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

Lok Seva Party, a registered political party, received during the tax year: (i) ₹5,00,000 as a cash donation from a single donor, (ii) ₹30,00,000 by account payee cheques and electronic modes with full donor records for amounts above ₹20,000, and (iii) capital gains of ₹4,00,000 on sale of investments. All other conditions were fulfilled. Which statement follows from Schedule VIII and section 12 of the Income-tax Act, 2025?

All three amounts are included in total income. Receiving a cash donation above ₹2,000 breaches condition (d) of Schedule VIII, so the conditions fail, and section 12(2) charges the enumerated income, including contributions and capital gains, to tax for that year.

  1. AOnly the cash donation is taxed; other incomes remain excluded
  2. BThe cash donation is excluded since records are maintained, but capital gains are taxed
  3. CAll three amounts are included, as a donation exceeding ₹2,000 was received otherwise than by permitted modes, so conditions are not satisfiedCorrect
  4. DOnly capital gains are excluded, as contributions require no conditions

Explanation

Condition (d) requires that no donation exceeding ₹2,000 be received otherwise than by account payee cheque, bank draft, electronic mode or electoral bond. The cash donation of ₹5,00,000 breaches it, so the conditions are not satisfied. Under section 12(2) the enumerated income is charged to tax, totalling ₹39,00,000, not just the cash donation.

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