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Any income earned by a Charitable or Religious Trust is exempted from the purview of taxation under Section 11 of the Income Tax Act. This section provides that such charitable trusts shall incur their income from the activities that are incidental for the attainment of the main objectives of the trust or institution. Trust/Institution is also required to maintain separate books of accounts of the business with complete details of income and its utilization.
Indian Income Tax Laws provide a number of benefits in tax liability to an assessee for doing charitable and compassionate deeds. Section 80G of the Income Tax Act 1961 plays a significant role in promoting charitable trust as it provides the deductions in the total taxable income of an assessee who makes a certain amount of donation to central and state relief funds, NGOs, or other recognized charitable institutions.
Deduction under section 80G can be availed up to 100% or 50% either with or without restriction. Certain other exemptions that can be claimed by charitable or religious trusts are explained in brief henceforth.
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Charity is a selfless and voluntary act either done in cash or kind. There are many Non-Government Organizations (NGOs) or Not-For-Profit Organization (NPO) operating in India who raises funds from all over the world in the form of charity by forming either institution or trust.
These institutions play a significant role in attaining the social welfare objectives of the Government and promoting economic development for the entire society. With the help of their approach, needy are identified, and these institutions lend a supportive hand. For this reason, Indian Tax laws provide various incentives and exemptions to charitable trusts.
Subject to the provisions of Sections 60 to 63 (Clubbing of Income), following income incurred by a charitable or religious trust shall not form part of its total income:
AND
In case the trust is created before 01.04.1952, such part of the income shall be exempted from tax, which is utilized for promoting charitable and religious purposes outside India.
Restrictions on the exemption in case of donation made by an exempted entity to another exempted entity: As per the current provisions of section 12AA, any donation made by one trust to another trust is said to be utilizing the income as per its object. However, a donation made with an instruction that it shall form part of the corpus of the trust is considered to be the application of income in the hands of the donor but is not considered as income in the hands of the recipient.
Following is the step to find out the exemption of income in case of Charitable or Religious Trust under section 11:
Any amount deducted as a tax at source (TDS) shall not be considered as a part of the income of the trust. Voluntary contributions or donations made are deemed to be the part of taxable income derived from property held under trust. Although the voluntary contribution is not considered as part of the income of the trust in case, such contribution is made with an instruction that such contribution shall form part of the corpus.
The main responsibility of the assessee is to prove and show that any contribution was made with an instruction that they shall form part of the corpus of the trust. Audited accounts showing them as a part of the corpus cannot be said that the assessee has furnished requisite evidence.
In case the charitable or religious trust hold any capital asset and such asset was held under trust wholly for charitable purposes, is transferred and the whole or part, as the case may be, net consideration is utilized for acquiring another capital asset which has to be held for charitable purposes is deemed to be applied to the charitable purpose. Provided that:
Following is the taxability on various categories of income for charitable trust:
OR
And if any donation is made to the charitable or religious trust is taxable in the manner as if it forms part of the income from property held under trust.
Also, Read: Read Details About Section 13 of the Income Tax Act, 1961.
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