Taxation of Charitable Trust – Application, Exemption, Returns, Auditing

Taxation of Charitable Trust – Application, Exemption, Returns, Auditing, Deduction, Accounts. Complete Details for Charitable Trust Taxation in India. In this article we are providing complete details for Tax Matters of Charitable Trust like – Introduction of Charitable Trust, Application of Charitable Trust under section 12A, Charitable Purpose 2(15), Tax Exemption for Charitable Trust, Exemption not available u/s11, Returns of Charitable Trust & penalty for non filing,  80G Certificate, Deduction u/s 80G etc. Now scroll down below n check more details for “Taxation of Charitable Trust – Application, Exemption, Returns, Auditing”

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Taxation of Charitable Trust

Taxation of Charitable Trust

Charitable Trust 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.

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

  • Original/Certified copy of the instrument under which trust is created along with copy thereof or
  • Original/Certified copy of the document evidencing the creation of the trust along with one copy thereof
  • Two copies of accounts of the trust for the latest years.

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.

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.
  • 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.

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

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).

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.

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.

80G 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.

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.

CA Sweety Sharma [email protected] 098736-956-62

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