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CMA Final · Direct Tax Laws and International Taxation · Assessment of Trusts

Sahyadri Electoral Trust received voluntary contributions of ₹10,00,000 in a tax year and had no surplus brought forward. It distributed ₹9,00,000 to registered political parties during that year and met the other conditions. What is the correct tax position of the contributions under Schedule VIII of the Income-tax Act, 2025?

The contributions are charged to tax for that tax year. The trust needed to distribute 95%, which is ₹9,50,000, but distributed only ₹9,00,000. Because the Schedule VIII condition is not satisfied, section 12(2) makes the income taxable rather than allowing a partial exclusion.

  1. AFully excluded, since 90% was distributed
  2. BContributions are excluded only to the extent of ₹9,00,000
  3. CContributions are charged to tax for that tax year, since the 95% condition is not metCorrect
  4. DOnly the undistributed ₹1,00,000 is taxable

Explanation

The required distribution is 95% of ₹10,00,000 = ₹9,50,000. Only ₹9,00,000 (90%) was distributed, so the condition is unmet. Under section 12(2), income whose conditions are not satisfied is charged to tax for that tax year. The exclusion is therefore not available, not even partially.

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