Conditions to be Satisfied for Claiming Exemption Under Section 11

To avail tax exemption under Section 11, a charitable or religious trust must satisfy the following mandatory conditions:

1. Registration Requirement (Section 12A/12AA/12AB)

✅ Must be registered with the Income Tax Department under:

• Section 12A(for existing trusts)
• Section 12AA(for new registrations)
• Section 12AB(provisional/final registration under Finance Act 2021)

❌ No exemption if unregistered.

2. Application of Income (85% Rule)

✅ Minimum 85% of income must be spent on charitable/religious purposes in the same financial year.

✅ Up to 15% can be accumulated for future use (must be invested as per Section 11(5)).

✅ Unspent income beyond 15% must be spent within 5 years (Form 10 filing required).

3. Investment of Accumulated Funds (Section 11(5))

✅ Accumulated income (15%) must be invested only in:

• Government securities
• Public sector bonds
• Scheduled bank deposits
• Approved mutual funds (UTI, LIC, etc.)
• Immovable property (excluding plant & machinery)

❌ Non-compliance → Accumulated income becomes taxable.

4. No Private Benefit (Section 13 Restrictions)

✅ Income/property must not benefit:

• Founders, trustees, or relatives
• Substantial contributors(donors giving >₹50,000)
• Any person under Section 13(3)

❌ Violation → Partial or full denial of exemption (only violative portion taxed post-2023).

5. Business Income Conditions (Section 11(4A))

✅ Business income exempt only if:

• Business is incidentalto charitable objectives (e.g., hospital running a pharmacy).
• Separate booksare maintained for business activities.
• Profits are fully appliedto charitable purposes.

❌ Non-incidental business income is taxable.

6. Compliance & Filing Requirements

✅ Mandatory filings:

• ITR-7(even if income is exempt).
• Form 10B(audit report if income >₹5 lakh).
• Form 10(for income accumulation declarations).

✅ Books of accounts must be maintained.

7. Other Key Conditions

✅ Anonymous donations exceeding ₹1 lakh (or 5% of total donations) are taxable under Section 115BBC.

✅ Capital gains must be reinvested in specified assets (Section 11(1A)).

✅ No cash payments >₹10,000 (disallowed as application of income).

Summary Table: Conditions for Section 11 Exemption