• Foreign funds

A friend of mine has a trust working on christian ministries. From USA he has received an offer from a donor to give him a loan of about 250,000 USD without any interest and the principal to be repaid back within a time frame of 3yrs. The idea is to utilise the earning from the principle thru MIPS/FDs etc and hand over the principle back in 3 or pre-defined years later. I would like to know what would be the tax implication when the money is sent from abroad and also the earnings here on that.
Asked 4 years ago in Income Tax from Chennai, Tamil Nadu

The above is a complex transaction and would involve detailed analysis of RBI and FEMA rules. However, I do not see a merit the trasanction. It would involve various legal issues.


Ankit Jain


Ankit Jain
CA, New Delhi
32 Answers
3 Consultations

4.9 on 5.0

In case of registered trusts : All kinds of receipts, whether capital or revenue nature are treated as income in the hands of a public trust or religious trust, except donations made with a written direction from the donor that the donation made shall be treated as part of the corpus of the trust. Such a donation to corpus shall not be included in the total income of a trust or institution. A donation is by its very nature a completed gift and once the donation has been accepted by the donee, the donor has no right to ask for the amount to be refunded. Donations to Corpus will also be similarly treated.

Interest earned on investment of Corpus Fund will be treated as income of a trust or institution. Such income if applied to charitable purposes, then it will be exempted from income tax.

Donors may make a contribution to Corpus Fund with certain stipulations and conditions, such as the purpose of the fund and its utilisation, and such conditions and stipulations will not in any way change the nature of the Corpus Fund i.e. it will still be exempt from income-tax.

In the present case we should check whether a Trust/institution can accept loan or not. Then if as per the provisions of income tax act, if the interest earned on the deposits are applied for charitable purpose then it is exempted. There is no tax implication when the amount is sent from abroad.

Shyam Sunder Modani
CA, Hyderabad
1408 Answers
110 Consultations

5.0 on 5.0

First of all , please ensure that this transaction is as per FEMA guidelines and RBI regulation issued in this regard . The interest earning shall be taxable in the hands of the trust unless it is covered under section 12AA.

Prakash Sinha
CA, New Delhi Area, India
120 Answers
17 Consultations

4.9 on 5.0

Firstly you need to get registration under FCRA for getting funds from USA.......Interest will not be taxable, If your trust had taken 12a & 80g registration & interest has been utilised for welfare purpose..


SK Agarwal


Shiv Kumar Agarwal
CA, Delhi
297 Answers
63 Consultations

5.0 on 5.0

There are multiple issues involved. You need to firstly comply with foreign contribution rules. Mang NGO's have been issued noticed in this regard recently. Kindly consult an expert. It cannot be resolved over such online platforms.

Shashank Surana
CA, Chennai
60 Answers
4 Consultations

4.3 on 5.0

The Trust should first have approval under Foreign Contribution Regulation Act to receive foreign contributions.

Secondly, a person giving a loan is not a donor - he is a lender. A trust can borrow, if permitted under its trust deed.

If the Trust is registered as a Charitable Trust u/s 12A / 12AA of the Income Tax Act, its income is exempt u/s 11, subject to fulfillment of conditions specified therein.

If the Trust is not registered under the Income Tax Act as above, its income will be taxable in its hands as Association of Persons.

B Vijaya Kumar
CA, Hyderabad
891 Answers
67 Consultations

5.0 on 5.0

as there are many legal formalities involved in this transactions so better you consult with expert and deal with the situation

Kavit Dilip Gadhia
CA, Mumbai
35 Answers

4.6 on 5.0

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