Tax Exemption For Charitable Trust

Tax Exemption For Charitable Trust

Charitable Trusts – A Quick Introduction

“The word ‘charity’ connotes goodness in both thought and action. It involves an inspiration of benefiting others instead of oneself” Supreme Court within the case Andhra Chamber of Commerce [1965] 55 ITR 722 (SC).

Charity could be a voluntary help either in money or kind to the needy. Collective efforts are always more fruitful. Hence, there are various Non-Governmental Organizations (NGOs) and non-profit entities constantly engaged in charitable activities by raising funds everywhere on the planet by forming either an establishment of trust.

Efforts of such institutions play a major role in promoting economic development and also the welfare objectives of the govt. Their outreach and more localized approach help to spot the needy and lend a supporting hand. For this reason, the Indian government has provided various tax incentives and exemptions to charitable institutions, Section 80G being a major one.

Tax Exemption

Charitable Trust Carrying On Business

There is no prohibition on a public trust from carrying on a business. The income from a business conducted by a trust shall also qualify for tax exemption provided certain criteria are fulfilled. additionally, any income of a trust shall not qualify for tax exemption unless the business is accompanying the attainment of the objects of the trust and separate books of account are maintained in respect of such business. for example, if public trust is established for medical relief, then the manufacturing of medicines, the running of a dispensary or a hospital, or a rest home shall be considered to be a business concomitant to the target of the public trust.

Trust Claiming Tax Exemption Under Section 10

Trusts and institutions formed for the promotion of research, education, sports, certain professions, khadi, and village industries, etc., or as hospitals and notified charitable or religious institutions, are entitled to total exemption from tax under Section 10 of the revenue enhancement Act.

Trust Claiming Tax Exemption Under Section 11

Section 11 states that any income, profit, or gain obtained from property held under trust or other legal obligation solely for religious and charitable purposes is not included in the trust’s or institution’s total income until the time as revenue is utilized or accumulated for such purposes.

Trust Eligible For Tax Exemption

Tax Exemption For Charitable Trust

11 and section 12 exemptions are available to the following charitable or religious trusts if certain circumstances are met:

  1. In India, trusts founded only for charity or religious reasons and allocating their profits to such causes are known as charitable or religious trusts.
  2. Trusts created before 1.4.1962 partly just for charitable or religious purposes and applying (or accumulating) their income to such purposes, in India.
  3. Trusts established before 1.4.1952 for charitable or religious purposes and using their revenue for such causes outside India, as allowed by a general or specific order of the Board.
  4. Trusts created on or after 1.4.1952, for the charitable purpose of promoting international welfare within which India is interested, authorized by a General or special order of the Board, and applying their income for such purpose outside India.
  5. Charitable trusts were created for the advantage of scheduled castes, tribes, backward classes, or women and youngsters.

How should Income Be Applied To Be Exempt?

To be exempt, a trust is required to use at least 85% of its income for charitable or religious purposes in India. The following items are included in the tax laws’ charitable purpose definition:

  • Relief of the poor
  • Education
  • Yoga
  • Medical relief
  • Environment preservation (monuments, sites, or artefacts of aesthetic or historic importance)
  • Advancement of the other object of general utility. However, if any activity within the nature of trade, commerce, or business, or any activity of rendering any service in relevancy to any trade, commerce, or business, for a cess or fee or the other consideration isn’t considered to be for charitable purposes, no matter the character of use or application, or retention of the income from such activity unless:
  • such activity of trade/commerce/business is undertaken within the course of the particular ending of such advancement of the other object of general service and
  • the aggregate receipts from such activity/ activities during the yr don’t exceed 20% of the full receipts of the said trust or institution during that twelvemonth

In addition, income utilized for the purchase of capital assets, repayment of the loan for the purchase of a capital asset, revenue expenditure, and donation to trust registered under Section 12AA and Section 10(23C) shall even be treated as applied for charitable purposes and hence exempted from tax.