Charitable and religious trusts or institutions registered under the Income Tax Act, 1961, are generally required to apply at least 85% of their income towards their charitable or religious purposes each year. They are permitted to accumulate or set apart up to 15% of their income without any specific conditions. However, if a trust wishes to accumulate income beyond this 15%, it must comply with the provisions of Section 11(2) and Rule 17.
Basic Framework:
- Section 11(1) allows trusts to retain up to 15% of income without applying it for charitable purposes in the same year.
- Section 11(2) permits accumulation beyond 15%, but only if:
- The trust intends to apply it for specific charitable/religious purposes in the future, and
- It complies with procedural and investment conditions.
✅ Conditions for Valid Accumulation under Section 11(2):
| Requirement | Description |
| Form 10 Filing | Trust must electronically file Form 10 before the due date under Section 139(1), stating the purpose and period of accumulation. |
| Specific Purpose | The trust must clearly specify the purpose for which income is being accumulated. General objectives are not sufficient. |
| Maximum Period | Accumulation allowed for up to 5 years. Periods affected by court injunctions may be excluded. |
| Investment Mode | Funds must be invested in modes specified under Section 11(5) (e.g., government securities, scheduled bank deposits). |
| Resolution | A formal resolution by the governing body must be passed and submitted with Form 10. |
| Annual Reporting | Details of investment and utilization must be submitted within 6 months from the end of each relevant year. |
📌 Example:
Suppose Shakti Foundation earns ₹1 crore in FY 2024–25. It applies ₹70 lakh for charitable activities and wants to accumulate ₹30 lakh for building a hospital.
- ₹15 lakh (15%) is automatically exempt under Section 11(1).
- For the remaining ₹15 lakh:
- It files Form 10 before the due date,
- Specifies “hospital construction” as the purpose,
- Invests the amount in government bonds under Section 11(5),
- Plans to use it within 5 years.
✅ If all conditions are met, the entire ₹30 lakh is exempt.
Comparison of Accumulated Provisions
| PROVISION | LIMIT | PURPOSE REQUIRED | INVESTMENT REQUIREMENT | MAXIMUM PERIOD | FORM REQUIRED |
| Section 11(1) | 15% of income | No | No | Unlimited | None |
| Section 11(2) | >15% of income | Yes | Yes (Sec 11(5) modes) | 5 years | Form 10 (Rule 17) |
