We are trustees of a Public Charitable Trust registered under the Bombay Public Trusts Act, and our Trust is also registered with the relevant authorities for carrying out charitable activities.
We would like to seek your guidance regarding the investment of the Trust’s funds in Government Bonds/Government Securities.
We would be grateful if you could clarify whether a Public Charitable Trust is legally permitted to invest its surplus or temporarily unutilised funds in Government Bonds or other Government Securities.
If such investment is permissible, we would appreciate detailed guidance on the following matters:
Eligibility: Whether a Public Charitable Trust registered under the Bombay Public Trusts Act can invest its funds in Government Bonds/Government Securities.
Permitted Investments: Please clarify which specific types of Government securities or bonds can be purchased by the Trust while continuing to comply with the applicable provisions relating to charitable trusts and income-tax exemption.
Source of Funds: Whether there are any restrictions depending on whether the funds proposed to be invested are corpus funds, general donations, accumulated funds, grants, or other Trust funds.
Trustee Approval: Whether a formal resolution of the Board of Trustees is required before making such an investment and, if so, what details should be included in the resolution.
Procedure: Please explain the proper procedure for purchasing Government Bonds in the name of the Trust, including the appropriate account/platform through which the investment should be made.
Income-Tax Compliance: We would also like to understand whether investment in Government Bonds will affect the Trust’s eligibility for exemption under the applicable provisions of the Income-tax Act and whether there are any specific conditions that need to be fulfilled.
Accounting and Audit: Please advise how the investment and the interest/income received from the Government Bonds should be recorded in the Trust’s books of accounts and disclosed in the annual audit/reporting.
Permissions/Intimations: Please let us know whether any prior permission, approval, or subsequent intimation is required from the Charity Commissioner, Income Tax Department, or any other authority before or after making such an investment.
Corpus Investment: If corpus funds are invested, please clarify whether the interest earned on such investment can be utilised for the charitable activities of the Trust or whether it is required to be treated separately.
Redemption/Maturity: Please also clarify whether there are any restrictions on redemption of the Government Bonds at maturity and on the subsequent utilisation or reinvestment of the proceeds.
Our objective is to ensure that any investment made by the Trust is fully compliant with the Bombay Public Trusts Act, applicable Income-tax provisions, and all other relevant rules and regulations, without affecting the charitable status or tax-exempt status of the Trust.
We therefore request you to kindly guide us on the permissible investment options and the complete procedure to be followed, including any documents and resolutions that may be required.
We would appreciate your detailed advice on this matter.
Eligibility: Whether a Public Charitable Trust registered under the Bombay Public Trusts Act can invest its funds in Government Bonds/Government Securities.
SB: Section 35 of MH Public Trust Ac 1950 permits investment of unutilised trust moneys in public securities. Section 2(12) of the Act defines public secutiries to include securities of central or any state Govt.
Permitted Investments: Please clarify which specific types of Government securities or bonds can be purchased by the Trust while continuing to comply with the applicable provisions relating to charitable trusts and income-tax exemption.
SB: While MH Public Trust Act specifies modes of investment of unutilised trust money, Section 350 of Income Tax Act 2025 read with Schedule Schedule XVI defines permitted forms or modes of investment or deposits by charitable/religious institution registered as RNPO. The recommendation is to ensure compliance with both as they co-exist. Both permit investment of moneys in Govt securities.
Source of Funds: Whether there are any restrictions depending on whether the funds proposed to be invested are corpus funds, general donations, accumulated funds, grants, or other Trust funds.
SB: Here the provisions of ITA 2025 would be relevant. The Act now requires all funds not utilised including the 15% funds out of income set apart and not taxable to be invested in Section 250 modes of investment. Earlier, only corpus and accumulation under Section 11(2) of ITA 1961 required investment in specified modes.
Trustee Approval: Whether a formal resolution of the Board of Trustees is required before making such an investment and, if so, what details should be included in the resolution.
SB: Better pass a BOT resolution for records and scrutiny by any authorities although there appears no such requirement. It is good practice.
Procedure: Please explain the proper procedure for purchasing Government Bonds in the name of the Trust, including the appropriate account/platform through which the investment should be made.
SB: You can open a demat account with a depository participant and buy govt securities through the primary market (new issue) or through secondary market purchases.
Income-Tax Compliance: We would also like to understand whether investment in Government Bonds will affect the Trust’s eligibility for exemption under the applicable provisions of the Income-tax Act and whether there are any specific conditions that need to be fulfilled.
SB: No, as long as compliance with Section 350 of ITA is ensured otherwise it maybe treated as Specified income under Section 337 and taxed at 30%.
Accounting and Audit: Please advise how the investment and the interest/income received from the Government Bonds should be recorded in the Trust’s books of accounts and disclosed in the annual audit/reporting.
SB: The securities will be shown as investments in the Assets side of Balance Sheet. The corresponding entry will be either corpus funds or general reserves on the liability side.
Permissions/Intimations: Please let us know whether any prior permission, approval, or subsequent intimation is required from the Charity Commissioner, Income Tax Department, or any other authority before or after making such an investment.
SB: If more than 50% of trust money is invested, then MH Charity Commissioner approval is required as per Circular #619 dated 21.7.2025
Corpus Investment: If corpus funds are invested, please clarify whether the interest earned on such investment can be utilised for the charitable activities of the Trust or whether it is required to be treated separately.
SB: Yes, certainly
Redemption/Maturity: Please also clarify whether there are any restrictions on redemption of the Government Bonds at maturity and on the subsequent utilisation or reinvestment of the proceeds.
SB: No, redemption on maturity will reduce amount of investments and increase cash. Subsequent transactions will be recorded as they happen.