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-
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Section
11
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Section 10(23C)
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• Assessee
has
to
apply for
registration
u/s 12A.
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• Assessee has to apply to CIT (Exemption) for Approval in Form 56D.
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• If the AO is not satisfied with the activities carried out by the
trust, he may disallow the benefit of
section 11.
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• AO is duty
bound to grant exemption.
• However, AO can request CIT(Ex) for withdrawal of approval.
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• CIT (Ex)
is duty bound
to give an opportunity of being heard before withdrawing the approval.
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• Donation for corpus
fund
was exempt u/s 11(1)(b).
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• Donation received for corpus fund is not exempt.
• However w.e.f 01/04/2020, the same is also exempt.
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• 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.
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• There is no such benefit of deferring the spending in
this section.
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• Audit Report
is to be filed in
Form
10B
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• Audit Report
is to be filed in
Form
10BB.
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• 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.
