Introduction
The Charity Commissioner of Maharashtra, through Circular No. 619 dated 21 July 2025, has permitted public charitable Institutions registered under the Maharashtra Public Trusts Act, 1950 ('MPT Act') to invest up to 50% of their trust money in specified securities such as mutual funds, listed debt instruments, and certain government or PSU-backed bonds. Earlier, such investments could be made only after obtaining specific approval from the Charity Commissioner.
However, investments must also comply with the provisions Section 11(5) of Income Tax Act, 1961 ('IT Act') and Rule 17C of Income tax Rules 1962 to retain tax exemption under Income-tax Act.
⚠ Important Warning: The Maharashtra Charity Commissioner's recent circular permits certain investments that are not compliant with Section 11(5) of the Income Tax Act, 1961. This creates a dangerous trap where trusts following the Circular's permissions may lose their tax exemption under Section 11, defeating the entire purpose of generating better returns for charitable activities.
The following table lists investment options permitted under both authorities:
| Sr. No. | Nature of Investment |
|---|---|
| 1. | Deposit with Post office Saving Account |
| 2. | Investments in Saving Certificate or Small Savings Scheme |
| 3. | Deposit with Schedule Bank or Cooperative Bank |
| 4. | Investment in immovable property |
| 5. | Government Securities* |
| 6. | Sovereign Gold Bonds Scheme, 2015* |
| 7. | Securities (Principal and Interest guaranteed by Central or State Government)* |
| 8. | Units of Sebi Regulated Debt Mutual Funds* |
| 9. | Units of Sebi Regulated Equity Mutual Funds - with minimum 65% investment in shares listed on recognised stock exchange* |
| 10. | Exchange Traded or Index funds Regulated by SEBI* |
| 11. | Public Sector Company Bonds* |
* Investments can be made upto 50% of trust money
Key Important Compliance Points
- Income-tax Act allows investments without any limits however MPT Act has allowed certain investments with the cap upto 50% of trust money (irrespective of the fact whether such investments are guaranteed by Central or State Government, funds are regulated by SEBI etc.)
- Certain investments are allowed under IT Act but not allowed under MPT Act and vice versa. Certain investments are allowed under both Acts but with different restrictions or conditions under both Acts. Examples:
- MPT Act allows investments in equity shares of listed company which market capitalisation on less than Rs 5000 Crores. But IT Act allows equity investments only in case of equity shares of a depository, National Skill Development Corporation.
- MPT Act allowed investments in all corporate listed bonds however IT Act restricts such investments only to Public Sector Corporates (irrespective of being listed or not)
- IT Act allows investments on bonds issued by a public company providing long-term finance for construction or purchase of residential houses in India. However, MPT Act restricts investments in listed bonds related to the low cost housing.
- MPT Act allows investment in Infrastructure debt investments issued by NBFC or SEBI registered Mutual Funds but Income-tax Act restricts deposits with public company providing long-term finance for urban infrastructure in India.
- Requirement of credit rating is not under IT Act but such credit rating for investment in bonds is required under MPT Act.
- Certain type investments eg investment in AIFs, gold/silver ETFs etc. are not allowed under MPT Act and IT Act.
- While this relaxation offers flexibility, it also places greater responsibility on trustees to ensure that investment decisions are prudent, compliant, and aligned with the trust's objectives. Careful study of permitted investments is required before making investment by the charitable institutions. Many Charitable Institutions, however, operate without formal investment management expertise and may not fully understand the risks involved in complex instruments.
- Without proper guidance, trusts may inadvertently pursue higher-yield instruments that fall outside the permitted list under either under MPT Act or IT Act, risking loss of income-tax exemption and potential taxation of all assets at the market value.
- Given these challenges, it is strongly recommended that trustees consult Chartered Accountants and registered investment advisors who understands the nuances of laws applicable to Charitable Institutions. Such professionals can provide a balanced perspective - ensuring statutory compliance, tax efficiency, and risk control, while aligning the investment policy with the long-term objectives and fiduciary responsibilities of the trust and its trustees.
- All investments must be in the name of the Trust and approved by resolution of trustees.
💡 Practical Tips for Trustees
- Review current investments and in case current investments are not in compliant with applicable regulation seek advice from the Chartered Accountant for way forward. Ensure that investments are in compliant under MPT Act and IT Act.
- Prepare exhaustive investment register and review portfolio regularly preferably semi-annually to ensure compliance with all applicable Acts.
- Charitable institutions may explore forming Investment Committee for monitoring its investments.
- Retain copies of credit rating letters and other relevant documents for audit and other regulatory purpose.