Income of a charitable trust established in accordance with the provisions of Income Tax Act, being for charitable purposes shall be exempt from tax, subject to conditions laid down. A trust created for charitable purposeincludes relief of poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,” and the advancement of any other object of general public utility, However, the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of an activity in the nature of trade, commerce and business, for a cess or fee or any other consideration, irrespective of the nature of use as application, or retention, of the income from such activity.
The above proviso shall not apply if the aggregate value of the receipts from the activities referred to above are 25 Iakh1 or less in the previous year.
Conditions for Exemption of Income of a Charitable Trust : —
According to the provisions of section 11 read with section 12A and 12AA of the Income-tax Act, income of trust shall be exempt from tax, if the following conditions are satisfied—
- The property should be held in trust for a charitable or religious purpose.
- 85% of its income including voluntary contributions (but excluding income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution as it is not to be included in total income) is actually spent in India for charitable or religious purposes or if the 85% of the income is not applied for such purposes but is accumulated or set apart for the reason mentioned in section 11(2); and
- The trust has made an application in Form No. 10A for registration to the commissioner and is so registered u/s 12AA of the Act.
- Where the total income of the trust before exemption u/s 11 and 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust for that year are audited by a chartered accountant and the audit report in Form No. 10B is filed along with the return of income.
Where the income actually spent on the objects of the trust during a previous year is less than 85% of the total income due to the reasons mentioned below, the deficiency can be made good at the option of the trustee to be exercised in writing before the expiry of the time allowed for furnishing the return of income under section 139(1)-
(i) where the deficiency is due to the reason that whole or part of the income which has accrued has not been received during the relevant previous year, such deficiency may be made good during the previous year in which such income has been actually received, or the next year;
(ii)where the deficiency is due to any other reason, the same is to be made good in the year immediately following the year in which the deficiency has occurred.
In case where the option is exercised, but the income so promised is not utilised in the year as referred to in clause (i) or in the succeeding previous year as referred to in clause (ii), then such promised income is to be treated as the income of the previous year immediately following the previous year in which the income was received or the income of the previous year next following the previous year in which the deficiency occurred, as the case may be.