Taxation Exam > Taxation Notes > Fast Track Quick Revision Income Tax > Charitable Trusts (Section 2(15), 11 to 12AA)
Charitable Trusts (Section 2(15), 11 to 12AA)
| S 2(15). Meaning of charitable purpose | |||||||
| Relief to the poor | Education | Medical Relief | Preservation of | Yoga | Advancement of object of general public utility | ||
| environment | monuments | ||||||
| Exception | No exception any amount charged or not charged activities shall be treated as charitable purpose | If amount from specified activity | |||||
| Caritable - is upto 20% of total receipts --> | |||||||
| Non - charitable exceeds 20% of total receipts--> | |||||||
| S 11 & 12. Income of charitable purpose | ||
| Income of property held under trusts | xxx | |
| Less : 15% statutory deduction | (xxx) | |
| Less : Income accumulated | (xxx) | Max period of accumulation : 5 years. |
| Less : Income not received | (xxx) | To be applied in the year of receipt or by next year. |
| Less : Income received in last moment | (xxx) | To be applied by next year. |
| Less : Income applied | (xxx) | |
| Income of charitable trust. | xxx | |
| Section 12AA. Registration of Trusts | |
| Application to whom? | CIT |
| When should application may be made for registration? | At any time after the creation of trust. |
| What CIT shall check before it grants registration? | He shall satisfy himself about the objects of the trust or institution and the genuineness of its activities. |
| By what time CIT shall grant registration? | He shall grant registration within 6 month after the expiry of month of application. |
| What if CIT neither grant registration nor refuses registration within 6 month. | Registration shall be deemed to be granted. |
| What is the effective date of registration. | 1st April of the year in which registration is granted |
| Tax Treatment of Anonymous donation | |||
| Wholly charitable | Wholly religious Trusts | Both charitable & religious trust | |
| Anonymous donation whether taxable? | Yes | No | Only specific donation that such donation is for any university / educational institution /medical institution. |
| Anonymous donation | xxx |
| Less : 5% of total donation or 1,00,000 whichever is higher | xxx |
| Taxable anonymous donation (Flat 30%) | xxx |
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FAQs on Charitable Trusts (Section 2(15), 11 to 12AA)
| 1. What is a charitable trust? |  |
Ans. A charitable trust is an organization or trust that operates for charitable purposes, such as relief of poverty, advancement of education, promotion of health, or any other purpose that benefits the society. It is registered under section 2(15) of the Income Tax Act, 1961 and is eligible for certain tax benefits.
| 2. How is a charitable trust taxed in India? | |
Ans. Charitable trusts registered under sections 11 to 12AA of the Income Tax Act, 1961 enjoy certain tax exemptions. Income generated by the trust through its charitable activities is exempt from tax, provided it meets certain conditions and is used for charitable purposes. However, any income not utilized for charitable purposes may be subject to taxation.
| 3. What are the conditions for tax exemption for a charitable trust? | |
Ans. To be eligible for tax exemption, a charitable trust must fulfill certain conditions. It must be registered under section 12AA of the Income Tax Act, maintain proper books of accounts, apply at least 85% of its income towards charitable activities, and file its annual income tax return in the prescribed format. Additionally, it must adhere to the restrictions and conditions mentioned in sections 11 and 13 of the Act.
| 4. Can a charitable trust engage in commercial activities? | |
Ans. Yes, a charitable trust can engage in commercial activities to support its charitable purposes. However, it must ensure that the income generated from such activities is utilized solely for the fulfillment of its charitable objectives. If the trust generates income from commercial activities that exceeds certain limits, it may be subject to taxation.
| 5. How can a charitable trust maintain its tax-exempt status? | |
Ans. To maintain its tax-exempt status, a charitable trust must comply with the provisions of the Income Tax Act. It should regularly file its annual income tax return, maintain proper books of accounts, and utilize at least 85% of its income towards charitable activities. The trust should also ensure that any surplus income is invested in specified modes as per the Act. Regular compliance with these requirements will help the trust maintain its tax-exempt status.
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