The assessment of trusts under the Income Tax Act, 1961, for the Assessment Years (A.Y) 2022-2023, 2023-2024, and 2024-2025, involves a detailed understanding of the legal provisions applicable to such entities. Trusts, given their varied purposes, including charitable, religious, and educational activities, enjoy specific tax treatments under the Act. This article aims to elucidate the critical aspects of tax assessment for trusts for the aforementioned assessment years, highlighting key provisions, changes, and implications.
I. A.Y 2022-2023
Trust is an important organization as far Income Tax Act is concerned. Therefore, I hereby analyze various provisions of the Income Tax Act 1961 relating to Trusts .Following are some of the important provisions:-
1. Sec 115 UA
Subject to the provisions of sec 111 A and sec 112, the total income of a business trust shall be charged to tax at the maximum marginal rate.
2. Definition of Business Trusts (Sec 2(13A)
Business trust means a trust registered as-
i.an infrastructure Investment Trust under the securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations,2014 made under the securities and Exchange Board of India Act,1992(15 of 1992)or
- a Real Estate Investment Trust under the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations,2014 made under the Securities and Exchange Board of India Act,1992
3. Sec 10(23C)
As per the above sec following incomes are exempted incomes
A. Any income received by any person on behalf of-
i. the prime minister’s National Relief Fund or PM CARES FUND or
ii. the prime minister’s Fund or
iii. the prime minister’s aid to students fund or
iv. the National Foundation for Communal Harmony or
v. the Swachh Bharat Kosh, set up by the Central Government or
vi. the clean ganga fund
vii. the chief minister’s relief fund
viii. Any university or other educational institution financed by the government (above 50% of total receipts is government grants) and it stands not for profit .Besides, if the aggregate annual receipts of the person from such any university or other educational institution exceeds 5 crore rupees, exemption is not available.
ix. Any hospital financed by the government (above 50% of total receipts is government grants) and it stands not for profit and which exits for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence. Besides, if the aggregate annual receipts of the person from such any university or other educational institution exceeds 5 crore rupees, exemption is not available.
x. Any other fund or institution established for charitable purposes (approved by the prescribed authority).
xi. Any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes (approved by the prescribed authority).
4. Charitable or Religious Trust.
Trust formed for charitable or religious purposes which are not intended to do commercial activities are allowed various benefits under the Income-Tax Act, inter-alia, exemption under section 11.
The term religious purpose is not defined under the Income-Tax Act. However, Section 2(15) of the Act defines “charitable purpose” to include relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility.
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless—
(i) such activity is undertaken in the course of actuall carrying out of such advancement of any other object of general public utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed 20% of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;
5. Exempted incomes of Charitable or Religious Trust.
Sec 11
A. income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property;
B. income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent of the income from such property;
C. Income of a trust from voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution subject to the condition that such voluntary contribution are invested or deposited in one or more of the forms or modes specified in sub-section (5) maintained specifically for such corpus.
D. Capital gains.
a. Capital gain from the transfer of a capital asset held wholly for charitable or religious purpose
i. If the cost of new asset is equal to or greater than the net sales consideration, then the entire capital gain will be exempted.
ii. If the cost of new asset is lesser than the net sales consideration, then the amount representing cost of new asset reduced by the cost of old asset will be exempted
a. Capital gain from the transfer of a capital asset held in part only for charitable or religious purpose
Proportion of the capital gain will be exempted.
E. Income from voluntary contributions (other than those received with the specific direction that they shall form part of the corpus of the trust) received by a trust created wholly for charitable or religious purposes shall be exempt from tax provided that the requirements of utilization and the restriction in this regard under sec 11 and 13 are satisfied ——Sec 12(1).
6. Tax on Anonymous Donations.
The total income of an assesse includes any income by way of any anonymous donation, the income tax payable shall be the aggregate of :
i. tax @30 % on the aggregate of anonymous donations received in excess of the higher of the following namely:
A. 5% of the total donations received by the assesse, or
B. Rupees one lakh: and
ii. the tax with which the assesse would have been chargeable had his total income been reduced by the aggregate of anonymous donations received in excess of the amount referred to in (A) or (B),as the case may be.
7. Computation of Tax.
A trust is chargeable to tax as per the slab rates which are applicable to an individual (not being a senior citizen or super senior citizen).
II. Changes in the A.Y 2023-2024
1. Application of expenses allowed only on Payment Basis and not on accrual basis.
2. In section 11 of the Income-tax Act,— (a) in sub-section (1), after Explanation 3, the following Explanations shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2021, namely:—
“Explanation 3A.—For the purposes of this sub-section, where the property held under a trust or institution includes any temple, mosque, gurudwara, church or other place notified under clause (b) of sub-section (2) of section 80G, any sum received by such trust or institution as voluntary contribution for the purpose of renovation or repair of such temple, mosque, gurudwara, church or other place, may, at its option, be treated by such trust or institution as forming part of the corpus of the trust or the institution, subject to the condition that the trust or the institution,—
(a) applies such corpus only for the purpose for which the voluntary contribution was made;
(b) does not apply such corpus for making contribution or donation to any person;
(c) maintains such corpus as separately identifiable; and
(d) invests or deposits such corpus in the forms and modes specified under sub-section (5) of section 11.
Explanation 3B.—For the purposes of Explanation 3A, where any trust or institution has treated any sum received by it as forming part of the corpus, and subsequently any of the conditions specified in clause (a) or clause (b) or clause (c) or clause (d) of the said Explanation is violated, such sum shall be deemed to be the income of such trust or institution of the previous year during which the violation takes place.”;
3. In section 12A of the Income-tax Act, in sub-section (1), for clause (b), the following clause shall be substituted with effect from the 1st day of April, 2023, namely:— “(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year,—
(i) the books of account and other documents have been kept and maintained in such form and manner and at such place, as may be prescribed; and
the accounts of the trust or institution for that year have been audited by an accountant defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and the person in receipt of the income furnishes by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed;”.
III. Amendment in the Assessment Year 2024-2025(as per the Finance Act 2023)
In section 115TD of the Income-tax Act,— (i) in sub-section (3),—
(a) in clause (ii), in sub-clause (b), for the word “rejected.”, the words “rejected; or” shall be substituted;
(b) after clause (ii), the following clause shall be inserted, namely:—
“(iii) it fails to make an application in accordance with the provisions of clause (i) or clause (ii) or clause (iii) of the first proviso to clause (23C) of section 10 or sub-clause (i) or sub-clause (ii) or sub-clause (iii) of clause (ac) of sub-section (1) of section 12A, within the period specified in the said clauses or sub-clauses, as the case may be, which expires in the said previous year.”; (ii) in sub-section (5), in clause (ii), after the word, brackets and figures “clause (ii)”, the words, brackets and figures “clause (ii), or clause (iii),” shall be inserted; (iii) in the Explanation, in clause (i),— (a) in sub-clause (b), after the word, brackets and figure “sub-section (3);”, the word “or” shall be inserted; (b) after sub-clause (b), the following sub-clause shall be inserted, namely:— “(c) the last date for making an application for registration under sub-clause (i) or sub-clause (ii) or sub-clause (iii) of clause (ac) of sub-section (1) of section 12A or for making an application for approval under clause (i) or clause (ii) or clause (iii) of the first proviso to clause (23C) of section 10, as the case may be, in a case referred to in clause (iii) of sub-section (3);”.
In section 115UA of the Income-tax Act, after sub-section (3), the following sub-section shall be inserted with effect from the 1st day of April, 2024, namely:— “(3A) The provisions of sub-section (1) shall not apply in respect of any sum referred to in clause (xii) of sub-section (2) of section 56, received by a unit holder from a business trust.”.
Conclusion: The assessment of trusts for the specified assessment years underlines the dynamic nature of tax legislation, reflecting changes in policy objectives and administrative requirements. Trusts must navigate these provisions carefully, ensuring compliance and optimizing their tax positions. The amendments introduced in each assessment year underscore the importance of staying abreast with legislative updates, necessitating meticulous planning and administration by trusts to align with the evolving legal landscape.
Author Bio
If trust registered u/s 12A, tax slab of 2.5 Lakhs should be allowed then why it is not available in Income Tax Utility and they counting tax @30% without any basic exemption limit.?