The FAQs on charitable or religious trusts clarify key aspects under the Income Tax Act. A “charitable purpose” includes relief for the poor, education, yoga, medical relief, environmental preservation, and more. The advancement of general public utility ceases to be charitable if it involves trade, commerce, or business unless such activities are minimal. Trusts must register under Section 12AB, valid for five years, and maintain proper books if income exceeds tax-exempt limits. The audit is mandatory if income surpasses the threshold, with reports to be filed in Form 10B or 10BB. Provisional registrations last three years, after which trusts must apply for regular registration. For income accumulation, trusts must file Form 10 if unable to utilize 85% of income within the year. Anonymous donations are taxable if they exceed Rs. 1 lakh or 5% of total donations. Tax on accreted income ensures tax-exempt benefits aren’t misused if a trust loses its charitable status. Trusts must invest funds in approved securities to maintain tax-exempt status. Overall, the document outlines procedural compliance for charitable trusts concerning registration, income accumulation, and donation management.
FAQs on charitable or religious trusts
Q1. What is the meaning of charitable purpose?
Ans: Section 2(15) of the Income-tax Act provides an inclusive definition of ‘charitable purpose’. It includes the following:
a. Relief of the Poor;
b. Education;
c. Yoga;
d. Medical Relief;
e. Preservation of the environment (including watersheds, forests, and wildlife);
f. Preservation of monuments or places or objects of artistic or historic interest; and
g. Advancement of any other object of general public utility.
Q2. When shall the advancement of any other object of general public utility not be treated as a charitable purpose?
Ans: The advancement of any other object of a 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.
This exception, however, does not apply if such activity is undertaken in the course of the actual carrying out of such advancement of any other object of general public utility and the aggregate receipts from such activity during the previous year do not exceed 20% of the total receipts of such trust during that previous year.
Q3. What is the validity period of a registration obtained under Section 12AB?
Ans: The registration obtained under Section 12AB shall remain valid for a period of 5 years.
Q4. Which form is required to file for conversion of provisional registration into regular registration?
Ans: The trust or institution provisionally registered under Section 12AB shall be required to convert such provisional registration into normal registration by filing an application in Form 10AB at least 6 months before the expiry of the period of the provisional registration or within 6 months of commencement of its activities, whichever is earlier.
Q5. When the registration of trust shall become inoperative?
Ans: The registration under Section 12AB shall become inoperative if approval is obtained under Section 10(23C) or the institution is notified under Section 10(23EC) or Section 10(46) or Section 10(46A).
Q6. What is the validity period of a provisional registration?
Ans: Provisional registration shall be valid for a period of 3 years. The trust or institution shall subsequently file an application for conversion of provisional registration into regular registration in Form 10AB.
Q7. When can a trust or institution apply for direct regular registration?
Ans: Until 30-09-2023, the trust or institution has to apply for two registrations (provisional and regular) simultaneously, even if it has commenced the activities. However, on or after 01-10-2023, the trusts or institutions satisfying the following two conditions can apply directly for regular registration:
a. A trust/institution that has already commenced its activities.
b. No income or part thereof of the said trust or institution has been excluded from the total income on account of applicability of Section 10(23C)(iv)/(v)/(vi)/(via), or Section 11 or Section 12, for any previous year ending on or before the date of such application, at any time after the commencement of such activities.
Q8. When maintenance of books of account is mandatory for a trust?
Ans: It is mandatory for a trust to keep and maintain books of account and other documents if the total income of the charitable trust, without giving effect to the provisions of Sections 11 and 12, exceeds the maximum amount which is not chargeable to income tax in the previous year.
Q9. What is the time period defined to keep and maintain books of account and other documents?
Ans: The books of account and other documents shall be kept and maintained for a period of 10 years from the end of the relevant assessment year.
Q10. When books of accounts are required to be audited?
Ans: The books of accounts are required to be audited where the total income of the trust before exemption under Sections 11 and 12 exceeds the maximum amount not chargeable to tax. The accounts of the trust for that year should be audited by a Chartered Accountant.
Q11. What is the due date for submission of an audit report by a trust?
Ans: The audit report has to be furnished by trust in Form 10B or Form 10BB at least one month prior to the due date of submission of the return of income.
Q12. Who is required to file an audit report in Form 10B?
Ans: The trusts or institutions registered under Section 12AB or approved under Section 10(23C) which satisfy any of the following conditions must file an audit report in Form 10B.
a. If the total income of the trust or institution, without giving effect to the provisions of Sections 11 and 12 or Section 10(23C) (iv), (v), (vi), (via) of the Act, exceeds Rs. 5 crores during the previous year;
b. If such trust or institution has received any foreign contribution during the previous year; or
If such trust or institution has applied any part of its income outside India during the previous year.
Q13. Who is required to file an audit report in Form 10BB?
Ans: The trusts or institutions registered under Section 12AB or approved under Section 10(23C) satisfying all of the following conditions must file an audit report in Form 10BB:
a. If the total income of the trust or institution, without giving effect to the provisions of sections 11 and 12 or Section 10(23C) (iv), (v), (vi), (via) of the Act, is up to Rs. 5 crores;
b. If such trust or institution has not received any foreign contribution during the previous year; and
c. If such trust or institution has not applied any part of its income outside India during the previous year.
Q14. When the filing of a return of income is mandatory for a trust?
Ans: The entities registered under Section 12AB are required to file the return of income under Section 139(4A) if the total income, without giving effect to the provisions of Sections 11 and 12, exceeds the maximum amount not chargeable to Income-tax.
Q15. What is the provision for the accumulation of income?
Ans: An organisation can accumulate 15 per cent of its income indefinitely. The amount so accumulated by the trust shall be utilised for the charitable and religious purposes for which it has been created. Until its utilisation, the amount shall be invested in the statutory forms as specified in Section 11(5).
Q16. When is a trust required to file Form 10?
Ans: As per Section 11(2), if a trust is not able to apply 85 per cent of its income in a particular year, it can accumulate the shortfall to be used for religious or charitable purposes within the next 5 years.
This accumulation is allowed if the assessing officer is informed about the purpose of the accumulation and the period for which the income is being accumulated. The information is to be furnished in Form 10 at least two months prior to the due date specified under Section 139(1) for furnishing the return of income for the previous year.
Q17. When is a trust required to file Form 9A?
Ans: Even if a charitable institution cannot utilise 85% of its income for charitable or religious purposes in India, it shall be deemed to be applied for such purposes in the situations described below.
a. Where income has not been received in the previous year;
b. Where income could not be applied due to other reasons.
Such deemed application of income shall be considered when the institution furnishes the details electronically in Form 9A at least two months prior to the due date specified under Section 139(1) for furnishing the return of income for the previous year.
Q18. What are the permissible modes for investment or deposit under Section 11(5) read with Rule 17C?
Ans: The fund shall be invested or deposited in the following permissible modes:
(a) Immovable property;
(b) Investment in Government Savings Certificates;
(c) Deposit in any Post Office Savings Bank Account;
(d) Deposit in any account with any scheduled bank or a cooperative bank (including a cooperative land mortgage bank or cooperative land development bank);
(e) Investment in units of UTI;
(f) Investment in Central Government or State Government Securities;
(g) Investment in debentures of any corporate body, the principal whereof and the interest whereon are guaranteed by the Central or a State Government;
(h) Investment or deposit in any public sector company. It is to be noted that if the company ceases to be a public sector company subsequent to investment or deposit, the investment in shares will be considered as valid for 3 years from the date the company ceases to be a public sector company. Any other investment or deposit will be considered valid until the company repays them.
(i) Investment or deposits in any bonds issued by a financial corporation engaged in providing long-term funds for industrial development in India, if the corporation is eligible for deduction under Section 36(1)(vii);
(j) Investment or Deposits in any bonds issued by any public sector company carrying on the business of providing long-term finance for the construction or purchase of houses in India for residential purposes, provided the company is eligible to claim deduction under Section 36(1)(viii);
(k) Deposits with a public sector company or investment in any bonds issued by a public sector company providing long-term finance for urban infrastructure in India.
(l) Deposits with IDBI;
(m) Investment in the units issued under any scheme of mutual fund;
(n) Investment in any transfer of deposit to the Public Account of India;
(o) Deposits with authority constituted in India under any law for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both;
(p) Investment by way of acquiring equity shares of a depository as defined in section 2(1)(e) of the Depositories Act, 1996;
(q) Investment in certain securities by a recognised stock exchange;
(r) Investment by way of acquiring equity shares of an incubatee by an incubator;
(s) Investment by way of acquiring shares of National Skill Development Corporation;
(t) Investment in debt instruments issued by any infrastructure finance company registered with the RBI;
(u) Investment in ‘stock certificate’ as defined in paragraph 2(c) of the Sovereign Gold Bonds Scheme, 2015;
(v) Investment made by a person authorised under section 4 of the Payment and Settlement Systems Act, 2007 in the equity share capital or bonds or debentures of a company:
- Which is engaged in operations of retail payments system or digital payments settlement or similar activities in India and abroad and is approved by the RBI for this purpose; and
- In which at least 25% of equity shares are held by the National Payments Corporation of India.
(w) Investment made by a person authorised under Section 4 of the Payment and Settlement Systems Act, 2007 in the equity share capital or bonds or debentures of Open Network for Digital Commerce Ltd, being a company incorporated under Section 7(2)read withSection 8(1) of the Companies Act, 2013, for participating in network-based open protocol models which enable digital commerce and inter-operable digital payments in India.
Q19 . What is the provision for the treatment of corpus donation?
Ans: Any voluntary contributions received by a trust or an institution, created wholly for charitable or religious purposes, with a specified direction (corpus donations) that they shall form part of the corpus of the trust or institution shall not be included in the total income.
The corpus donation shall be invested or deposited in one or more of the forms or modes specified in Section 11(5) maintained specifically for such corpus.
Q20. What is the meaning of anonymous donation?
Ans: ‘Anonymous Donation’ means any voluntary contribution where the person receiving such contribution does not maintain a record of the identity of the donor indicating his name, address, and such other particulars as may be prescribed.
Q21. What is the taxability of anonymous donation?
Ans: The anonymous donations are taxable in the hands of specified trusts (except a religious trust) and institutions only if it exceeds higher of the following limit:
a. Rs. 1 lakh; or
b. 5% of total donation received.
The tax shall be levied only on the amount which exceeds higher of the above-referred limit. Anonymous donations are chargeable to tax at the rate of 30% (plus Surcharge and Health & Education Cess).
Q22. When does the provision of accreted income apply?
Ans: Income-tax Act provides for the levy of tax on accreted income of a specified person. Such tax is levied to ensure that the benefit conferred to a charitable trust over the years by way of tax exemption is not misused by converting it into a non-charitable organisation.
The tax on accreted income is levied in the following circumstances:
a. If a trust is converted into any form which is not eligible for registration under Section 12AA or Section 12AB or approval under sub-clause (iv)/(v)/(vi)/(via) of Section 10(23C);
b. If a trust is merged with an entity which is not having similar objectives and is not registered under Section 12AA or Section 12AB or approved under sub-clause (iv)/(v)/(vi)/(via) of Section 10(23C);
c. In case of dissolution, the trust fails to transfer all its assets to any other trust or institution registered under Section 12AA or Section 12AB or approved under sub-clause (iv)/(v)/(vi)/(via) of Section 10(23C) within 12 months from the end of the month in which the dissolution takes place.
Q23. When is a specified trust or institution deemed to be converted?
Ans: A specified trust or institution shall be deemed to have been converted into any form not eligible for registration under Section 12AA or Section 12AB or approval under Section 10(23C) in the following cases:
(a) If registration granted to it under Section 12AA or Section 12AB or approval under Section 10(23C) has been cancelled; or
(b) If the specified person has modified its objects which do not conform to the conditions of registration or approval and it:
- has not applied for fresh registration under Section 12AA or Section 12AB or approval under Section 10(23C);
- has filed an application for fresh registration under Section 12AA or Section 12AB or approval under Section 10(23C), but the said application has been rejected.
(c) If any trust or institution fails to make an application under Section 10(23C) or Section 12A(1)(ac) for:
- Re-registration/re-approval;
- Conversion of provisional registration/approval to regular registration/approval;
- Renewal of registration/approval within the specified period.
Q24. How to calculate accreted income?
Ans: Accreted income shall be the amount of aggregate fair market value (FMV) of the total assets of the specified trust or institution as reduced by the total liability as on the specified date.
Q25. What is the specified date for the purpose of calculation of accreted income?
Ans: The specified date shall be the following:
a. the date of the order cancelling the registration under Section 12AA or Section 12AB, or approval under Section 10(23C) as the case may be;
b. the date of adoption or modification of any object;
c. the last date for making an application for registration or approval expires;
d. the date of merger with an entity which is not having similar objectives and is not registered under Section 12AA or Section 12AB or approved under Section 10(23C);
e. the date of dissolution where the specified trust or institution fails to transfer all its assets to any other registered trust or institution.
Q26. What is the tax rate applicable on accreted income?
Ans: The tax on accreted income shall be levied at the maximum marginal tax rate, and this tax is in addition to income-tax chargeable in the hands of a specified person.
If the specified trust or institution fails to pay the tax on the accreted income within the specified time, simple interest at the rate of 1% for every month or part thereof on the amount of such tax shall be charged for the period beginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid.
Q27. What is the provision for Section 115BBI?
Ans: Exemption Section 11 is available to a trust with respect to the income applied for charitable or religious purposes in India. If the income is applied for purposes other than religious or charitable purposes, it shall be taxable under Section 115BBI. Section 115BBI provides a special rate to tax the following specified income of a specified charitable institution:
a. Income accumulated or set apart in excess of 15% of the income where such accumulation is not allowed under any specific provisions of the Act;
b. Deemed income as referred to in Section 11(1B) [option is exercised but the income is not applied in the year of receipt or immediately following the year of receipt or accrual];
c. If accumulated income is applied for purposes other than religious or charitable purposes or ceases to be accumulated or set apart for application to religious or charitable purposes;
d. If the amount is applied for purposes other than the objects of the institution approved under Section 10(23C)(iv), (v), (vi) and (via) or ceases to be accumulated or set apart for application thereto;
e. If accumulated income ceases to remain invested in the statutory form of investment specified under Section 11(5);
f. If it is not utilised for the purpose for which it is so accumulated within the allowed period of 5 years;
g. If accumulated income is credited or paid to any other trust or institution registered under Section 12AA/12AB or approved under Section 10(23C)(iv), (v), (vi) and (via);
h. any income which is not exempt under Section 10(23C) on account of investment in impermissible mode as referred to in Section 11(5);
g. any income which is not exempt under Section 11/12 on account of investment in impermissible mode as referred to in Section 11(5);
i. any income which is not exempt under Section 10(23C) on account of its application for the benefit of any interested person;
j. any income which is not exempt under Section 11/12 on account of its application for the benefit of any interested person;
k. any income which is not excluded from total income due to its application towards charitable purposes outside India.
The aggregate of the specified income shall be charged to tax at the rate of 30% plus applicable surcharge and cess.
Q28. What are the specified violations when the registration of a trust can be cancelled?
Ans: The following shall be considered as ‘Specified Violation’:
a. If any income derived from a property held under trust, wholly or in part, has been applied other than for the objects of the trust or institution.
b. If the trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives.
c. If separate books of account are not maintained by the trust or institution in respect of the business, which is incidental to the attainment of its objectives.
d. If the trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not enure for the benefit of the public.
e. If the trust or institution established for charitable purposes has applied any part of its income for the benefit of any particular religious community or caste.
f. If any activity being carried out by the trust or institution is not genuine or is not being carried out in accordance with the conditions subject to which it was registered.
g. If the trust or institution has not complied with the requirement of any other law for the time being in force as is material to achieve its objects, and the order, direction, or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality.
h. If the application referred to in Section 12A(1)(ac) is incomplete or contains false or incorrect information. Hence, the PCIT/CIT can also initiate the cancellation proceedings if the registration application filed by the trust or institution is incomplete or contains false or incorrect information.
Q29. What are the consequences of cancellation of registration?
Ans: The following consequences may arise on the cancellation of the registration of a trust:
a. The exemption under Sections 11 and 12 would not be available;
b. The income will be computed under the normal provisions of the Act;
c. Any donation or aid to an individual will be regarded as his income taxable under Section 56(2)(x) if it exceeds the threshold limit of Rs. 50,000;
d. The approval granted under Section 80G may be cancelled;
e. Levy of accreted tax under Section 115TD.
Q30. Under which circumstances an exemption of Sections 11 and 12 will be withdrawn?
Ans: The exemption to a charitable or religious organisation will be withdrawn if any of the provisions of Section 13 are violated, even if other conditions of Sections 11, Section 12, and Section 12A are complied with. An organisation, under the following circumstances, may lose its exemptions under Section 11 and Section 12:
a. If any part of the income from the property held under a trust for private religious purposes does not enure for the benefit of the public.
b. If a charitable trust or institution is created for the benefit of any particular religious community or caste, no part of the income applied to such purposes is exempt from tax.
c. If part of the income is used or applied for the benefit of an interested person, then only such part of the income shall not be considered for the exemption to the trust or institution. The exemption for the balance income shall not be withdrawn just because a part of the income is applied for the benefit of the interested person.
d. If funds are deposited or invested in impermissible mode, then only income to the extent of such deposit or investment shall not be considered for the exemption. The exemption for the balance income shall not be withdrawn just because funds are deposited or invested in an impermissible mode.
e. The exemptions under Section 11 and Section 12 shall not be available in respect of the anonymous donations taxable as per the provisions of Section 115BBC.
f. If the trust violates the proviso to Section 2(15). In other words, if a trust is engaged in business activity and the aggregate receipts from such activity during the previous year exceed 20% of the total receipts.
The exemption shall not be available for the amount accumulated under section 11(2) if the Form 10 and Income-tax return for the corresponding financial year are not submitted within the due date prescribed under Section 139(1).
Q31 . Which persons are treated as interested persons?
Ans: The following persons are categorised as ‘interested persons’:
a. The author of the trust or the founder of the institution;
b. Any person who has made a total contribution up to the end of the relevant previous year of an amount exceeding Rs. 50,000;
c. Where the author, founder or substantial contributor is a HUF, a member of the HUF;
d. Any trustee of the trust or manager of the institution;
e. Any relative of such author, founder, substantial contributor, member, trustee or manager as aforesaid; and
f. Any concern in which any of the persons referred to above has a substantial interest.
Relative in relation to an individual means:
a. Spouse of the individual;
b. Brother or sister (and their spouses) of the individual;
c. Brother or sister (and their spouses) of the spouse of the individual;
d. Any lineal ascendant or descendant (and their spouses) of the individual;
e. Any lineal ascendant or descendant (and their spouses) of the spouse of the individual;
f. Any lineal descendant of a brother or sister of either the individual or of the spouse of the individual.
Q32. What is the meaning of substantial interest?
Ans: A person is deemed to have a substantial interest in concern if he (or along with ‘interested persons’ as mentioned above) at any time during the previous year:
a. Holds at least 20% of equity share capital, in case of a company; or
b. Entitled to at least 20% of profits in the case of any other concern.
Q33. When is an Interested Person deemed to be benefited?
Ans: The income or the property of the trust shall be deemed to have been applied for the benefit of an interested person in the following cases:
a. Loan without adequate interest or security
b. Use of property without adequate rent
c. Excess payment of salary
d. Inadequate remuneration for services rendered
e. Excess payment for purchases of any share, security or other property
f. Inadequate consideration for sales of any share, security or other property
g. Diversion of income or property where the aggregate value exceeds Rs. 1,000
h. Investment in concern in which an interested person has a substantial interest
