{"id":25911,"date":"2019-10-23T14:53:53","date_gmt":"2019-10-23T09:23:53","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=25911"},"modified":"2019-10-23T14:53:55","modified_gmt":"2019-10-23T09:23:55","slug":"provisions-under-section-11-of-the-income-tax-act","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/provisions-under-section-11-of-the-income-tax-act\/","title":{"rendered":"Provisions Under Section 11 of the Income Tax Act"},"content":{"rendered":"<p class=\"has-drop-cap\">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.<\/p>\n\n\n\n<p>Indian Income Tax Laws provide a number of benefits in\ntax liability to an assessee for doing\ncharitable and compassionate deeds. Section 80G of the Income Tax Act 1961 plays a significant role in promoting\ncharitable trust as it provides the deductions in the total taxable income of\nan assessee who makes a certain amount of donation to central and state relief\nfunds, NGOs, or other recognized charitable institutions.<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/enterslice.com\/learning\/deduction-under-section-80g-complete-eligibility-benefits\/\">Deduction under section 80G<\/a><\/strong> 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.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Charitable Trusts- An Overview<\/h2>\n\n\n\n<p>Charity is a selfless\nand voluntary act either done in cash or kind. There are many Non-Government\nOrganizations (NGOs) or Not-For-Profit Organization (NPO) operating in India\nwho raises funds from all over the world in the form of charity by forming\neither institution or trust.<\/p>\n\n\n\n<p>These institutions play\na significant role in attaining the social welfare objectives of the Government\nand promoting economic development for the entire society. With the help of\ntheir approach, needy are identified, and these institutions lend a supportive\nhand. For this reason, Indian Tax laws provide various incentives and\nexemptions to charitable trusts.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Exemption Under Section- 11<\/h3>\n\n\n\n<p>Subject to the\nprovisions of Sections 60 to 63 (Clubbing of Income), following income incurred by a charitable or religious\ntrust shall not form part of its total income:<\/p>\n\n\n\n<ol><li><strong>Income from <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Property&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;Property refers to the legal designation of ownership over valuable items or assets held by an individual or a business. This ownership grants the holder certain legal rights to use, consume,(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/property\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>property<\/a> used wholly <\/strong><strong>for charitable or religious purpose: <\/strong>As per section 11(1)(A),\nincome\nincurred by the charitable trust from the property held under the trust is used\nwholly for the charitable purpose shall be exempted up to:<\/li><li>The extent of such\nincome is applied to the charitable purpose<\/li><\/ol>\n\n\n\n<p><strong>AND<\/strong><\/p>\n\n\n\n<ul><li>In case the income is\nnot utilized for these charitable purposes but is accumulated for charitable\npurposes, then, in that case, 15% of such income is exempted from tax\nliability. <\/li><\/ul>\n\n\n\n<ul><li><strong>Income from property used partly for the charitable or religious\npurpose: <\/strong>As per\nsection 11(1)(B), income incurred by the charitable trust from the property\nheld under the trust is partly utilized for the charitable purpose shall be\nexempted up to:<\/li><\/ul>\n\n\n\n<ul><li>The extent to which such\nincome is applied for charitable purposes provided that such trust shall be\ncreated before the commencement of the Income Tax Act, i.e., 01.04.1961.<\/li><\/ul>\n\n\n\n<p><strong>AND<\/strong><\/p>\n\n\n\n<ul><li>In case the income is\nnot utilized for these charitable purposes but is accumulated for the charitable\npurposes then also such income shall not form part of the total income up to 15% of such income<\/li><\/ul>\n\n\n\n<ul><li><strong>Income from property held under Trust that is applied for charitable purposes outside India: <\/strong>As per <strong>section 11(1)(C)<\/strong><sup><a href=\"https:\/\/incometaxindia.gov.in\/Acts\/Income-tax%20Act,%201961\/2014\/102120000000036572.htm\">[1]<\/a><\/sup>, <strong>&nbsp;<\/strong>income derived from the property held under trust is utilized for charitable purposes only that promotes the International Welfare shall be exempted to the extent to which such income is applied for charitable purposes outside India. Such trust shall be created on or after 01.04.1952. <\/li><\/ul>\n\n\n\n<p>In case the trust is\ncreated before 01.04.1952, such part of the income shall be exempted from tax,\nwhich is utilized for promoting charitable and religious purposes outside\nIndia.<\/p>\n\n\n\n<ul><li><strong>Voluntary Contribution: <\/strong>As per section 11(1)(D), income derived from the voluntary\ncontribution that comes with an instruction that it shall form part\nof the corpus of the trust or institution is fully exempted, i.e., up to 100%\nwith no conditions of <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Accumulation&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;Accumulation refers to the gradual increase or gathering of something over a period of time. In finance, it often pertains to the incremental growth of asset value or portfolio through multiple(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/accumulation\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>accumulation<\/a>.<\/li><\/ul>\n\n\n\n<p><strong>Restrictions on the exemption in case of donation made by an\nexempted entity to another exempted entity:<\/strong> As per the current provisions of section 12AA,\nany donation made by one trust to another trust is said to be utilizing the\nincome as per its object. However, a donation made with an instruction that it\nshall form part\nof the corpus of the trust is considered to be the application of income in the\nhands of the donor but is not considered as income in the hands of the recipient.&nbsp; <\/p>\n\n\n\n<figure class=\"wp-block-image\"><a href=\"https:\/\/enterslice.com\/financial-reporting-services\" target=\"_blank\" rel=\"noreferrer noopener\"><img decoding=\"async\" loading=\"lazy\" width=\"730\" height=\"90\" src=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/09\/Financial-Reporting-1.jpg\" alt=\"Financial Reporting\" class=\"wp-image-23884\" srcset=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/09\/Financial-Reporting-1.jpg 730w, https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/09\/Financial-Reporting-1-300x37.jpg 300w\" sizes=\"(max-width: 730px) 100vw, 730px\"\/><\/a><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">Computation of Exemption under section 11 of Income Tax<\/h2>\n\n\n\n<p>Following is the step to\nfind out the exemption of income in case of Charitable or Religious Trust under\nsection 11:<\/p>\n\n\n\n<ol><li><strong>Computation of Income<\/strong>: Calculate the total taxable income of Trust or Institution.<\/li><li><strong>Exemption: <\/strong>Following are the exemptions that can be availed during the\ncalculation of tax liability of charitable trust:<\/li><li>15% of the income is exempted from the tax if such income is <em>incurred from property held for charitable\nor religious purposes.<\/em><em><\/em><\/li><li>Remaining 85% of income is exempted from the tax if such income is\n<em>applied for charitable or religious\npurposes.<\/em><em><\/em><\/li><li>In case such income is not applied for charitable or religious\npurposes during the previous year, it can be accumulated or set apart for\napplication in the future.<\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\">Computation of Income from property held by a charitable trust<\/h3>\n\n\n\n<p>Any amount deducted as a\ntax at source (TDS) shall not be considered as a part of the income of the\ntrust. Voluntary contributions or donations made are deemed to be the part of\ntaxable income derived from property held under trust. Although the voluntary contribution\nis not considered as part of the income of the trust in case, such contribution\nis made with an instruction that such contribution shall form part of the corpus.<\/p>\n\n\n\n<p>The main responsibility of the assessee is to prove and show that any contribution\nwas made with an instruction that they shall form part of the corpus of the trust. Audited accounts showing them\nas a part of the corpus cannot be said that the assessee has furnished requisite evidence.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Capital Gains of Charitable Trust<\/h3>\n\n\n\n<p>In case the charitable\nor religious trust hold any capital asset and such asset was held under trust\nwholly for charitable purposes, is transferred and the whole or part, as the\ncase may be, net consideration is utilized for acquiring another capital asset\nwhich has to be held for charitable purposes\nis deemed to be applied to the charitable purpose. Provided that:<\/p>\n\n\n\n<ol><li>In case\nthe whole consideration is used to buy a new capital\nasset, the whole amount of such capital gain is deemed to be applied for\ncharitable purposes, and such capital gain is exempted wholly from taxation.<\/li><li>In case the part consideration is utilized for acquiring the new\nasset, then the difference between the cost of new assets and the cost of the\ntransferred asset will be deemed to be an exempt capital gain.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Taxability on Charitable Trust<\/strong><\/h2>\n\n\n\n<p><strong>Following is the taxability on various categories of income for charitable trust:<\/strong><\/p>\n\n\n\n<ul><li><strong>Donations: <\/strong>Any voluntary contribution made with the specific direction of\nforming it the part of the corpus of the trust is fully exempted. And any\nvoluntary contributions made without such instruction forms part of <em>the income from\nproperty held under trust.<\/em><\/li><\/ul>\n\n\n\n<ul><li><strong>Anonymous donation: <\/strong>Any donation made without revealing its identity is taxed at the\nrate of 30% provided such donation shall exceed the higher of:<\/li><\/ul>\n\n\n\n<ol><li><em>5% of the total donations of trust<\/em><\/li><\/ol>\n\n\n\n<p><em>OR<\/em><\/p>\n\n\n\n<ul><li><em>INR 100000<\/em><\/li><\/ul>\n\n\n\n<p>And if any donation is\nmade to the charitable or religious trust is taxable in the manner as if it forms part\nof the income from property held under trust.<\/p>\n\n\n\n<ul><li><strong>Income from property held under trust for a charitable\npurpose:&nbsp; <\/strong>Such income is fully\nexempted from tax in case such income is utilized for charitable or religious\npurposes. In case the income is accumulated or set aside for the application\ntowards the charitable or religious purposes is exempted up to 15% of the\nincome.<\/li><\/ul>\n\n\n\n<ul><li><strong>Income from property held under a trust created for promoting\ninternational welfare: <\/strong>Fully exempted, provided the central board of direct tax shall\nthrough general or specific order restrain such income from forming part\nof total income.<\/li><\/ul>\n\n\n\n<ul><li><strong>Capital Gains of charitable trust: <\/strong>In case the entire\ncapital gain is utilized for acquiring another capital asset for the sole\npurpose of charitable or religious is fully exempted from tax. Although in the case\nof part utilization of such proceeds from the transfer, only the capital gain\nutilized in excess of the cost of an asset transferred is exempted. <\/li><\/ul>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/read-details-about-section-13-of-the-income-tax-act-1961\/\" target=\"_blank\" rel=\"noopener noreferrer\">Read Details About Section 13 of the Income Tax Act, 1961<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>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 [&hellip;]<\/p>\n","protected":false},"author":24,"featured_media":25921,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1473,2435],"tags":[2789,2790],"acf":{"service_id":"127"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Provisions Under Section 11 of the Income Tax Act - Enterslice<\/title>\n<meta name=\"description\" content=\"The income earned by the charitable or religious trust is exempted or charged for taxation? 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