TaxSaral
Section 340Charitable Trusts & NPOswas Section 11 in IT Act 1961

Deemed Corpus Donations

Section 340 specifies circumstances where certain receipts are treated as corpus donations even without a written donor direction — for example, capital grants from government specifically for asset creation, contributions for construction of buildings, and legacy bequests. This protects infrastructure funding from being treated as operational income.

Who this applies to

Registered NPOs receiving capital grants from government authorities, bequests (inheritances), or contributions specifically for creating or acquiring fixed assets.

Key Points

  • Government grants specifically for capital asset creation are deemed corpus — not regular income
  • Bequests (inheritances) received by an NPO are treated as corpus donations
  • Contributions received for construction of a building or purchase of specific capital assets are deemed corpus
  • Deemed corpus amounts must be credited to a separate corpus fund in the accounts
  • Income earned on deemed corpus investments is regular income subject to the 85% rule

Worked Example

1

Government Grant for School Building

Scenario

A state government gives a charitable school trust a grant of ₹2 crore specifically to construct a new school building. No written 'corpus' direction is given.

Calculation

Grant for building construction:       ₹2,00,00,000

Written corpus direction from government? NO
Deemed corpus under Section 340?         YES
  (specifically for capital asset creation)

Treatment:
  Regular income?                        NO (deemed corpus)
  Subject to 85% rule?                   NO
  Usage restriction?                     YES — must be used for the building

If grant is diverted to salary expenses:
  Loses deemed corpus status
  → Becomes regular income → 85% test applies retroactively

Result

The ₹2 crore grant is protected as deemed corpus and need not meet the 85% test. However, it MUST be used for the school building — diverting it to other purposes removes the protection.

Related Sections

Section 339Corpus Donations — Permanent Fund Contributions
Section 338Income Excluded from Regular Income of an NPO
Section 335Regular Income of Registered NPO — The Exemption Provision

Still have questions about Section 340?

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Section references are based on the Income Tax Act 2025 (Tax Year 2026-27). Examples are illustrative — verify with a Chartered Accountant before filing.