Conditions to get Exemption under Section 11 in case of Trusts (Charitable and Religious)

Conditions to get Exemption by Trust under Section 11

For claiming exemption by Trust under section 11 both Charitable and Religious Trust, the following conditions must be satisfied. The word ‘Trust’ as used in the context of sections 11 to 13 of the Income-tax Act, includes in addition to the trust “any other legal obligation”.

1.  Conditions to be satisfied for Claiming Exemption under Section 11

For claiming exemption under section 11, the following conditions must be satisfied:

(1)        Trust must have been created for any lawful purpose;

(2)        Such trust/institution must be for charitable or religious purposes. According to section 2(15), charitable purpose includes relief of the poor, education, yoga, medical relief, preservation of environment (including water sheds forests and wild life) and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility.

Trust/institution covered under advancement of any other object of general public utility can do commercial activities upto 20% of its total receipts [Proviso to section 2(15)]

The advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless,—

(i)         such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

(ii)        the aggregate receipts from such activity or activities, during the previous year, do not exceed 20% of the total receipts, of the trust or institution undertaking such activity or activities, for the previous year.

(3)        The property from which income is derived should be held under trust by such charitable or religious trust/institution.

(4)        The accounts of the trust/institution should be audited for such accounting year in which the total income, before giving effect to provisions of section 11 or 12, exceeds the maximum amount which is not chargeable to tax and the person in receipt of the income should obtain an audit report in Form No. 10B [Rule 17B] and furnish the same at least 1 month prior to the due date for furnishing the return of income under section 139(1).

(5)        The trust must get itself registered with the Commissioner of Income-tax within the prescribed time.

(6)        Where the “property held under a trust” includes a business undertaking, the provisions of section 1 1(4) shall be applicable. On the other hand, if the trust wishes to carry on business, the profits or gains earned from such business shall not be exempt under section 11, unless the business is incidental to the attainment of the objectives of the trust/institution and separate books of account are maintained by such trust and institution in respect of such business.

(7)        The charitable trust created on or after 1.4.1962 should satisfy the following further conditions:

(i)         it should not be created for the benefit of any particular religious community or caste;

(ii)        no part of the income of such charitable trust or institutions should ensure directly or indirectly for the benefit of the settlor or other specified persons; and

(iii)       the property should be held wholly for charitable purposes.

However, the religious trust created before or after 1.4.1962 may not satisfy the condition (i) mentioned above, but if it is created after 1.4.1962, it should satisfy the conditions (ii) and (iii) mentioned above.

(8)        The funds of the trust should be invested or deposited in the permissible forms and modes prescribed in section 11(5).