Capital Gains for Trusts and NPOs are also considered part of the Income, subject to 85% application or re-investment of the entire sale proceeds.
“Income” as defined u/s 2(24) of Income Tax Act, includes capital
gains. For the purpose of section 11(1)(a), capital gains are also
considered as a part of the income. Therefore, all NPOs have two
options:
(i) They can apply 85% of Capital Gains for charitable purposes
or invest the entire amount in another capital assets;
(ii) The Income Tax Act has provided another option u/s 11(1A), by
virtue of which capital gains can be re-invested in another
capital assts. It will be treated as a valid application of income.
U/s 11(1A), if the entire amount of net consideration is invested in
another capital asset, then entire capital gain will be deemed to
have been applied for charitable purposes. However, if part of the
entire amount of net consideration is invested then appropriate
fraction will be deemed to have been applied for charitable
purposes.