Assessment of Trusts [Section 11 to 13]

A Charitable and Religious Trust is a type of non-profit organization that is formed for the purpose of providing social and charitable services to the community. Such trusts are typically established with the aim of promoting education, religion, health, poverty alleviation, or any other charitable purpose that benefits the public.

The trust is managed by a group of trustees who are responsible for ensuring that the objectives of the trust are achieved. The trustees are appointed as per the provisions laid out in the trust deed and are usually individuals who have a good reputation and are committed to the objectives of the trust.

Charitable and religious trusts can receive donations from individuals, corporations, and other entities. These donations are used to support the activities of the trust and are eligible for tax exemptions under Section 80G of the Income Tax Act.

In India, charitable and religious trusts are governed by the Indian Trusts Act, 1882, and are required to be registered with the Registrar of Societies or the Charity Commissioner, depending on the state in which they are operating. They are also required to comply with the provisions of the Income Tax Act and other applicable laws and regulations.

Overall, charitable and religious trusts play an important role in promoting social and charitable causes, and are a vital component of the non-profit sector in India.

1. What Qualifies as a Charitable/Religious Trust?

• Charitable Purpose(Section 2(15)) includes:
  • Relief of poverty
  • Education
  • Medical relief
  • Advancement of any other object of general public utility
• Religious Purposeincludes:
  • Maintenance of religious institutions
  • Performance of religious ceremonies

2. Legal Forms

• Trusts (under Indian Trusts Act, 1882)
• Societies (under Societies Registration Act, 1860)
• Section 8 Companies (under Companies Act, 2013)

3. Primary Governing Sections

4. Registration Requirements (Section 12A/AA/AB)

Registration Process

1. Application to CIT (Exemption)
   • Form 10A (for new registration)
   • Form 10AB (for provisional registration)
2. Documents Required
   • Trust deed/society MOA
   • PAN of trust
   • Audited accounts (if already operational)
3. Time Limit
   • 3-6 months processing time
   • Provisional registration valid for 3 years

5. Conditions for Exemption (Section 11)

Income Application Rules

6. Investment Regulations Under Section 11(5)

Trusts must invest accumulated funds only in specified modes:

1. Government securities and savings instruments
2. Public sector company shares
3. Scheduled bank deposits
4. Post Office savings accounts
5. UTI units and approved mutual funds
6. Immovable property (excluding plant/machinery)
7. Bonds of specified financial institutions

7. Treatment of Specific Incomes

Voluntary Contributions (Section 12)

Capital Gains

• Exempt if reinvested in:
  • New capital asset for trust’s objectives
  • Specified modes under Section 11(5)
• Taxable if not reinvested (20% with indexation)

8. Restrictions (Section 13)

Grounds for Exemption Denial

1. Private Benefit
   • To author, trustee, or substantial contributor
   • To relatives of above persons
2. Investment Violations
   • Not investing as per Section 11(5)
3. Business Income
   • Unless business is incidental to main objectives

Consequences of Violation

• Partial Denial: Only violative portion taxed (post-2023)
• Tax Rate: 30% (or as per Section 115BBI)

9. Compliance Requirements

Annual Filings

Audit Requirements

• Mandatory if gross receipts > ₹5 lakh
• Must be done by Chartered Accountant

10. Recent Developments (2023-24)

1. Budget 2023 Changes
   • Clarification on “application of income”
   • Introduction of Section 11(7) for non-charitable activities
2. Easier Registration
   • Provisional registration under Section 12AB
3. TDS Compliance
   • Stricter rules on payments > ₹10,000

11. Practical Challenges

Common Audit Issues

1. Application vs Accumulation
   • Proper documentation required
2. Substantial Contribution Tracking
   • Maintaining donor records
3. Investment Compliance
   • Timely investment of accumulated funds

Dispute Areas

• Interpretation of “charitable purpose”
• Treatment of hospital/educational institution surpluses
• Definition of “relatives” for Section 13

12. Comparative Table: Charitable vs Religious Trusts

13. Planning Points for Trustees

1. Proper Documentation
   • Maintain separate books for different activities
2. Investment Strategy
   • Plan Section 11(5) compliant investments
3. Compliance Calendar
   • Track all filing deadlines
4. Professional Assistance
   • Engage CA for complex matters

14. Frequently Asked Questions

Q: Can a trust run a business?
A: Yes, if business is incidental to main objectives (Section 11(4A))

Q: Is audit compulsory?
A: Yes, if income exceeds ₹5 lakh

Q: Can trustees receive remuneration?
A: Yes, if reasonable and approved