to the Foundation as part of plan
assistance. The Corpus fund, which stood at Rs.100 crores in the year 2006-07 now stands at Rs.
700.00.
The total approved plan outlay of Rs.500 crore to augment the Corpus Fund of the MAEF during the
11th Plan period has already been released to the MAEF. An additional provision of Rs. 50 crore was
made in the Budget Estimate for the year 2011-12. This would take the corpus to Rs.750 crore.

Nirbhaya Fund
Nirbhaya Fund is a Indian rupee 1000 Crores corpus announced by Government of India in its 2013
Union Budget. According to Finance Minister P. Chidambaram this fund is expected to support
initiatives by the government and NGOs working towards protecting the dignity and ensuring safety
of women in India. Nirbhaya (fearless) was the pseudonym given to the 2012 Delhi gang rape victim
to hide her actual identity. The Ministry of Women and Child Development, along with several other
concerned ministries, will work out details of the structure, scope and the application of this fund.