Essential Conditions for Exemption of Income under Section 11 in case of Charitable or Religious Trust

The compliance of the following main conditions is essential for claiming exemption under section 11:

1. Trust must have been created for any lawful purposes ;

2. Such trust/institution must be for charitable or religious purposes. According to section 2(15), charitable purpose includes relief of the poor, education, yoga, medical relief, preservation of environment (including water sheds forests and wild life) and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility.

Trust/institution covered under advancement of any other object of general public utility can do commercial activities upto 20% of its total receipts [Proviso to section 2(15)]

The advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any 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 such activity, unless,—

1. such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

2. the aggregate receipts from such activity or activities, during the previous year, do not exceed 20% of the total receipts, of the trust or institution undertaking such activity or activities, for the previous year.

Where the commercial receipt of the above said charitable trust exceeds the limit specified in the proviso to section 2(15) (i.e. Rs. 25,00,000 or 20% of the total receipts, as the case may be), in any previous year, there will be no need to cancel the registration of such trust but that exemption under section 11 and 12 shall not be allowed for that previous year. [Section 13(8)]

3. The property from which income is derived should be held under a trust or other legal obligation.

4. The property should be held for charitable or religious purposes. In the case of a charitable trust created on or after April 1, 1962, the further conditions are:

1. the trust should not be created for the benefit of any particular religious community or caste;

2. no part of the income should ensure directly or indirectly for the benefit of the settlor or other specified persons;

3. the property should be held wholly for charitable purposes.

The conditions mentioned at (b) and (c) also apply to religious trust created on or after April 1, 1962.

5. The exemption is confined to only such portion of the trust’s income which is applied to charitable or religious purposes or is accumulated for applying to such purposes within the limits of accumulation permitted under section 11(1) and (2) [see paras 214 and 215]. 

6. The exemption is restricted to such portion of the income as is applied to charitable or religious purposes in India except in the cases covered by section 11(1)(c). 

7. Where trust property comprises a business undertaking, the income shown in the books of account should not be less than the income determined by the Assessing Officer according to the provisions of the Act. However, the exemption from tax will not be available to any religious or charitable trust or institution in respect of business profits, unless—

   1. the business is carried on by the trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Government; or

   2. the business is carried on by the institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution;

and the separate books of account are maintained by the trust/institution of such business.

From the assessment year 1992-93, trusts or institutions can carry out business activities if business activities are incidental to the attainment of its objectives and separate books of account are maintained. In other words, irrespective of whether any business is carried on by such a trust or institution or the business undertaking itself is held in trust, in either case, the trust or institution is charged to tax on such profits and gains at the rates of tax applicable in the case of individuals, association of persons, body of individuals, etc., if the above conditions are not satisfied. 

8. The trust should get itself registered online through Form No. 10A for application with the Commissioner of Income tax.

9. Where a trust or an institution has been granted registration for purposes of availing exemption under section 11, and the registration is in force for a previous year, then such trust or institution cannot claim any exemption under any provision of section 10 [other than that relating to exemption of agricultural income and income exempt under section 10(23C)] for that previous year (applicable from the assessment year 2015-16). 

10. The accounts of the trust should be audited [Form No. 10B] for such accounting year in which its income (without giving effect to the provisions of sections 11 and 12) exceeds the exemption limit. 

11. The funds of the trust should be invested or deposited in any one or more of the modes or forms mentioned in section 11(5) [see para 213.1]. 

12. Return of income of the trust/institution should be submitted within the time allowed under section 139(1), if the total income of the trust/institution (before giving exemption under sections 11 and 12) exceeds the maximum amount which is not chargeable to tax (applicable from the assessment year 2018-19).

13. Where the "property held under a trust" includes a business undertaking, the provisions of sections 11(4) shall be applicable. On the other hand, if the trust wishes to carry on business, the profits or gains earned from such business shall not be exempt under section 11, unless the business is incidental to the attainment of the objectives of the trust/institution and separate books of account are maintained by such trust and institution in respect of such business.