Charitable/religious trusts are the trusts which are formed with an objective of providing relief to poor, education, medical relief, preservation of environment/ monuments , advancement of objects of general public utility, religious purpose, etc. There taxation has always been a point of concern. The entire income of such trust (be it house property, capital gain or any other income) is taxed as per the provisions of section 11-13 of the Income Tax Act, 1961 rather than as per there relevant provisions . Here I have discussed the major areas related to taxation of income of such charitable/religious trusts.
Income of charitable/religious trust can be classified as follows:-
Voluntary contributions are basically the donations received by the charitable/religious trust which form part of income of the trust.
They are of two types:
1) Donations received with specific direction that they shall form part of corpus fund
Such donations are exempt
2) Donations received without such specific instruction
Such donations shall form part of income from trust property
|15% of gross receipts from such trust property||Exempt|
|85% of gross receipt from such trust property|
|i. Income Applied for Charitable Purposes in India||Exempt (Sec11(1))to the extent to which applied for the following purposes:
1. Purchase of capital asset
2. Repayment of loan for purchase of capital asset
3. Revenue Expenditure
4. Donation to trust registered u/s 12AA or u/s 10(23C)
|Income deemed to be applied for charitable purpose in India:
In case whole or part of income is not received during that year in which it is derived
|-Exempt in case :
a. Income is applied for charitable purpose in India in the year of receipt or in the immediate succeeding year.
b. Assessee submits a declaration to the Assessing Officer on or before the due date of filling of return as per section 139(1) that such income shall be applied for such purpose in the year of receipt or succeeding year.
|In any other case||-Exempt in case :
a. Such income is applied in above mentioned charitable purposes in the immediately succeeding year.
b. Assessee submits a declaration to the Assessing Officer on or before the due date of filling of return as per section 139(1) that such income shall be applied for such purpose in the immediate succeeding year.
|II. Income not applied for charitable/religious purpose in India
Accumulated for specific purpose in India
Q) What are the modes in which income shall be accumulated for specific purpose (sec 11(5))??
A) 1. Investment in government saving certificate/UTI
2. Deposit in post office savings bank/scheduled bank.
3. Investment in immovable property.
4. Deposit with or investment in bonds of a public co. having main object of providing long term finance for urban infrastructure/industrial development/ residential house, in India
|♠ Exempt (sec 11(2)) in case accumulated for specific purpose in India subjected to the following conditions:
A) Assessee gives notice to Assessing officer specifying purpose and period (cannot exceed 5 years) of accumulation before assessment is complete.
B) Accumulated amount is deposited /invested in specified form.
♠ Withdrawal of Exemption in the following cases (sec11(3)):
|Not accumulated for specific purpose in India||Taxable in case income is not applied for charitable/religious purpose in India and is also not accumulated for specific purpose in India.|
The capital gain arising from the transfer of a property held by religious/charitable trust shall be taxable as under:
1) Cost of new asset ≥ net consideration from asset sold → Entire capital gain is exempt
2) Cost of new asset < net consideration from asset sold → Capital Gains Exempt = Cost of new asset less Cost of old asset
Q) What are anonymous donations??
A) Anonymous donations are basically the donations where the person receiving the donations doesn’t maintain any record of the person giving the donation. E.g. – Offerings given in temple in donation box.
Step 1: Compute the total amount of anonymous donation received by the charitable/religious institution
Step 2 : Compute 5% of the total donations(corpus donations + anonymous donations + other donations not forming part of corpus)
Step 3 : Select the higher of the following two:
a) Amount computed in step 2 or
The amount computed in step 3 shall be exempt and the remaining amounts of anonymous donations are taxable in the hands of such charitable/religious institution @ flat 30% (115BBC)
1) Where donations are received by trust established WHOLLY for RELIGIOUS purpose (no charitable purpose). E.g.-donations given by devotees to trust owning a temple.
2) However in case such religious/charitable trust also runs a school/medical institution/educational institution ,etc and the donations are received with specific direction that they are for such school/institution then such donations shall be taxable
Anonymous donations not taxable u/s 115BBC → taxable as per section 11 & 12
Anonymous donations taxable u/s 115BBC → not exempted u/s 11 & 12
1. Entire income from the property held under a trust for private religious purposes which does not enure for the benefit of the public.
2. Entire income of a charitable trust or institution created or established for the benefit of any particular religious community or caste.
3. Entire income of the following charitable/religious trust:-
a) where any part of the income of such trust is used for the benefit of any person specified under sec 13(3) or
b) Where any property of the trust id used for the benefit of any person specified under sec 13(3)
4. Entire income of a charitable /religious trust whose funds are not invested in modes specified under section 11(5).
Hope this article helped you in understanding the taxation of charitable/religious trust. For any further query please at [email protected]
Republished with Amendments