This presentation gives an overview about the taxation of public charitable trusts in India.

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CA Ankur Agarwal

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In India NPO can be registered as :
Trusts Societies
Section 8
Companies
Structure of Non Profit Organizations in India
The Income Tax Act gives equal treatment to all categories
The object is to encourage the role of philanthropy and in helping to meet the
economic, social, cultural and religious needs of the society.

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Provisions in the Income Tax Act – Overview
Section 11 to 13 – Provides
for tax treatment in case of
Charitable Trusts
Section 139 – Due date
and filing of Return of
Income
Section 80G – Deals with
deduction in respect of
donations to certain funds,
charitable institutions etc.
Section 2(15) – Defines a
charitable objective

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Due Date and Form of Income Tax Return
Section 139(4A) – If total income before giving exemption u/s 11 & 12 exceeds the maximum amount not
chargeable to tax, mandatory to file ROI
Clause (a)(ii) of Explanation 2 to Section 139(1) – "due date" means, where the assessee is a person (other than
a company) whose accounts are required to be audited under this Act or under any other law for the time being in
force – 30th September of the AY
Clause (b) of subsection (1) of section 12A - Requires audit if total income before exemptions is more than the
maximum amount not chargeable to tax (2,50,000)

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Due Date and Form of Income Tax Return….contd.
 ITR 7 applicable
 ITD issued a notification -
compulsory to file e-
Return for all the entities
registered u/s 12A
 Audit Report in 10B to be
e-filed along with e-
Return

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Income of a Charitable Trust
Income of
Charitable
Trust
Voluntary
Contribution
Income From
Property Held
under Trust
Capital Gains
From Trust
Property
Anonymous
Donations
Incidental
Business

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Voluntary Contributions
Voluntary contribution
forming part of corpus
• There should be specific direction
that such contribution to form part of
corpus of the trust
• 100% exempt with no condition of
application or accumulation
• Section 11(1)(d)
Other Contributions
• Donations received without such
specific instruction
• Deemed to be income derived from
property held under trust
• To be included in the limit of 85%
Voluntary contributions are basically the donations received by the charitable/religious trust which
form part of income of the trust. They are of two types:

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The expression ‘property’ used in Section 11
has the widest amplitude. It includes a
business undertaking. It certainly takes in
movable or immovable property like money,
shares, securities, lands, buildings and
houses.
Income From Property Held under Trust – What is Property?

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Income From Property Held under Trust – Bird’s Eye View
Income from property
held under trust for
charitable/religious
nature
15% of the gross
receipt from such
property
85% of the gross
receipt from such
property
Income Applied for
charitable purpose in
India
Income not applied for
charitable purpose in
India
Accumulated for
specified purpose in
India
Not accumulated for
specified purpose in
India

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Expenditure considered as Application of Income
Administrative Expenses : Apart from direct expenditure on objects like scholarships or medical relief, but all other expenses incurred in fulfilling the objects of
the trust viz. rent, rates and taxes, establishment expenses, interest etc., as without incurring such expenses, it may not be possible for the trust to function.
Capital Expenditure : All capital expenditure laid out in furtherance of the objects and purposes of the Trust will be treated as application of income.
Repayment of loans : Repayment of loans taken to fulfill one of the object of trust is treated as an application of income for charitable purpose.
Payment of taxes : The expenditure incurred by way of payment of tax out of the current year’s income has to be considered as application for charitable
purposes.
Donation to other trusts : When a donor trust which is itself a charitable and religious trust donates its income to another trust, the donor trust can be said to
have applied its income for religious and charitable purposes.
Depreciation : Depreciation shall be allowed on the assets, the cost of which had been fully allowed as application of income under section 11
Excess expenditure of an earlier year can be adjusted against income of subsequent year and such adjustment is to be treated as application of income in
subsequent year.

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Deemed Application of Application
When an organisation is unable to apply 85% of its income because it has not been received any portion
thereof or for any other reason, then it can exercise the option under Explanation- 2 to section 11(1).
Income is accrued but not
received
Income is received, but it
could not be applied
Can spend it in the year of receipt or the
year succeeding the year in which the
income accrued, which ever is later.
Can spend the income in the year
succeeding the year in which the income is
received
Application to the assessing officer in writing before the time limit specified under section 139(1)
for filing return of income.

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Accumulation of Income
Where 85 per cent of the income is not
applied/deemed to have been applied to charitable
or religious purposes, the trust may accumulate
either the whole or part of its income for future
application in India. Such income will not be
included in the total income of the trust in the year
of receipt of income subject to conditions.

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Accumulation of Income…contd.
The period of
accumulation
shall not
exceed 5
years
Application in
Form No. 10
to the AO
before due
date of return
filing u/s
139(1)
Section 11(2)(b) -
money
accumulated
should be
invested in mode
prescribed under
section 11(5)
Conditions for
accumulation of
Income u/s 11(2)

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Withdrawal of Exemption for accumulated amount u/s 11(2)
In the following cases, any income which has been accumulated u/s 11(2) shall be deemed to be a part of
income and exemption will be withdrawn :
Particulars Year of Taxability
Applied for purpose other than the purpose for
which it is accumulated or set apart
Income of previous year in which so applied
Ceases to be invested in the forms specified
u/s11(5)
Income of previous year in which it so ceases
If not utilized till 5 years or immediately
succeeding year
Income of previous year immediately following
expiry of 5th year.
Donated to trust registered u/s 12AA or 10(23C) Income of previous year in which income is so
donated

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Treatment of Capital Gains
 Income’, as defined under section 2(24), includes Capital Gains,. Therefore, for the purposes of section
11(1)(a), Capital Gains are also considered as a part of the income. Since, Capital Gains are also
considered as a part of the income, therefore, they can be applied for charitable or religious purposes.
 Under section 11(1A), if the entire amount of net consideration is invested in another Capital Asset then,
the entire Capital Gain will be deemed to have been applied for Charitable or Religious purposes.
 Under section 11(1A), if a part of the entire amount of net consideration is invested in another Capital
Asset then, the appropriate fraction of the Capital Gain will be deemed to have been applied for
charitable or Religious Purposes.
Cost of new Asset >=
Net Consideration
from asset sold
Entire capital gain
exempt
Cost of new Asset <
Net Consideration
from asset sold
Capital gain exempt = Cost
of New Asset – Old Asset

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Anonymous Donations
Anonymous donations are basically the donations where the person receiving the donations doesn’t
maintain any record of the person giving the donation. E.g. – Offerings given in temple in donation box.
Step 1
• Compute the total amount of anonymous donation
received by the charitable/religious institution
Step 2
• Compute 5% of the total donations(corpus donations
+ anonymous donations + other donations not forming
part of corpus)
Step 3
• Select the higher of the following two:
• a) Amount computed in step 2
• b) 1,00,000
The amount computed in step 3 shall be exempt and the remaining
amounts of anonymous donations are taxable in the hands of such
charitable/religious institution @ flat 30% (115BBC)

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Types of Accumulation – Lets Compare and Contrast
Accumulation u/s 11(1) Accumulation u/s 11(2)
Accumulation upto 15% of income Accumulation beyond 15% of income
Not subject to application within a
maximum permissible period of 5 years
Subject to application within a
maximum permissible period of 5 years
Can be a part of corpus Has to be invested in modes specified
u/s 11(5)

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Exemptions not allowed under section 11
Section Nature & extent of income not exempt under Section11
13(1)(a) Income of private religious trust not used for public benefit
13(1)(b) Income of charitable trust created for benefit for particular
religious community
13(1)(c) Income/ property of charitable or religious trust applied for direct or indirect benefit of person
referred in 13(3)
13(1)(d) Any funds are invested other than in Section 11(5)
11(4A) Income from business which is not incidental to the attainment of the objectives of the trust, or
in respect of which separate books of accounts have not been maintained.
12(2) Value of medial/ education services provided to specified persons by trust running hospital and
educational institution shall be income of trust and will be chargeable in the year in which
services are provided and chargeable to tax, despite section 11(1)

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ICAI – Whether charitable motive?
DGIT(EX)
Facts of the Case
ICAI applied for registration under section
10(23c)(vi)  Rejected by the DGIT (Ex) 
It was charging fees for holding coaching
classes and campus placements, which
amounted to carrying on business.
ICAI was not maintaining separate books of
account with respect to the activity of
coaching students  AO denied ICAI claim
under section 11.
On appeal, the matter was remanded back
to the DGIT (Ex)
DGIT (Ex)  Institute was carrying on
business and rejected its claim
HIGHCOURT
Dominant objective of
institute was to regulate
profession of CA in
India, and conducting
extensive educational
program, conducting
coaching classes and
campus placements, for
fees, could not be held
as business, but only as
in aid of its objects
Functions of institute 
Genre of public welfare,
not private gain  Insti
not involved in business
 Registration cannot
be denied
SUPREMECOURT
SLP granted
against order
of HC - In
favour of
Revenue
SUPREME COURT OF INDIA [2016] 65 taxmann.com 63 (SC)
Director General of Income-tax vs. ICAI

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