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CA Final · Direct Tax Laws & International Taxation · Assessment of Trusts and Institutions, Political Parties and Other Special Entities

Bharat Jan Morcha, a registered political party, received during the tax year Rs 9,00,000 as voluntary contributions, all properly recorded and audited. However, it received one donation of Rs 5,000 in cash from a supporter. All other conditions, including filing of return on time, were met. Under Schedule VIII, what is the position of the Rs 9,00,000 contributions and other covered income for that year?

The covered income becomes taxable for that year. Schedule VIII bars receiving any donation above Rs 2,000 otherwise than by prescribed banking or electronic modes or electoral bond. A Rs 5,000 cash donation breaches this, and section 12(2) then charges the income to tax.

  1. AOnly the Rs 5,000 cash donation is taxable; the rest stays excluded
  2. BExcluded, because the cash donation is below Rs 20,000
  3. CThe covered income is excluded only to the extent of 50%
  4. DThe covered income is charged to tax for that year because the condition on donations exceeding Rs 2,000 is not satisfiedCorrect

Explanation

Condition (d) permits no donation exceeding Rs 2,000 to be received other than by account payee cheque, draft, electronic clearing or other prescribed electronic mode, or electoral bond. A Rs 5,000 cash donation breaches this. Section 12(2) says that where conditions are not satisfied, the income enumerated is charged to tax for that year. The Rs 20,000 limit relates only to record-keeping, not to this condition.

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