As we all are aware of Section 11 and Section 12 of Income Tax Act, 1961 are dealing with taxation of Charitable and religious trusts. There were some amendments also which have been taken place in last 2 years. Those amendments have far reaching impact on the taxation of Charitable and religious trusts. In this Article we have discussed five major points which are affecting Charitable and religious trusts.
Any contribution by a charitable or religious trust or institution to any other trust or institution registered u/s 12AA, with a specific direction that it shall form part of corpus of recipient trust/institution shall not be treated as application of income u/s 11 for the donor trust/institution.
It means that corpus donations shall not be considered as an application of income.
It means where a trust or an institution has been granted registration and subsequently it has adopted or undertaken modifications of the objects which do not conform to the conditions of registration, it shall be required to obtain fresh registration by making an application within a period of thirty days from the date of such adoption or modifications of the objects in the prescribed form and manner.
Section 12A has been amended so as to provide for further condition that the person in receipt of income chargeable to income-tax shall furnish the return of income within the time specified u/s 139(4A) of the Income Tax Act.
In order to prevent practice of the Charitable or Private Trusts of receiving money or property for inadequate consideration or without consideration, Finance Act 2017 introduced clause (x) in section 56(2). With the insertion of this section the money or the property received by any person for inadequate consideration or without consideration in excess of Rs. 50,000 shall be liable to income-tax under the head “Income from other sources” in the hands of the recipient.
Consequently, now if any property is being received by the charitable trust or by any private trust for inadequate consideration or without consideration in excess of Rs. 50,000 then it will chargeable to income-tax under the head “Income from other sources” under section 56(2)(x) in the hands of the recipient trust.
However, this newly inserted clause(x) in section 56 shall not apply to any sum of money or any property received:
1) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10.
2) from or by any trust or institution registered under section 12A or section 12AA.
3) by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10.
4) from an individual by a trust created or established solely for the benefit of relative of the individual.
Thus, it is important to note that above mentioned trusts and institutions are out of the ambit of Section 56(2)(x). The trusts registered u/s 12A and specified institutions registered u/s 10(23C) are excluded from this clause so that Donations received by these trusts are not get taxed.
Finance Act 2017 amended section 80G so as to provide that no deduction shall be allowed under the section 80G in respect of donation of any sum exceeding Rs. 2,000/- unless such sum is paid by any mode other than cash. Earlier this limit was Rs. 10,000/-. The Government has taken this step in order to provide cash less economy and transparency.
(Submitted by – Tarun Kumar (B.Com, ACA) Mobile: +91-888-282-8112- Email-ID: [email protected])
(Republished with Amendments)