Let us know the taxation of charitable trust

1. Taxation of Charitable Trust
By
CA Sweety
Sharma

2. SYNOPSIS
• Introduction
• Application under Sec 12A
• Charitable Purpose 2(15)
• Exemption u/s 11
• Exemption not available u/s11
• Returns of Charitable Trust & penalty for non filing
• Audit of the Accounts of Charitable Trust
• 80 G Certificate
• Deduction u/s 80G

3. Introduction
• Charitable/Religious Trusts have been exempted from Tax under
ITA, 1961 provided that it must be carrying an activity covered
u/s 2(15) of ITA, 1961.
• The Trust is required to make application for grant of exemption
u/s 12A & 12AA of ITA, 1961.
• The exemption is given u/s 11& 12 of the Act provided trust is
registered u/s 12 A of the Act. If, it is not registered, no exemption
will be allowed.

4. Application under Sec 12A
• Application for registration of Charitable Trust has to be made in duplicate in
Form 10A to the Commissioner/Principal Commissioner along with
following documents
i. Original/Certified copy of the instrument under which trust is created
along with copy thereof or
ii. Original/Certified copy of the document evidencing the creation of
the trust along with one copy thereof
iii. Two copies of accounts of the trust for the latest years.

5. Cont…
• Commissioner may call for other documents/information which is necessary
to satisfy himself about the genuineness of the Activities.
• He may pass an order registering the trust if he satisfy himself objects of the
trust, but if he is not satisfied, he will pass an order refusing to register the
trust.
• An appeal may be filed against refusal of registering the trust to the ITAT.
• He must pass the order registering/refusing to register before expiry of 6
months from the end of six month in which application is made. here
is no concept of DEEMED/AUTOMATIC registration if application was
not disposed of within said 6 months.

6. Charitable Activity/Purpose 2(15) defined
• Any relief to the poor
• Medical relief
• Education
• Preservation of environment ( watersheds/forests/wildlife)
• Preservation of monuments of historic nature
• YOGA
• Advancement of any other object of general public utility.

7. Cont…
• Advancement of any other object of general public utility shall not be
charitable purpose if it involves any activity in the nature of trade,
commerce or business for a consideration irrespective of use of the income
from such activity
If the aggregate value of the receipts from such activity exceeds 20%
of gross receipts of the trust in the previous year.
However it continues to be charitable activity provided income from such
activity does not exceeds 20% of total receipts.

8. Exemption u/s 11
• Sec 11(1) : 15% of income is exempted on Ad-hoc basis
• Sec 11(2) : Balance of income is exempted only if it is applied to the purpose to
that extent.
• Income in the form of voluntary contributions made with specific direction it shall
form part of the corpus trust i.e. corpus donations is exempted fully.
Sec 11(2) : Where 85% of the income is not applied to charitable purpose but is
accumulated, such accumulated income will not be included in total income if such
trust intimate to AO for which purpose it is being accumulated & for what period it
is being accumulated that should not exceed 5 years & income so accumulated must
be deposited in 11(5) modes

9. Exemption u/s 11 not available if
• Income for private religious purpose which does not ensure benefit of
general public
• Income for benefit of particular religious community
• Income for the benefit of specified persons such author/trustee/
substantial contributor/relative etc.
• Funds not invested in Specified modes u/s 11(5).

10. Returns of Charitable Trust
• As per Sec 139(4A) Charitable Trust is required to file the return in Form ITR 7
on or before the due date if total income before giving exemption u/s 11 & 12
exceeds the maximum amount not chargeable to tax
• Non filing of Return on or before due date will result in penalty of Rs. 100/- per
day during the period of default.
• When Charitable Trust are required to get audited due date will be 30th of the
Assessment Year, in other cases due date will be 31st July of AY.
• Tax Slab rate as applicable to individual will be applicable to Charitable Trust
except Anonymous Donations.

11. Audit of Charitable Trust
• Where the total income of Charitable Trust before exemption u/s 11& 12
exceeds maximum amount not chargeable to tax, audit is mandatory by the
chartered accountant.
• Audit Report must be in the Form 10B signed by Chartered Accountant.

12. 80 G Certificate to attract Donations
• Charitable Trust can apply for 80G Certificate, for encouraging donors to
donate and get tax exemption, in Form 10G along with following
documents
• Copy of Registration Certificate u/s 12A
• Copy of Accounts for the latest years 1-3 years which are available.
• Copy of Trust Deed and Bye laws.
• Copy of PAN of Trust.

13. Deduction u/s 80G
• Deduction is not allowed when donated outside India to charitable Trust.
• Only few funds are available to 100% deduction, rest are allowed to 50% of
the mount donated
• Donation is restricted to the 10% of Adjusted Total Income.
• Cash Donation exceeding Rs. 10000 will not allowed as deduction.
• Donation in kind is not allowed for deduction.
• This deduction is available to everyone including NRI’s.

14. Greetings!
CA Sweety Sharma
sweety24th@gmail.com
098736-956-62