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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.
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”.
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Circumstances for not spending 85%
of income |
Written appln. to be made |
Conditions |
Consequences, if conditions not
satisfied |
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Application in
F. No. 10 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
u/s. 139(1) for furnishing the return
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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.
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• Such income
deemed to be income of the previous year in which any of the
conditions not satisfied.
• If income not
spent within stipulated time, for the purpose of accumulation,
deemed to be income of the previous year immediately following
period of accumulation, unless Assessing Officer’s permission
obtained to spend it on other objects of the trust. |
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Whole/part of the income not received
during previous year
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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. |
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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 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.
Appeals
Order rejecting approval
under section 80G is 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:
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Any
asset held as part of the corpus as on 1-6-1973;
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Any
accretion to shares, forming part of the corpus as on 1-6-1973, by way
of bonus shares;
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Any
debentures acquired before 1-3-1983. If deb. acquired after 28-2-1983
and before 25-7-1991, exemption is denied only in respect of income from
such deb., provided deb are disinvested by 31-3-1992.
Modes of Investment
specified in S. 11(5)
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Investment in Government savings
certificates/other securities/ certificates issued by Central Government
under Small Savings Schemes;
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Deposit in any account with the Post
Office Savings Bank;
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Deposit in any account with a
scheduled/co-operative bank;
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Investment in units of the Unit Trust of
India;
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Investment in any security of the
Central/State Government;
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Investment in debentures whose principal
and interest are fully and unconditionally guaranteed by Central/State
Government;
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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;
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Deposits with or investment in any bonds
issued by an approved financial corporation engaged in providing
long-term finance for industrial development in India;
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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;
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Investment in immovable property;
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Deposits with the Industrial Development
Bank of India;
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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).
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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:–
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donations received by a trust or
institution which is created or established wholly for religious
purposes;
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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.
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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 received by wholly charitable
institutions 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:
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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;
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Electoral Trust functions in accordance
with the rules made by the Central Government.
Contribution to Electoral
Trust eligible for deduction while computing taxable income.
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