Income tax Provisions relating to Charitable and Religious Trust

Income tax Provisions relating to Charitable and Religious Trust

•    The expression “charitable purpose” has been defined under Section

2(15) of the Act to include: (a) relief of the poor, (b) education,

(c) medical relief,

(d) preservation of environment (including water sheds, forests and wild life)

(e) preservation of monuments or places or objects of artistic or historic interest and

(f) any other object of public utility.

•    Most  of  the  charitable  trusts  claim  exemption  u/s  11.  While  the exemptions available u/s 11 are general and available to all the charitable organisations, Section 10(23C) of the Act is a specific exemption   available   to   certain   Government   and   non-government universities, medical and educational institutions.

•    Key Differences for exemptions u/s 11 and u/s 10(23C) are-

Section 11	Section 10(23C)
•    Assessee  has  to  apply  for registration u/s 12A.	•    Assessee  has  to  apply  to CIT    (Exemption)              for Approval in Form 56D.
•    If  the  AO  is  not  satisfied with  the  activities  carried out by the trust, he may disallow     the    benefit     of section 11.	•    AO is duty bound to grant exemption. •    However,   AO   can  request CIT(Ex)               for   withdrawal               of approval.

	•    CIT (Ex) is duty bound to give an opportunity of being heard   before   withdrawing the approval.
•    Donation  for  corpus  fund was exempt u/s 11(1)(b).	•    Donation       received       for corpus fund is not exempt. •    However w.e.f 01/04/2020, the same is also exempt.
•    For  incomes  due  but  not received,   (Interest   Income on   FD)   or   for   donations received in the last few days of the previous year, trust can file Form 9A and give an   undertaking   that   the income will be spent when the same is received by the trust. To be shown under “Application of Income” in the Current year only.	•    There is no such benefit of deferring   the   spending   in this section.
•    Audit Report is to be filed in Form 10B	•    Audit Report is to be filed in Form 10BB.

•    Universities,     Educational     Institutions,     Hospitals     or     medical institutions which are wholly and substantially financed by the government do not require prior approval u/s 10(23C). The only precondition being that they must file their Income tax return on or before the due date.

•    Re-Registration of Trusts

o  Every Charitable trust registered u/s 12AA or approved u/s

10(23C) will have to apply in a simplified form (yet to be notified) before   31/08/2020,    failing   which    the   registration   or   the approval will get cancelled.

o  Earlier the trusts could have registrations under both 12AA as well as u/s 10(23C). However, from now onwards the trust can either have 12AA registration or a 10(23C) approval but not both.

o  Once an existing trust is re-registered, the registration will be valid for a period of 5 years.

o  At the completion of 5 years term, fresh application must be made at least 6 months prior to the completion of 5 years.

o  For fresh registrations, the trust must apply at least 1 month prior to the commencement of the previous year for which the registration is seeked.

o  On fresh registration, a provisional registration will be issued for a period of 3 years. After the commencement of Charitable activities, the trust can apply for permanent approval, which will be valid for 5 years.

o  If the application is already done in PY 2019-20, provisional registration will be granted.

•    When there is a modification in the objects of the trust, the trust much apply for modification of objects within 30 days and obtain a fresh registration, failing which the registration will be cancelled.

•    15% of Gross Receipts (and not surplus) is to be accumulated.

•    Amounts more than 15% can be accumulated, subject to the relevant provisions and Form 10 or Form 9A can be filed on or before the due date of Income tax Return and return must also be filed on time. The amounts so set aside are to be kept in modes prescribed u/s 11(5). This amount cannot be donated to any other trust.

•    In case where there is excess application than receipts, leading to a deficit, the excess application of the current year can be taken as application of the next year as held by the apex court In case of CIT v/s Sibros Education Society.

•    All  exempt  income  u/s  10  (except  agriculture  income  u/s  10(1)) should be applied u/s 11 & 12. Income being exempt is no reason for not applying the same.

•    The provisions of section 40(a)(i)(a) & 40A(3) (including 40A(3A)) shall apply mutatis mutandis to charitable trusts.

•    Depreciation is not allowed on fixed assets if purchase or construction of same was considered as application of income.

•    In case where a loan is taken for purchase of asset, the principle repayment and interest on loan payment shall be taken as application of income.

•    Anonymous  donation  is  taxable  as  per  the  provisions  of  section

115BBC @ 30% if the anonymous donations exceed Rs 1,00,000 or

5% of the total donations, whichever is more.

•    For donations received for corpus fund, specific directions/ intimation should be received from the donor for the same.

•    The provisions of anonymous donations do not apply to a religious trust.

•    For trusts registered u/s 80G, they will have to re-register themselves by applying before 31/08/2020 the approval will be valid for 5 years. Application for renewal will have to be filed before 6 months of expiry of the 5 year period.

•    In case of a new application – provisional registration will be granted for 3 years.

•    The trust shall prepare a statement containing name, address, PAN of donor and furnish the same on Income Tax portal in the manner prescribed.

•    The same shall be auto populated in donor’s portal. Only after this

can he claim deduction u/s 80G.

•    If the gross receipts of the trust pertain to incidental activity related to the mail purpose of the charitable trust then income from the same shall be considered in calculating exemption u/s 11. Eg: Hospitals operating a pharmacy shop.

•    The provision of 20% of business activity is applicable to trusts having object as advancement of any other object for general public utility. In this case only 20% of gross receipts shall be from business activity. If not, the registration will be withdrawn.

•    If 6 months have elapsed from the date of filing application u/s 12A, the trust shall be deemed to be registered.

•    In case of an unregistered trust, if the trust receives donation in excess of Rs 50,000/-, the same shall be taxed as income from other sources u/s 56(2)(x).

•    Trusts can make donations to other trusts. However the same can be made only out of current income and not corpus donations.

•    115TD was inserted to ensure the corpus and asset base of the trust accreted over a period of time continues to be utilised for charitable purposes. In case of dissolution of the trust, all the assets shall be transferred to another trust having objects of charitable purpose.