Trust formed for charitable or religious purposes which are not intended to do commercial activities are allowed various benefits under the Income-Tax Act, inter-alia, exemption under section 11.
The term religious purpose is not defined under the Income-Tax Act. However, Section 2(15) of the Act defines “charitable purpose” to include relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility.
Provided that 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, of that previous year;
Is registration of a trust mandatory?
It is mandatory for a trust to get the registration under Section 12AA of the Income-tax Act, 1961 so as to claim exemption under section 11.
When a trust can apply for registration?
There is no time-limit to apply for the registration. However, if application for registration as trust has been made on or after June 1, 2007, the exemption would be available only from the financial year in which such application is made.
However, exemption to a trust could not be denied in respect of earlier assessment years (for which the proceedings are pending before the Assessing Officer) provided that objects and activities of the trust for such preceding assessment years were same.
Form to be used to apply for registration?
A trust is required to apply for registration in Form No. 10A
Documents to be furnished along with application form?
The documents which are required to be furnished along with application Form No. 10A are as follows:
1) Where the trust is created, or the institution is established, under an instrument, the instrument in original, together with one copy thereof; and where the trust is created, or the institution is established, otherwise than under an instrument, the document evidencing the creation of the trust or the establishment of the institution, together with one copy thereof. If the instrument or document in original cannot conveniently be produced, it shall be open to the Principal Commissioner or Commissioner to accept a certified copy in lieu of the original.
2) where the trust or institution has been in existence during any year or years, prior to the financial year in which the application for registration is made, two copies of the accounts of the trust or institution relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up.
What is the tax rate?
A trust is chargeable to tax as per the slab rates which are applicable to an individual (not being a senior citizen or super senior citizen).
Surcharge: The amount of income-tax (as computed above) shall be further increased by a surcharge at the rate of 10% of such tax, where total income exceeds one crore rupees. However, the surcharge shall be subject to marginal relief (the total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of one crore rupees by more than the amount of income that exceeds one crore rupees).
Education Cess: The amount of income-tax and the applicable surcharge, shall be further increased by education cess and secondary and higher education cess calculated at the rate of two per cent and one per cent respectively of such income-tax and surcharge.
Source- Official Income Tax Website of Government of India