Collaboration Expense Accounting

Fund Accounting
1

When a non-profit trust collaborates with another registered trust and there is a financial transaction related to a shared expense (e.g., program delivery, resource sharing, etc.), what is the appropriate way to account for this transaction? If an invoice is raised and the amount is paid under the head of “consultation fees,” is this considered good accounting practice and compliant with charitable trust regulations? or should we consider this as a donation?

2

Thanks for your query. We understand these are 2 questions

  1. Please note that expenses are shown basis functional head and natural head as good practice. Functional is the why of expenses i.e. program delivery, support costs etc while natural is the what of expenses i.e. salary, travel etc. The treatment will be the same for shared or common costs.
  2. An invoice is typically for a commercial transactions, before entering into such transaction see that it is in line with Section 2(15) of Income Tax. If it is incidental business income for your objects as shared with Income Tax in Form 10A, then fine with the caveat for GPU the ceiling is 20%. There will be TDS and GST implications additionally to deal. From your question on considering it as donation, the answer is no, however, if it is a grant but colored as commercial transaction by your donor, please work with the donor accordingly to straighten it as a grant.
    Thanks
3

Thanks for the clarification, One follow-up query - In the case of shared program expenses (such as resource person honorariums, venue costs, etc.) between two charitable trusts, where one reimburses the other based on actuals without any profit element — what is the legal or regulatory provision that allows such reimbursements to be treated as program expenses rather than as commercial transactions? Is there any reference under the Income Tax Act or accounting standards that supports this treatment?

4

So your question is relating to expenses for a program shared between 2 organizations. In that case, it would be better to sub grant instead of reimburse since both must be not for profits. That will be possible for domestic funds only. Also read the principal grant contract whether it is included in the design. Sub grant is permissible under Section 11 except for accumulation funds. Hope it clarifies. Thanks.

5

Thank you for the clarification regarding sub-grants. In such a case, where one non-profit provides a sub-grant to another for implementing a part of the program (domestic funds only), is it mandatory to file Form 10BD and issue Form 10BE for this transaction? Or does Form 10BD apply only to donations from individuals and corporates under Section 80G or CSR contributions?

6

An 80G approved institution receiving donations/grants has to file 10BD as a condition of approval irrespective of the source and type of grant/donation.

Thanks

CS Sharad Bhargava

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