TaxTMI 
TaxTMI 
Application of Income - Section 341 (New) / Section 11 (Old)
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....aritable or religious purposes in India for which the NPO is registered, subject to the provisions referred to in sections 35(b)(i) and 36(4) to 36(7). Section 341(1)(b) provides that where a registered NPO makes a donation to another registered NPO, only 85% of the amount paid is treated as application of income. The latter provision is important because the entire amount of a donation to another registered NPO does not qualify as application for the purposes of the 85% test. Under the 1961 Act, the corresponding framework was principally contained in section 11(1)(a) and (b), read with the provisions restricting the extent to which donations/contributions to other eligible entities could constitute application. The official te....
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....m of set-off, deduction or allowance in respect of excess application of income of earlier years is not permitted as application under section 341(1) or (2). Section 341(3)(c) - Corpus Donation to Another Registered NPO Any sum paid as a corpus donation to another registered NPO is not allowed as application of income. Section 341(4) - Certain Sources Excluded from Application Application out of the following is not considered application for purposes of section 341(1) and (2): • corpus; • loan or borrowing; • accumulated income; • specified income; or • deemed accumulated income. This provision prevents amounts which are themselves subject to separate....
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....ns as Deemed Application Section 341(9) provides special treatment for capital gains arising from transfer of capital assets held for charitable or religious purposes. Where the whole or part of the net consideration is utilised for acquiring another capital asset to be held for charitable or religious purposes, the specified portion of the capital gain is deemed to have been applied. For property held wholly for charitable or religious purposes: • where the whole net consideration is utilised, the whole capital gain is deemed to be application; • where only part of the net consideration is utilised, the capital gain deemed to be applied is restricted to the amount by which the amount utilised exceeds ....
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.... that application from corpus is not initially treated as application, but subsequent reinvestment/deposit back can qualify subject to conditions. Section 341(2)(a) provides for application treatment where corpus is reinvested/deposited back within five years, subject to specified conditions. Application from loan/borrowing Explanation 4(ii) to section 11(1) provides that application from loan/borrowing is not treated as application initially, but repayment can subsequently qualify subject to conditions. Section 341(2)(b) contains the corresponding mechanism for repayment within five years. Depreciation Section 11 does not permit a second application benefit through depreciation where the cost of acquisit....
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.... expressly permits the shortfall below 85% to be treated as deemed application, subject to the prescribed conditions. Deemed application - income not received Explanation 1 to section 11(1) provides the relevant mechanism where income has not been received. Section 341(6)(a) permits actual application in the year of receipt or the immediately succeeding tax year. Deemed application - other reasons Explanation 1 to section 11(1) provides for the relevant period where the shortfall arises for specified reasons other than non-receipt. Section 341(6)(b) requires application in the tax year immediately succeeding the year in which income was derived. Exercise of option Option for deemed application....