Income tax provision for charitable trusts

Any income which comes from property held under any trust or institution which works for charitable or religious purposes is exempt from income tax point of view if the 85% of the income is spent on the charitable or religious purposes. If the amount spent on the religious and charitable purpose goes short to 85%, the shortfall is taxable under income tax act.

Charitable purpose has a vast topic and it includes:-

1- Relief to the poor persons

2- Educational relief

3- Medical relief

4- And the advancement for the object of general public utility.

5- Preservation of enviournment

6- Preservation of places and monuments

However if advancement of general public utility carries some business or trade and charges some fees etc, this will not be regarded as general public utility if the total receipt of these activities exceeds Rs. 10 lakhs.

Circumstances for not spending 85% of income	Written appln. to be made	Conditions	Consequences, if conditions not satisfied
Application in F. No. 10 to be made specifying purpose for accumulation of income for period of 5 years. Period for which unable to apply income for that purpose due to court order/injunction to be excluded	Before the expiry of time allowed	To be spent within period of accumulation or immediately following year. Pending application of income, to be invested in manner as specified in S. 11(5). Cannot be spent by way of donation to another charitable trust or institution except if the Assessing Officer permits the same in the year in which the trust or institution is dissolved.	Such income deemed to be income of the previous year in which any of the conditions not satisfied.
	u/s. 139(1) for furnishing the return		If income notspent within stipulated time, for the purpose of accumulation, deemed to be income of the previous year immediately following period of accumulation, unless Assessing Officers permission obtained to spendit on other objects of the trust.
Whole/part of the income not received during previous year	As above	To be spent in the year of receipt, or in the next year	Such income deemed to be income of previous year immediately following year of receipt.
Any other reason	As above	To be spent in the year of receipt, or in the next year.	Such income deemed to be income of previous yearAny voluntary contribution made to hospitals and universities or educational institution will be considered as the income of these trusts under section 10(23C) (6) of income tax act.

Registration Process: - any registration for charitable trusts comes under section 12AA of income tax act and it is granted from the first day of the financial year of which the application is made for registration. The commissioner looks all the details and then allows registration, he has the power to cancel the registration if he is not satisfied by the nature of work or finds work in not going accordance to the objects of trust.

The commissioner has also the power to cancel the registration of registered trust if finds something wrong under Section 12A of income tax act.

All the charitable trust are notified by prescribed authority and also notified by Central Government of India. This rule starts from June, 2007.

Sometimes the application of charitable trusts and relief for 80G for the contributors rejects. If the trust wants to re appeal for the registration, the trust can appeal lies to the income tax appellate tribunal.

The approval under section 80G in which the contributors has income tax relief, once granted to the trusts is for lifetime unless the commissioner of income tax cancelled the registration finding something wrong under the section 80G(5)(6) of income tax act.

The entire charitable institute which has the income more than the basic exemption limit of income tax must audit all its account by a C.A.

For Charitable Institute investment, income tax act defines a section 11(5) and all the investment of charitable trusts must be according to this act. Modes of investment under section 11(5) are as follows.

1- Any investment in government certificates (saving/ small saving).

2- Deposit in post office.

3- Deposit in scheduled banks.

4- Investment in debentures whose principal and interest amount is fully guaranteed by government.

5- Investment in unites of U.T.I.

6- Investment in purchasing some property(immovable)

7- Investment in the shares of Public limited company of which the shares must be retained for three years from the date of purchase.

8- Investment in bonds of any public limited company engaging in industrial development or residential purpose and urban infrastructure.

9- Investments in KISAN VIKAS PATRA.

10- Investments in INDRA VIKAS PATRA.

11-Deposit in industrial development bank of India

Any investment which a trust made which not includes in section 11(5) of income tax act, the trusts must bring conformity with in a year from which the investments made. Income tax will be charged at maximum marginal rate for the non-obey results. However, this rule will not apply to

1- Any assets of the trusts and any increment of the shares held by trusts or corpus by the way of bonus shares as on 01-06-1973.

2- Any debentures purchased by the trusts before 01-03-1983.

If a group of people do voluntary contribution to the trusts for specific purpose, it won’t be include as the income of the trusts under section 11(1) (d) of income tax act.

Any business income of any trust is not come into exemption unless the business is incidental. The profit of the business income of any charitable trusts will be taxable and the trusts need to maintain separate books for the business income.

Capital Gains: - profit arising from sale of long term capital assets is called capital gains. Exemption available to charitable trusts only when the whole net consideration is used to buy new fixed assets. If the partial amount is invested, the remaining part of the consideration is taxable under the income tax act.

GUPTDAN: - Guptdan is the voluntary contribution of which the trusts have no records of the contributors. This is also called ‘anonymous donations’. Such contribution is taxed at the rate of 30%. However, in some cases they are exempted which are as follows.

1- Trusts or institution wholly for religious purpose.

2- Anonymous contribution made with specific direction that donation is for educational or medical institution runs by the trusts.

3- In the case of partly religious, partly charitable trusts, where donation is anonymous contribution are made for specific educational or religious purpose; it is exempt up to 5% of the total income of the trusts or Rs. 1 lakh whichever more is.

Electoral trusts: - electoral trusts are the trusts of political parties and it is approved by CBDT. Any voluntary contribution made to electoral trusts is income of the trusts and exempted from income tax from 1, April 2010.

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