Taxation of Charitable/Religious Trust

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Shalki Bansal

Income of charitable/religious trust can be classified as follows:-

I. Voluntary Contributions (donations) Section 11(1)

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

II. Income From Property held under trust for charitable and
religious purposes

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Particulars Taxability

15% of gross receipts from such trust Exempt

property

85% of gross receipt from such

trust property

i. Income Applied for Charitable Exempt (Sec11(1))to the extent to which

Purposes in India 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)

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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
In any other case
-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.
-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.
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 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.
♠ 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)):
Particulars Year of
Withdrawal

4. Deposit with or investment in Applied for purpose Income of

bonds of a public co. having main other than the previous year in
object of providing long term finance purpose for which it which so applied
for urban infrastructure/industrial is accumulated or set
development/ residential house, in apart
India
Ceases to be invested Income of
in the forms specified previous year in
u/s11(5) which it so
ceases

If not utilised till 5 Income of

years or immediately previous year
succeeding year immediately
following expiry
of 5th year.

Donated to trust Income of

registered u/s 12AA previous year in
or 10(23C) which income is
so donated

Not accumulated for specific purpose Taxable in case income is not applied for
in India charitable/religious purpose in India and is
also not accumulated for specific purpose
in India.

III. Capital Gains (Sec 11(1A)

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

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2) Cost of new asset < net consideration from asset sold → Capital Gains Exempt = Cost
of new asset less Cost of old asset

IV. Anonymous Donations (Sec 115BBC)

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.

Taxability

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

b) 1,00,000

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)

Cases where anonymous donations shall not be taxable u/s

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

Section 13: Section 11 not to apply in certain cases:

1. Entire income from the property held under a trust for private religious purposes which
does not enure for the benefit of the public.

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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

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