Question And Answer
Subject: Charitable Trust , all members retire , Incoming members paying to outgoing members by way of gift , tax implication of such transaction? . Whether Society will loose the exemption?
Querist: Ravi aiftp
Answered by: ,
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Date: January 14, 2024
Query asked by Ravi aiftp

In case of a charitable society running educational institution, if all the members of the society, retire and new members are introduced the executive body is also replaced by the new members. However, this being a commercial deal, the incoming members desire to pay the outgoing members say by way of gift through account payee cheques. In such a situation can incoming members pay to the outgoing members directly. The outgoing members are in the tax bracket of 30% plus surcharge, then what will be the implication of such transaction, and whether society will lose its character of being a charitable organization?

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The change in guard of the institution should not normally make any difference, unless the objects and functioning of the institution is changed for the purpose of income tax. If there is no change in the objects and functioning of the institution, the society shall not lose its character of being a charitable organization.
The making of gift by cheque is a transaction inter-sea between the parties Will be subject to income tax in the hands of recipient as per normal rate of tax applicable to the recipient. However, such transaction will put the individuals on the radar of income tax department which may result into deeper scrutiny in their assessment or other preventive actions provided in the income tax act for protection of revenue.

Source: AIFTP Journal August 23

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