11(4A Income from business which is not incidental to the attainment of the

) objectives of the trust, or in respect of which separate books of

accounts have not been maintained.

Income tax provisions related to charitable trust in brief

Exemption :-Income derived from property held under trust or of an institution (‘trust’) wholly
for charitable/religious purpose is exempt, if 85% of the income is spent on the objects of the
trust, during the year. If the amount spent is less than 85% of the income, the shortfall is taxable,
unless the trust has complied with the conditions mentioned in the table below.

‘Charitable purpose’ includes relief of the poor, education, medical relief, and the advancement
of any object of general public utility. However, if it involves carrying on of any activity in the
nature of trade, commerce or business or any activity of rendering any service in relation to
trade, commerce or business for a cess or fee or any other consideration, irrespective of the
nature of use or application or retention, of the income from the said activity, the same will not
be regarded as advancement of any object of general public utility. However, if the total receipts
from such activities do not exceed Rs. 10,00,000/-, such activities of the trust will continue to be
regarded as activities for charitable purpose. Preservation of environment (including watersheds,
forests and wildlife) and preservation of monuments or places or objects of artistic or historic
interest would be considered as “charitable purpose” other than “advancement of any object of
general public utility”.

Circumstances for Written Conditions Consequences, if

not spending 85% of appln. to conditions not satisfied
income be made
Application in F. No. Before the To be spent within  Such income
10 to be made expiry of period of accumulation deemed to be
specifying purpose time or immediately income of the
for accumulation of allowed following year. previous year in
income for period of u/s. 139(1) Pending application of which any of the
5 years. Period for for income, to be invested conditions not
which unable to apply furnishing in manner as specified satisfied.
income for that the return in S. 11(5). Cannot be  If income not
purpose due to court spent by way of spent within
order/injunction to be donation to another stipulated time,
excluded charitable trust or for the purpose of
institution except if the accumulation,
Assessing Officer deemed to be
permits the same in the income of the
year in which the trust previous year
or institution is immediately
dissolved. following period
 of accumulation,
unless Assessing
Officer’s
permission
obtained to spend
it on other objects
of the trust.

Whole/part of the As above To be spent in the year Such income deemed to

income not received of receipt, or in the be income of previous
during previous year next year year immediately
following year of receipt.
Any other reason As above To be spent in the year Such income deemed to
of receipt, or in the be income of previous
next year. year

Voluntary Contribution received by any university or educational institution referred to in

section 10(23C)(vi) or hospital or other institutions referred to in section 10(23C)(via) shall be
deemed to be income (with retrospective effect from assessment year 1999-2000). Similarly,
voluntary contributions received by any university or other educational institution or any hospital
or other institution referred to in sections 10(23C)(iiiad) and 10(23C)(iiiae) respectively will be
deemed as income received by them.

With effect from 1st June, 2007 any fund or institution established for charitable purposes or any
trust established for public, religious and charitable purposes will be notified by Prescribed
Authority which hitherto was notified by Central Government.

Registration:-Registration under section 12AA will be granted from 1st day of the financial year
in which the application for registration is made. Commissioner not empowered to condone the
delay in application for registration. The Commissioner has power to cancel the registration of
the trust by an order in writing if he is satisfied that the activities of trust are not genuine or are
not being carried out in accordance with the objects of the trust. Commissioner of Income tax
now also has power to cancel registration of trust granted under provisions of section 12A of the
Income-tax Act, 1961.

Appeals :-Orders passed under section 12AA or under section 80G rejecting the registration of
trust/ rejecting approval under section 80G are appealable. The appeal lies to the Income tax
Appellate Tribunal.

Approval under section 80G:-From 1st October, 2009, approval once granted under section
80G will be valid in perpetuity unless revoked by the Commissioner of Income tax in accordance
with the provisions of section 80G(5)(vi) of the Income tax Act, 1961.

Audit:-To qualify for exemption u/ss. 11 and 12, a trust having total income (before exemption
u/ss. 11 and 12) exceeding the maximum amount not chargeable to tax must have its accounts
audited by a C.A.
Investments:-All investments of the trust must be in modes provided in s. 11(5). If not, they
must be brought in conformity within 1 year from the end of the previous year in which such
investments are acquired, or 31-3-1993, whichever is later. Contravention results in income and
wealth of the trust being taxed at maximum marginal rate. This restriction does not apply to:

1. Any asset held as part of the corpus as on 1-6-1973;

2. Any accretion to shares, forming part of the corpus as on 1-6-1973, by way of bonus
shares;
3. Any debentures acquired before 1-3-1983. If debentures acquired after 28-2-1983 and
before 25-7-1991, exemption is denied only in respect of income from such debentures,
provided debentures are disinvested by 31-3-1992.

Modes of Investment specified in S. 11(5)

1. Investment in Government savings certificates/other securities/ certificates issued by

Central Government under Small Savings Schemes;
2. Deposit in any account with the Post Office Savings Bank;
3. Deposit in any account with a scheduled/co-operative bank;
4. Investment in units of the Unit Trust of India;
5. Investment in any security of the Central/State Government;
6. Investment in debentures whose principal and interest are fully and unconditionally
guaranteed by Central/State Government;
7. Investment or deposit in any public sector company (PSC); Shares of PSC may be
retained for three years and other investments or deposits till its maturity once PSC
ceases to be a PSC;
8. Deposits with or investment in any bonds issued by an approved financial corporation
engaged in providing long-term finance for industrial development in India;
9. Deposits with or investment in any bonds issued by an approved public company with
main object of carrying on business of providing long-term finance for construction /
purchase of houses in India for residential purposes or for urban infrastructure;
10. Investment in immovable property;
11. Deposits with the Industrial Development Bank of India;
12. Any other prescribed form or mode of investment or deposit. (for example, Units of
mutual funds referred to in s. 10(23D), investment by way of acquiring equity shares of a
‘depository’ prescribed).
13. Investment in “Indira Vikas Patra” and “Kisan Vikas Patra” are in accordance with the
norms and modes specified in sec. 11(5) – Circular No. 566, dt. 17-7-1990.

Corpus donations

U/s. 11(1)(d), voluntary contributions with specific direction that they shall form part of the
corpus of the trust are not includible in the total income of the trust. However, u/s 12 other
voluntary contributions would be deemed to be income of the trust.
Business income:-Exemption is not available in relation to any profit and gains of business of a
trust, unless the business is incidental to the attainment of the objectives of the trust and separate
books of account are maintained in respect of such business.

Capital gains:-The gains arising from transfer of a capital asset, is deemed to have been applied
to charitable/religious purposes, if the whole net consideration is used to acquire new capital
assets. If only part of the net consideration is so utilised, such gains, as equals the excess of the
amount so utilised over the cost of the transferred asset is deemed to have been applied for
charitable/religious purposes.

Anonymous donations:-The term “anonymous donation” is defined to mean any voluntary

contribution, where the person receiving such contribution does not maintain a record consisting
of the identity of the person making such contribution indicating the name and address of the
person and such other particulars as may be prescribed. Such anonymous donations will be taxed
@ 30%. However, the following anonymous donations are not covered:–

 donations received by a trust or institution which is created or established wholly for

religious purposes;
 donations received by any trust or institution created or established wholly for religious
and charitable purposes other than any anonymous donation made with a specific
direction that such donation is for any university or other educational institution or any
hospital or other medical institution run by such trust or institution.
 However, in case of partly religious and partly charitable institutions where the
anonymous donations are directed towards medical or educational institutions run by
such entities or anonymous donations are received by wholly charitable institutions, it
will be taxable to the extent such donations exceeds 5% of the total income of institution
or Rs.100,000/- whichever is more.

Time limit for application for claiming exemption:-Application by funds, trusts, institutions,
universities, other educational institutions, hospitals or medical institutions seeking exemption
under section 10(23C), could now be made on or before 30th September of the relevant
assessment year.

Electoral Trust:-Electoral Trust to be approved by the Central Board of Direct Taxes. Voluntary
contributions received by Electoral Trust to be treated as income with effect from 1st April,
2010. Income of Electoral Trust by way of voluntary contribution will be exempt subject to
fulfillment of following conditions:

 Such Electoral trust distributes to the political parties (registered under section 29A of the
Representation of the People Act, 1951) 95% of the donation received by it during the
previous year along with the surplus, if any brought forward from any earlier years and;
 Electoral Trust functions in accordance with the rules made by the Central Government.

Contribution to Electoral Trust eligible for deduction while computing taxable income.