First of all we should understand what is charity?
‘Charitable Purpose’ includes relief of the
poor, education, medical relief and the advancement of any object of general
public utility. [Section 2(15)].
The Finance Act (No. 2), 2009 has added two
more limbs to the definition with retrospective effect from Assessment Year
2009-10 i.e. "preservation of environment (including watersheds, forest
and wildlife) and preservation of monuments or places or objects of artistic or
historic interest", thus taking such activities outside the term
"advancement of any other object of general public utility".
What is not a Charity?
The Finance Act 2009, has amended the
definition of ‘charitable purpose’ to provide that ‘advancement of any other
object of general public utility’ will not be considered as ‘charitable
purpose’ if it involves 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 any fee, cess or other consideration
irrespective of nature of use or application or retention of the income from
such activity.
If the aggregate value of the receipts from
such activities is not more than Rs. 25 lac (A.Y. 2012-13 i.e. w.e.f. 1st April,
2011). The effect of this amendment would therefore be that in a particular
year, an object of the trust may be regarded as a charitable purpose, but in a
subsequent year or an earlier year, it may not be so regarded depending upon
the amount of receipts from such activity.
What is not included in income at
all?
CORPUS DONATION
Where a trust receives voluntary
contributions (Act 2(24 (iia)) made with a specific direction that they will
form part of the corpus, such donation will not be included in the total income
of the trust. [Section 11(1)(d)
What is exempt?
Income derived
from property under trust subject to sections 60 to 63 wholly for charitable or
religious purposes is exempt to the extent such income is applied on the
objects of the trust in India, during the previous year. The trust must apply
at least 85% of such income on the objects in such cases balance 15% will
deemed to be accumulated for the purpose of charity and exempt.
[Section 11(2)].
If the amount applied by the trust is less than 85%, the shortfall in
application is not taxable in the following cases —
1. Income is accumulated up
to 5 years and the purpose of accumulation is specified to the AO in Form No.
10. If accumulated amount could not be applied due to order/ injunction of the
court, such period will be excluded.
The income accumulated must be applied for the specified purpose
within the period of accumulation as per application in Form 10. Till the
accumulated amount is applied, it must be invested as specified in Section
11(5). This requirement of Section 11(5) is applicable also to those trusts who
are claiming exemption under clauses (iv), (v), (vi) and (via) of Section
10(23C).
If due to any other reason, income is not
applied during the previous year, such income can be applied in the following
previous year. However intimation in writing must be sent to AO before the
expiry of time allowed u/s. 139(1) for
furnishing the return. If such income is not applied, it shall be deemed to be
the income of previous year immediately following the year in which such income
was derived [Explanation 2 to Section 11(1)].
Adjustment of
expenses incurred by the trust for charitable purpose in the earlier years
against the income earned by the trust in the subsequent year will have to
regard as application of income of the trust in the subsequent year. Also depreciation
debited in the books should be treated as expenditure for this purpose.
The repayment of
loans originally taken to fulfil any of the objects of the trust is also
considered as an application. The loan given by an educational trust is also an
application for charitable purpose.
What is not exempt?
Business Income
Section 11(4A) provides that tax
exemption will not apply in relation to any income of a trust being profits and
gains of the business unless the business is incidental to the attainment of
the objectives of the trust and separate books of account are maintained by
such trust in respect of such business. ICAI has expressed the view that
running of hospital by a trust is a business activity. Therefore, if gross
receipts from business exceed Rs. 1 cr, the accounts should be audited u/s
44AB.
If accumulated income is credited/ paid
to any other trust registered u/s 12AA or referred to in sub-clause (iv), (v),
(vi) or (via) of 10(23C), it shall not be treated as application of income. However
if the contribution is made in that year itself (i.e not out of the accumulated
income) then the same would be exempt.
EXEMPTION U/S 11 NOT TO APPLY IN
CERTAIN CASES (SECTION 13)
Section 13(1)(a) — Trust for private
religious purposes.
Section 13(1)(b) — Trust established
for the benefit of any particular religious community or caste.
Section 13(1)(c) — Income of the trust
is applied directly or indirectly for the benefit of persons referred to in
sub-section (3).
Section 13(1)(d) — Funds are invested
otherwise than in any form or modes specified in 11(5).
1.
If whole or part of the relevant income is not exempt u/s 11 or 12
by virtue of provisions contained in clauses 13(1)(c) and (d), the tax will be
charged at maximum marginal rate. [Proviso to Section 164].
2.
New Section 115BBC — The anonymous donations as aforesaid will be
taxed @ 30% (plus Surcharge and Education Cess), except in the following two
situations:
a.
The trust or institution is established wholly for religious
purposes; and
b.
If it is for both religious and charitable purposes, unless the
donation is specifically for the educational or medical institution run by such
trust.
Anonymous
donation means any voluntary contribution where a person receiving such
donation does not maintain record of identity indicating the name and address
of person making such contribution.
Requirement of Audit
Where total income before the exemptions u/ss. 11 and 12 of the trust
exceeds the maximum amount not chargeable to tax; i.e., Rs. 1,80,000 (A.Y.
2012-13) (w.e.f. 1/4/2011), in order to get exemption u/ss. 11 and 12, the
accounts have to be audited by an accountant as defined in explanation below sub-section
2 of Section 288, who will give his report in Form 10B.
If the income of the trust/institution referred to in clause (iv), (v),
(vi) or (via) of Sec.10(23C) without giving effect to the provisions of these
clauses exceeds the maximum amount not chargeable to tax, such trusts will have
to get their accounts audited by the accountant as defined in Explanation below
sub-section (2) of Section 288. (As provided in the Taxation (Amendment) Act,
2006) in form 10BB.
Time limit to file a return?
As per sec 139(4A) if total income exceeds maximum
amount not chargeable to tax return should be filled as if it was return u/s
139(1)
Penalty for non-filling
Penalty of Rs.
100/- per day for failure to furnish return under sub-sections 4A and 4C of Section
139 [Section 272A(2)]. Similarly penalty of Rs 100 per day can be levied for
delay in submitting Audit Report in Form 10B/10BB (272A)(2)(g).
