Exempted Incomes of Charitable or Religious Trust (Section 11)

1. Income from Property held under Trust wholly for Charitable or Religious Purposes [Section 11(1)(a)]:

2. Income from Property held under Trust which is applied in Part only for Charitable or Religious Purposes [Section 11(1)(b)]:

3. Income from Property held under Trust which is applied for Charitable Purposes Outside India [Section 11(1)(c)]:

4. Voluntary Contributions forming part of Corpus [Section 11(1)(d)]:

• Summarised Table of Exempt income in case of Charitable or Religious Trust

• How to find out Exemption of Income in case of Charitable or Religious Trust under Section 11

• How to find out Exemption of Income in case of Charitable or Religious Trust under Section 11

Subject to the provisions of sections 60 to 63, the following incomes of a religious or charitable trust or institution are not included in its total income,

(A). Income from Property held under Trust wholly for Charitable or Religious Purposes [Section 11(1)(a)]:

Income derived from property held under trust, wholly for charitable and religious purposes, shall be exempt—

1. to the extent such income is applied in India for such purposes; and

2. where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of 15% of the income from such property.

(B). Income from Property held under Trust which is applied in Part only for Charitable or Religious Purposes [Section 11(1)(b)]:

Income derived from property held under trust in part only for such purpose, shall be exempt:

1. to the extent such income is applied in India for such purposes, provided, the trust in question is created before the commencement of Income-tax Act, 1961 i.e. before 1.4.1962; and

2. where any such income is finally set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of 15% of the income from such property.

(C). Income from Property held under Trust which is applied for Charitable Purposes Outside India [Section 11(1)(c)]:

1. Income derived from property held under trust, created on or after 1.4.1952 for charitable purpose which tends to promote international welfare in which India is interested, shall be exempt to the extent to which such income is applied to such purpose outside India. Religious trusts are not covered here.

2. Income derived from property held under a trust for charitable or religious purposes, created before 1.4.1952, shall be exempt to the extent to which such income is applied to such purposes outside India. In the above two cases, it is necessary that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income.

(D). Voluntary Contributions forming part of Corpus [Section 11(1)(d)]:

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, shall be fully exempt. The condition that at least 85% of the income should be applied during the previous year in which it is earned is not applicable in this case.

It is not sufficient that the property is indirectly responsible for the income; it is necessary that the income must directly and substantially arise from the property held under trust. The property must be the effective source from which the income arises.

Summarised Table of Exempt income in case of Charitable or Religious Trust

How to find out Exemption of Income in case of Charitable or Religious Trust under Section 11

Step-1 : Income

Find out Taxable Income of the Trust / Institution

Step-2 : Exemption

• General Exemption : 15% of "Income from property held for charitable or religious purposes" is Exempt from the tax under Section-11 . It can be accumulated for future without without any specific time-frame.

• Exemption based upon Application of Income : - Remaining 85% of the "income from property held for charitable or religious purposes" is exempt if it is applied for charitable or religious purposes in India.

• Exemption based upon Accumulation - Where 85% of the "income from property held for charitable or religious purposes " is not applied for charitable purposes, etc. during the previous year, it can be accumulated or set apart for application in future.

How to Compute Income from Property Held for Charitable Purposes -

The amount deducted as tax at source cannot be considered as “income” for this purpose. Voluntary contributions or donations are deemed to be a part of income derived from property held under trust. But if a voluntary contribution is made with a specific direction that it shall form a part of the corpus of the trust, it will not be deemed to be part of income of the trust.

The onus is entirely on the assessee to show that donations received were given with a direction that these shall form part of corpus of the trust. The mere fact that in the audited accounts these were shown as part of the corpus does not mean that the assessee had furnished requisite evidence.

• Depreciation - Where any income is required to be applied (or accumulated or set apart for application), then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation (or otherwise) in respect of any asset, acquisition of which has been claimed as an application of income under section 11 in the same or any other previous year.