10 worked funding examples
Fictional illustrations. Amounts exclude taxes unless stated; accounting entries assume the specified facts and policy. Tax and legal conclusions require separate review.
1. Individual gives ₹2,00,000 without conditions
Assume an Indian individual gives genuine money without consideration, within the company’s objects, with no repayment or supply. Obtain the donor letter, Board approval and bank evidence. If the applicable money-gift rule applies with no exception, the full ₹2,00,000 can be taxable, not ₹1,50,000. Do not select a tax rate without the company’s facts. Record the receipt under the appropriate income classification; a separate tax memo explains the conclusion.
2. Private institution gives ₹10,00,000 for training
Assume a non-service restricted grant, refundable until eligible delivery, and a documented policy recognising income as conditions are met. On receipt: Dr Bank ₹10,00,000; Cr Refundable project advance ₹10,00,000. After ₹6,00,000 of qualifying paid training costs: Dr Project expense / Cr Bank ₹6,00,000; if the related conditions are satisfied, Dr Project advance / Cr Grant income ₹6,00,000. Remaining advance and bank balance are ₹4,00,000, assuming no other flows. This is a conditional illustration, not automatic AS 12 treatment of private grants; assess tax separately.
3. CSR project provides a ₹12,00,000 grading machine
The donor proposes a common facility for 300 farmers. Determine whether the company is the genuine beneficiary entity under Rule 7(4), who purchases and owns the machine, site rights, access charges and disposal controls. If the donor retains title, do not automatically book the machine as the company’s owned asset. If title transfers, choose the applicable asset/grant policy. ₹12,00,000 is the project price, not proof of a tax exemption.
4. ₹3,00,000 support includes compulsory product promotion
The sponsor requires product banners, promotional videos and exclusive marketing access. Review the real advertising or sponsorship arrangement, GST classification and any reverse charge, and whether the donor’s proposed CSR treatment fails the sponsorship exclusion. Do not issue a simple tax-free donation receipt because the contract uses the word support.
5. Company contracts to deliver ten training sessions
A funder pays ₹50,000 per session for ten sessions: base contractual consideration ₹5,00,000. Farmers attend without paying. Determine supply, registration, exemption and applicable GST before finalising the total invoice. Recognise service revenue as required by the applicable framework; do not treat the full consideration as a donation merely because trainees pay nothing.
6. Government sanctions ₹8,00,000 but pays nothing yet
The sanction requires eligible machinery, inspection and evidence of own contribution. At sanction, assess whether recognition criteria are met; do not automatically debit a receivable. Track conditions and eligible costs. Once reasonable assurance and the applicable criteria are established, use the relevant government-grant policy. Cash-flow planning should still show that receipt timing is uncertain until confirmed.
7. Year-end unspent reconciliation
Opening ₹1,00,000 + receipts ₹5,00,000 + attributable interest ₹10,000 − eligible costs paid ₹3,50,000 − refund ₹50,000 = bank/project cash ₹2,10,000, assuming no other movements. If ₹40,000 of eligible bills are unpaid, an accrual-basis statement differs from the cash statement. Show both bases and commitments; interest is not automatically available for unrestricted use.
8. ₹1,00,000 of spending is disallowed
A ₹5,00,000 grant funded ₹4,00,000 of payments, but ₹1,00,000 is ineligible. Eligible utilisation is ₹3,00,000. With no other flows, ₹1,00,000 cash remains, but potential refundable principal is ₹2,00,000 if the donor requires all unused and ineligible funds back. The company must find another ₹1,00,000; spending cash does not prove eligible utilisation.
9. Supporter asks for repayment or shares
A supporter pays ₹5,00,000 and expects repayment in two years or shares. Separate a proposed loan from an eligible share subscription and assess company-law permissions, membership and documentation. Do not book a donation first and decide the legal character later. A non-producer donor does not obtain membership merely by paying.
10. Overseas organisation remits ₹4,00,000 in rupees
Do not classify it domestic because it reaches an Indian bank account. Verify the source, nature and FCRA position before planned receipt. If it arrives unexpectedly, preserve evidence, do not spend or reroute it casually, and obtain prompt advice on lawful handling. An Indian intermediary is not an automatic solution because onward-transfer restrictions can apply.