{"id":51453,"date":"2022-12-22T12:52:13","date_gmt":"2022-12-22T07:22:13","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=51453"},"modified":"2024-04-23T14:18:21","modified_gmt":"2024-04-23T08:48:21","slug":"exemptions-to-trusts-know-about-section-11-of-income-tax-act","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/exemptions-to-trusts-know-about-section-11-of-income-tax-act\/","title":{"rendered":"Exemptions to Trusts: Everything You Need to Know About Section 11 of Income Tax Act"},"content":{"rendered":"\n<p>The Income\nTax Act of 1961 grants many exemptions to institutions established to advance\nsocial welfare. Any tax which is levied on such institutions is dependent on\nthe nature of their income. Section 11 of Income Tax Act 1961 grants exemptions\nto income received from a trust held for charitable or religious purposes. The\nIncome Tax Act defines \u2018charitable\npurpose\u2019 under Section 2(15) as \u201c<em>assistance to the poor and disadvantaged,\neducation and preservation of monuments, preservation of the environment,\npreservation of places of historical and artistic interest, medical relief,\nyoga, promotion of sports and games, and advancement of any general public\nutility object\u201d. <\/em>The\nIncome Tax Act for the states that \u201c<em>advancement\nof any general public utility object\u201d<\/em> shall not be considered for charitable purposes if an\nactivity which is in the nature of commerce, trade or business and is carried\non by charging a fee or cess or any other consideration regardless of the\napplication or retention or nature of use of the income generated from such activities\nunless the activities are carried out for the furtherance of any objects of\ngeneral public utility and the aggregate receipt derived from such activity\nthis is not more than 20% of the total receipts in the previous year of the\ninstitution or trust carrying out the activities. In this blog, we will discuss\nExemption to Trusts under Section 11 of Income Tax Act.<\/p>\n\n\n\n<p>The term \u2018religious purposes\u2019 has not been defined under the\nIncome Tax Act 1961. The income generated for religious purposes is generally\nused for advancing and propagating a particular religion and its beliefs. The\nincome generated by a religious institution or a trust which has been used for the\nbenefit of a specific caste or religious community shall be exempt from\ntaxation. The <strong><a class=\"text-primary\" href=\"https:\/\/corpbiz.io\/income-tax-return-filing\">Income Tax<\/a><\/strong> Act only provides exemptions to public trusts created for\nreligious purposes and not to private religious trusts.<\/p>\n\n\n\n<p><strong><em>A Trust\nReceives or Generates Income <\/em><\/strong><strong><em>of the Following Types:<\/em><\/strong><\/p>\n\n\n\n<ul>\n<li>Income\nfrom property held under the trust for religious or charitable purposes<\/li>\n\n\n\n<li>Voluntary\ncontributions or donations.<\/li>\n\n\n\n<li>Anonymous\ncontributions or donations where the donee does not maintain the identity of\nthe donor.<\/li>\n\n\n\n<li>Capital\ngained wholly from assets held under a trust.<\/li>\n\n\n\n<li>Income\nfrom a property which is held under the trust for charitable purposes and which\nlooks to advance international social welfare in which India is interested.<\/li>\n<\/ul>\n\n\n\n<p>A trust held for charitable or religious purposes must be\nregistered under section 12 AA of the Income Tax Act 1961.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/exemptions-to-trusts-know-about-section-11-of-income-tax-act\/#Income_Exempted_from_Taxation_Under_section_11_of_Income_Tax_Act_1961\" >Income Exempted from\nTaxation Under section 11 of Income Tax Act 1961<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/exemptions-to-trusts-know-about-section-11-of-income-tax-act\/#Application_of_85_of_Income_Derived_from_Property_Held_Under_the_Trust_%E2%80%93_Section_11_of_Income_Tax_Act\" >Application of 85% of Income\nDerived from Property Held Under the Trust &#8211; Section 11 of Income Tax Act<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/exemptions-to-trusts-know-about-section-11-of-income-tax-act\/#Income_Not_Exempted_from_Taxation_Under_Section_11_of_Income_Tax_Act_1961\" >Income Not Exempted from\nTaxation Under Section 11 of Income Tax Act 1961<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/exemptions-to-trusts-know-about-section-11-of-income-tax-act\/#Exemption_If_Property_Held_Under_the_Trust_Is_a_Business_Undertaking_%E2%80%93_Section_11_of_Income_Tax_Act\" >Exemption If Property\nHeld Under the Trust Is a Business Undertaking &#8211; Section 11 of Income Tax Act<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/exemptions-to-trusts-know-about-section-11-of-income-tax-act\/#Exemption_on_Income_Generated_from_a_Business\" >Exemption on Income\nGenerated from a Business<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/exemptions-to-trusts-know-about-section-11-of-income-tax-act\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Income_Exempted_from_Taxation_Under_section_11_of_Income_Tax_Act_1961\"><\/span>Income Exempted from\nTaxation Under section 11 of Income Tax Act 1961<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As per section 11 of Income\nTax Act 1961, the following income shall be exempted from taxation:<\/p>\n\n\n\n<ul>\n<li>Income which has been derived from any\nproperty held under the trust wholly for religious and charitable purposes and\nonly to the extent to which such income is applied for the advancement of such\npurposes in India. In cases where such income is accumulated or is set apart\nfor the advancement of such purposes in India, it shall be at most 15% of the\ntotal income derived from such property.<\/li>\n\n\n\n<li>Concerning trusts established before the\ncommencement of the Income Tax Act 1961, income which has been derived from any\nproperty held under the trust partly for religious and charitable purposes and\nonly to the extent to such income which is applied for the advancement of such\npurposes in India. In cases where such income is set apart for the advancement\nof such purposes in India, it shall be at most 15% of the total income derived\nfrom such property.<\/li>\n\n\n\n<li>Income derived from property held under a\ntrust established after April 1952 and created for charitable purposes to\npromote international welfare and to the extent to which such income is applied\nfor such purposes outside India.<\/li>\n\n\n\n<li>Income that has been derived from property\nheld under a trust which has been established before April 1952 to the extent\nto which search income is applied for purposes outside of India.<\/li>\n\n\n\n<li>Income which has been received through\nvoluntary contributions with specific directions that it should form part of\nthe corpus of the institution or the trust.<\/li>\n\n\n\n<li>Income which has been used for revenue expenditure, purchase of a capital asset or repayment of loan taken to purchase such capital asset and donations made to the trust registered under section 12AA of the <strong>Income Tax Act 1961<\/strong> shall also be exempt from taxation.<\/li>\n\n\n\n<li>Income which has been generated from a\nhospital which has been established for charitable purposes is also exempt from\ntaxation.<\/li>\n\n\n\n<li>Income which has been generated by an\nestablishment which provides any financial assistance to educational\ninstitutions like schools and other similar establishments is also exempt from\ntaxation.<\/li>\n\n\n\n<li>Income which has been generated by society\nrunning a school or college or any other establishment providing education is\nalso exempt from taxation.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Application_of_85_of_Income_Derived_from_Property_Held_Under_the_Trust_%E2%80%93_Section_11_of_Income_Tax_Act\"><\/span>Application of 85% of Income\nDerived from Property Held Under the Trust &#8211; Section 11 of Income Tax Act<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>When The Income Applied Is\nMore Than The Income Derived.<\/strong><strong><\/strong><\/p>\n\n\n\n<p>Section 11 mandates that at least 85% of\nthe income derived from the property held under a trust must be used for the\nadvancement of religious or charitable purposes in India. If at least 85% of the\nincome derived from such property hasn&#8217;t been used for such purposes due to non-receipt\nof whole or any part of the income offer any other reason, even then the income\ncan be exempt from taxation in specific scenarios where it shall be deemed to\nhave been applied for charitable purposes. At the option of the trust, any\nincome derived, including income that has not been used for religious or\ncharitable purposes, shall be deemed income applied for such purposes and can be\nclaimed as an exemption. However, the same amount cannot be claimed if it has\nbeen utilised or received. In case the income which has been deemed to have\nbeen used for religious or charitable purposes has not been applied purposes\none receipt of such income, then the applicant can add back the income as the income\nof the trust for the year when search income was derived or received. The\nassessee can exercise this option only before the expiry of the period allowed\nfor the filing of a return of income as is provided under Section 139 of the\nIncome Tax Act, 1961. To claim the exemption income, the assessee is required to\nfile Form 9A with the assessing officer by giving the reason for such a\nshortfall and the value on which the amount is to be exercised.<\/p>\n\n\n\n<p><strong>When the Income Which Has\nBeen Utilised Is Less Than 85% of the Income Received<\/strong><\/p>\n\n\n\n<p>If the trust receives or\nderives more income than what is required to be utilised in a specific year,\nthen such trust can set aside more than 15 % of the income received or derived\nsubject to the below-mentioned conditions:<\/p>\n\n\n\n<ul>\n<li>The\ntrust must furnish Form 10, giving information about the period\nand purpose for which the income has been held for accumulation.<\/li>\n\n\n\n<li>The period of such for accumulation must be\nat most five years.<\/li>\n\n\n\n<li>While furnishing Form 10, the assessee must keep in mind the expiry period mentioned under Section 139 of the Income Tax Act, 1961, <a href=\"https:\/\/corpbiz.io\/income-tax-return-filing\" target=\"_blank\" rel=\"noreferrer noopener\">filing of return of income<\/a> for the previous year.<\/li>\n\n\n\n<li>The income set apart or accumulated which\nexceeds 15% of the income received or derived must be invested as follows:\n<ul>\n<li>Deposits made in any account at the post\noffice savings bank.<\/li>\n\n\n\n<li>Any investment made in a savings certificate as\nis provided for under Section 2 of the Government Saving Certificate Act, 1959\nand any other certificates or securities given by the central government.<\/li>\n\n\n\n<li>Investment in Unit Trust of India units.<\/li>\n\n\n\n<li>Deposits made in an account of a cooperative\nsociety which is engaged in the business of banking or scheduled banks.<\/li>\n\n\n\n<li>Investment in any securities for money\ncreated by the central government or state government which has been issued by\nsuch government.<\/li>\n\n\n\n<li>Deposit or investment in any public sector\ncompany. Suppose the company stop being a public sector company. In that case,\nany investment in the shares of such company shall be treated as an investment\nwhich is eligible for a period of 3 years. Any other investment shall qualify\nuntil it is created so for payment by the particular company.<\/li>\n\n\n\n<li>Where the principal and interest pertaining\nto investment in debentures issued on behalf of or by a corporation or a\ncompany are guaranteed unconditionally and entirely by the state government or\nthe central government.<\/li>\n\n\n\n<li>Investments which are made in bonds which\nhave been issued by a financial corporation engaged in the business of\nproviding finance for India\u2019s industrial development and are eligible for\ndeduction as provided in Section 36 of the Income Tax Act, 1961.<\/li>\n\n\n\n<li>Investments made in any immovable property\nexcept machinery or a plant.<\/li>\n\n\n\n<li>Deposits made with IDBI<\/li>\n\n\n\n<li>Investments made in bonds that have been issued\nby public companies which are engaged in the business of providing finance for\nthe purchase of residential properties or urban infrastructure.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<p>If such income as mentioned\nabove is utilised for any other purposes than a charitable purpose or a\nreligious purpose or remains unutilised for a period of 5 years or there is no\nlonger in any of the modes mentioned above or is paid or credited do any trust\nor institution which has been registered under section 12AA or is mentioned in\nsection 10(23C) of the Income Tax Act, 1961, then such income shall be deemed as\nthe income in the previous year of the institution or trust during which the\nbreach of such conditions happened. Suppose the circumstances are such that\nthey are beyond the control of the trust or institution. In that case, income\ncan be applied for purposes other than religious purposes after receiving the\nconsent of the assessing officer.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Income_Not_Exempted_from_Taxation_Under_Section_11_of_Income_Tax_Act_1961\"><\/span>Income Not Exempted from\nTaxation Under Section 11 of Income Tax Act 1961<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There are specific scenarios\nwhere exemption cannot be claimed for income generated by trusts or\ninstitutions established for charitable or religious purposes. Exemptions under\nSection 11 of Income Tax Act shall not be available for income as stated below:<\/p>\n\n\n\n<ul>\n<li>When the whole income from the property held\nunder a trust is used for religious purposes which do not benefit the public.<\/li>\n\n\n\n<li>The income of a charitable institution or\ntrust which has been established for the indirect benefit of any specific caste\nor religious community.<\/li>\n\n\n\n<li>When the income of a charitable or religious\ntrust is not invested as provided for under section 11 of Income Tax Act.<\/li>\n\n\n\n<li>When the entire income and the property of a\nreligious, charitable trust are used solely for the benefit of specified persons.<\/li>\n\n\n\n<li>When the value of educational services or\nmedical services provided by a religious trust or a charitable trust which runs\nan educational institution or hospital, or other medical institution is made\navailable to specified persons.<\/li>\n\n\n\n<li>Any income which has been gained from the\nprofits of a business unless the business is used to further the objects of the\ncharitable or religious trust or institution. A separate book of accounts must\nalso be maintained obtaining to such business.<\/li>\n<\/ul>\n\n\n\n<p><strong><em>Specified Persons Shall\nInclude:<\/em><\/strong><\/p>\n\n\n\n<ul>\n<li>Founder or author of the trust or institution.<\/li>\n\n\n\n<li>Persons making a contribution of an amount which\nis more than \u20b950,000 in a financial year.<\/li>\n\n\n\n<li>If the founder or author or person making\nsuch a contribution is a Hindu undivided family, then all the members of such\nHindu undivided family.<\/li>\n\n\n\n<li>A trustee or manager of the institution or\nthe trust, regardless of the terminology of their designation.<\/li>\n\n\n\n<li>All relatives of the founder, author or\npersons who have made contributions as mentioned or a manager of a trustee as\nmentioned above.<\/li>\n\n\n\n<li>All institutions where any of the specified\npersons have a substantial interest, where the total contribution to such\ninstitution exceeds 50% of the donation made in a financial year.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Exemption_If_Property_Held_Under_the_Trust_Is_a_Business_Undertaking_%E2%80%93_Section_11_of_Income_Tax_Act\"><\/span>Exemption If Property\nHeld Under the Trust Is a Business Undertaking &#8211; Section 11 of Income Tax Act<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Suppose a charitable\ninstitution or a trust claims an exemption for income which has been generated from\nthe business undertaking from a property held under a trust. In that case, the\nassessing officer shall have the discretion to decide the amount which can be\nclaimed as an exemption. Suppose the assessing officer finds out that the\nincome determined is more than the income which has been disclosed in the book\nof accounts of the business undertaking. In that case, such excess amount shall\nnot be liable to be claimed as an exemption and shall be treated as income\nwhich and shall be taxed accordingly.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Exemption_on_Income_Generated_from_a_Business\"><\/span>Exemption on Income\nGenerated from a Business<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A trust or an institution\ncannot claim an exemption for income which has been generated from business\nunless such business Is used for the advancement of the charitable or religious\npurposes of the trust or institution.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>To encourage the advancement of social welfare in India, the Central Government often provides many benefits, concessions, privileges, and exemptions to institutions established for charitable and not-for-profit purposes. Section 11 of Income Tax Act of 1961 grants tax exemptions to income received from a trust held for charitable or religious purposes. The term \u2018charitable purpose\u2019 has been defined in the Income Tax Act under Section 2(15) as \u201c<em>assistance to the poor and disadvantaged, education and preservation of monuments, preservation of the environment, preservation of places of historical and artistic interest, medical relief, yoga, promotion of sports and games, and advancement of any general public utility object\u201d. <\/em>Even though the term \u2018religious purpose\u2019 has not been defined under the Income Tax Act, &#8216;religious purpose&#8217; shall include acts by a religious institution or a trust to benefit a specific caste or religious community and its tenets. Such income generated by a religious institution or a trust for religious purposes shall also be exempt from taxation. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read Our Article<\/b>: <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/application-of-income-conditional-precedent-as-to-section-11-exemption\/\">Application Of Income Conditional Precedent As To Section 11 Exemption<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Income Tax Act of 1961 grants many exemptions to institutions established to advance social welfare. Any tax which is levied on such institutions is dependent on the nature of their income. Section 11 of Income Tax Act 1961 grants exemptions to income received from a trust held for charitable or religious purposes. The Income [&hellip;]<\/p>\n","protected":false},"author":47,"featured_media":51454,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[10],"tags":[2973],"acf":{"service_id":"47"},"authorName":"Sherin Jose","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/11\/MicrosoftTeams-image-4-e1668575330329.jpg","authorDescription":"Sherin has degrees in Law and English Literature from the University of Delhi. She is adept at legal research and writing and enjoys discussing and analysing important legal developments. Her primary interests lie in Corporate, FinTech and IPR Law and she is always on the lookout for exploring new developments in the area. She is an avid reader who loves classics and contemporary fiction. She likes to travel, bake and obsess over cat videos in her free time.","postViews":3190,"readingTime":8,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/51453"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/47"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=51453"}],"version-history":[{"count":3,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/51453\/revisions"}],"predecessor-version":[{"id":63779,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/51453\/revisions\/63779"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/51454"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=51453"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=51453"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=51453"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}