Here’s a detailed breakdown of incomes exempt under Section 11 of the Income Tax Act, 1961, for charitable and religious trusts, along with key conditions:
1. Income from Property Held for Charitable/Religious Purposes
- Exempt income: Rent, interest, dividends, or any other revenue generated from property (immovable or investments) held under trust for charitable/religious activities.
- Condition: Must be applied to charitable purposes in India (or international welfare under specific cases).
2. Voluntary Contributions (Donations)
- Corpus Donations: Fully exempt if received with a specific directionto form part of the trust’s capital fund.
- General Donations: Exempt only if used for charitable purposesin India. Anonymous donations >₹1 lakh (or 5% of total donations) are taxable under Section 115BBC.
3. Accumulated Income (Up to 15%)
- 15% of total incomecan be retained without immediate spending (indefinite accumulation) .
- Beyond 15%: Must be spent within 5 yearsand invested in Section 11(5)-compliant modes (e.g., govt. securities, public sector bonds) .
- Form 10: Required to be filed for accumulations .
4. Capital Gains
- Exempt if reinvested: Net consideration from sale of capital assets must be reinvested in:
- New capital assets for trust’s objectives, or
- Specified modes under Section 11(5)(e.g., immovable property, UTI units) .
- Taxable if not reinvested.
5. Business Income
- Exempt only if:
- Business is incidentalto charitable objectives (e.g., hospital running a pharmacy).
- Profits are fully appliedto charitable purposes.
- Violation: Excess income over declared profits is taxable.
Key Conditions for Exemption:
- Registration: Mandatory under Section 12A/12AA/12AB.
- No private benefit: Income must not benefit trustees, founders, or relatives (Section 13).
- Investment compliance: Accumulated funds must follow Section 11(5)
- Spending rule: 85% of income must be spent in India (exceptions for pre-1952 trusts for international welfare).
Examples of Exempt Incomes:
- Hospital fees (if ploughed back for charitable healthcare).
- School/college fees (for educational trusts).
- Rental income from trust-owned properties used for charitable activities.
