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Issue ID: 121136
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Treatment on borrowed funds utilization for application of income - Charitable Trust

Date 23 Sep 2026
Replies 1 Reply
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Charitable trust borrowing: spending loan proceeds is not income application, while qualifying repayment may constitute application.
Utilisation of borrowed funds by a charitable trust for charitable purposes is not application of income merely because it is spent. Repayment of the borrowing may qualify as application of income, subject to applicable statutory and prescribed conditions. Any unpaid loan balance remains an outstanding borrowing and is not disallowed application. Borrowing, utilisation from borrowed funds, and repayment should be separately reported in Form 10B and the income-tax return. (AI Summary)

Respected Sir

In charitable trust, during the year borrowed funds taken of Rs.5,00,000, which has utilized in application. Further, out of borrowed funds, there are re-payment made of Rs.100000 during the year under consideration. What would be the treatment of application claimed for the year.

My understanding is below

Application of Rs.400000 (500000 borrowed funds - 100000 paid borrowed funds) to be disallowed. as during the year Rs.500000 borrowed funds utilized and its repayment made of Rs.100000 during the year. therefore, net borrowed funds of Rs.400000 is outstanding, which has utilized for application.

We are reporting Rs 400000 only as borrowed funds, which has utilized for application, and it would be disallowed for the year under consideration. Is this correct understanding in respect of reporting in ITR and Form 10B

Please guide me

Income Tax
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Replied on Oct 1, 2026
1.

The understanding that Rs. 4,00,000 should be treated as disallowed application is not correct.

Where a charitable trust:

  • borrows Rs. 5,00,000 during the year;

  • utilises the entire Rs. 5,00,000 for charitable purposes; and

  • repays Rs. 1,00,000 during the same year,

the treatment is:

  • Rs. 5,00,000 utilised out of borrowing: not treated as application of income merely because it was spent for charitable purposes.

  • Rs. 1,00,000 repayment: can qualify as application of income, subject to the statutory conditions.

  • Rs. 4,00,000 outstanding loan: remains borrowing/outstanding liability. It is not Rs. 4,00,000 of "disallowed application."

Thus, the calculation should not be:

Rs. 5,00,000 - Rs. 1,00,000 = Rs. 4,00,000 disallowed application.

Rather:

Borrowing utilised = Rs. 5,00,000 no application merely on utilisation
Repayment = Rs. 1,00,000 application, if conditions are satisfied
Balance loan = Rs. 4,00,000 outstanding borrowing

The reporting in Form 10B and the ITR should separately capture borrowing, utilisation/application out of borrowing and repayment of borrowing, rather than reporting the net Rs. 4 lakh as disallowed application.

The relevant statutory framework provides that application out of loan/borrowing is not application, while repayment of such borrowing can qualify as application subject to prescribed conditions, including the applicable time/other conditions.
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