Income derived from property held under trust or of an institution wholly for charitable / religious purpose is exempt, if 85% of the income is spend for the objects of the trust, during the year. If amount spent is less than 85% the income, the shortfall is taxable, unless the trust has complied with the conditions, as per section 11 and 12 of the Income Tax Act, 1961.
Investments:
All investments of the trust must be in the modes provided in Section 11(5) of the Act. If not, they must be brought in conformity within one year from the end of the previous year in which such investments are acquired. Contravention results in income of the trust being taxed at maximum marginal rate. This restriction does not apply to,
- Any asset held as part of the corpus as on 1st June, 1973;
- Any accretion of shares, forming part of the corpus as on 1st June 1973, by way of bonus shares;
- Any debentures acquired before 1st March 1983. If debentures acquired after 28th February1983 and before 25th July, 1991, exemption is denied only in respect of income from such debentures, provided debentures are disinvested by 31st March, 1992.
Modes of investment specified in Section 11(5):
01. Investment in Government savings certificates/other securities/certificates issued by Central Government under Small Saving Scheme;
02. Deposit in any account with the Post Office Savings Bank;
03. Deposit in any account with schedule/co-operative bank;
04. Investment in units of Unit Trust of India;
05. Investment in any security of Central/State Government;
06. Investment in debentures whose principal and interest are fully and unconditionally guaranteed by Central/State Government;
07. Investment or deposit in any public sector company(PSC); Shares of PSC may be maintain for three years and other investments or deposits till the maturity once PSC ceases to be PSC;
08. Deposits with or investment in any bonds issued by an approved financial corporation engaged in providing long term finance for industrial development in India;
09. Deposits with or investment in any bonds issued by an approved public company with main object of carrying on business of providing long term finance for construction/purchase of houses in India for residential purposes or for urban infrastructure;
10. Investment in immovable property;
11. Deposits with Industrial Development Bank of India;
12. Any other prescribed form or mode of investment or deposit (for example, units of mutual funds referred to in section 10(23D), investment by way of acquiring shares of a “depository” prescribe).
13. Investment in “Indira Vikas Patra” and “Kisan Vikas Patra” are in accordance with norms and modes specified in Section 11(5) – Circular No 566, dated 17th July, 1990.
What is Corpus Donation?
Under Section11(1)(d), voluntary contributions with specific direction that they shall form part of the corpus of the trust are not includible in the total income of the trust registered u/s 12AA/12AB. Similarly, Finance Act 2020 has inserted an explanation to the third proviso to section 10(23C) to clarify that the corpus donation shall not form part of the income of trusts/institutions registered under section 10(23C).
Although corpus donations are fully exempt but these are to be considered for the limit of maximum amount, which is not chargeable to income tax i.e. Rs. 2,50,000/-prescribed for audit of accounts. However under section 12 other voluntary contributions would be deemed to be the income of the trust.
Subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or State Government as the case may be, shall not form part of income of such trust or institution.
Business Income:
Exemption is not available in relation to any profit or gains of business of a trust, unless the business is incidental to the attainment of the objectives of the trust and separate books of account are maintained in respect of such business.
The benefit of exemption to a trust, having the object of advancement of general public utility, would be lost if any business is carried on with gross receipt in excess of Rs. 25 lakh by virtue of proviso to section 2(15).
Capital Gains:
The gain arising from transfer of a capital asset, is deemed to have been applied to charitable/religious purpose, if the whole net consideration is used to acquire new capital assets. If only part of the net consideration is utilized, such gains, as equals the excess of the amount so utilized over the cost of the transferred asset is deemed to have been applied for charitable/religious purposes. There is no period oh holding of the asset for availing such exemption by reinvestment.
The capital gains on transfer of asset held by a trust or an institution in respect of which accreted income has been computed and tax paid the cost of acquisition such asset is deemed to be the FMV of the asset considered for computation of accreted income as on the specified date referred in Section 115TD(2) [Section 49(8) w.e.f. 1st April, 2016]
Anonymous donations:
The term “anonymous donation” is define to mean any voluntary contribution, where the person receiving such contribution does not maintain a record consisting of the identity of the person making such contribution indicating the name and address of the person and such other particulars as may be prescribed. Such anonymous donations will be taxed @ 30%. However the following anonymous donations are not covered:
- Donation received by a trust or institution which is created or established wholly for religious purposes;
- Donation received by any trust or institution created or established wholly for religious or charitable purposes other than any anonymous donation made with a specific direction that such donation is for any university or other educational institution or any hospital or other medical institution run by such trust or institution.
- However in case of partly religious and partly charitable institutions where the anonymous donations are directed towards medical or educational institutions run by such entities or anonymous donations are received by wholly charitable institutions, it will be taxable to the extent such donations exceeds 5% of donation received or Rs.1,00,000 whichever is more.
- With effect from 1st April, 2017 no deduction under section 80G shall be available to a payer if the donation is in cash and exceeds Rs.2,000 (up to A.Y.2017-18 it was Rs.10,000)
Author Bio
Please,let me know impact of any revenue expenses for the object of the trust done by trust from corpus fund.