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

Lok Shakti Party, registered under section 29A of the Representation of the People Act, 1951, satisfied every Schedule VIII condition in a tax year except that it received one donation of ₹5,000 in cash. Its income comprised voluntary contributions of ₹60 lakh and interest income of ₹4 lakh. Under section 12 of the Income-tax Act, 2025, what follows?

Because the party received a ₹5,000 donation in cash, condition (d) of Schedule VIII is breached. Under section 12(2), the income enumerated in the Schedule is then charged to tax for that tax year, so both the contributions and interest lose the exclusion.

  1. AOnly the ₹5,000 cash donation is taxed; the rest stays exempt
  2. BOnly the interest of ₹4 lakh is taxed, since contributions are separately protected
  3. CIncome enumerated in Schedule VIII is charged to tax for that tax year, as the conditions are not satisfiedCorrect
  4. DNothing is taxed, because the cash donation breach merely attracts a penalty

Explanation

Condition (d) bars any donation exceeding ₹2,000 received otherwise than by the prescribed modes. A ₹5,000 cash donation breaches it. Under section 12(2), where conditions are not satisfied, the income enumerated in the Schedule is charged to tax for that tax year, so the exemption is lost for both the contributions and the interest.

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