Under Section 10(4D) of the Income Tax Act, a specified fund is eligible for certain exemptions on its income. This provision aims to encourage investments in specific funds that contribute to the welfare of society.
What is a Specified Fund?
A specified fund refers to a fund established by the government or any other entity for the promotion of charitable, religious, or educational purposes. The income generated by such funds is exempt from tax, provided it meets the conditions specified under Section 10(4D).
To qualify for the exemption, the specified fund must apply its income solely for the purposes for which it was established. It should not distribute any part of its income to its members, trustees, or contributors. Additionally, the fund should maintain separate books of account to record its income, expenses, and investments.
The exemption under Section 10(4D) covers various types of income, including dividends, interest, capital gains, and rental income. However, any income derived from business activities or commercial ventures is not eligible for the exemption.
Income eligible for exemption
The following income received by a specified fund is eligible for exemption under Section 10(4D):
- Income from investments in securities of the Government of India or a State Government.
- Income from deposits with banks and other financial institutions in India.
- Income from interest on loans made to Indian companies.
- Income from any other source, subject to certain conditions.
Conditions for exemption
The exemption is subject to the following conditions:
- The specified fund must be approved by the Central Government.
- The income must be used for the purpose of providing financial assistance to Indian companies for the activities mentioned above.
- The specified fund must maintain proper accounts of its income and expenditure.
- The fund must be registered under Section 12AA of the Income Tax Act
- The fund must apply its income for charitable purposes within the specified time limits
Benefits of the Exemption
The exemption of certain income received by a specified fund provides several benefits:
- Encourages donations: The exemption encourages individuals and corporates to contribute to specified funds, as they can claim tax benefits on their donations.
- Promotes social welfare: The funds can utilize the exempted income to carry out activities that promote social welfare, such as providing healthcare facilities, supporting educational initiatives, or conducting scientific research.
- Financial sustainability: The exemption helps specified funds to generate income from investments and other activities, ensuring their financial sustainability and ability to continue their charitable work.
Here are some examples of income that is exempt from income tax under Section 10(4D):
- Income received by a specified fund from the transfer of shares in a company incorporated outside India.
- Income received by a specified fund from the sale of government bonds issued by a foreign government.
- Income received by a specified fund from a securitization trust that is engaged in the business of securitizing assets.
- Income received by a specified fund from any other source, as notified by the Central Government in the Official Gazette.
Section 10(4D) of the Income Tax Act provides an exemption for certain income received by a specified fund. This exemption encourages contributions to funds that support social welfare causes and promote scientific research, healthcare, education, and other charitable purposes. By providing tax benefits to donors and ensuring the financial sustainability of specified funds, this provision plays a crucial role in promoting social welfare and advancing various charitable initiatives.