Section 11 of the Income Tax Act
Section 11 of the Income Tax Act – Exemption for Trusts
Income received from a charitable/religious trust will be tax-exempt under Section 11, provided that the activity being performed is incidental to the attainment of objectives set by the trust/institution, and separate books of account are maintained by the particular trust/institution pertaining to the business. In this article, we look at some of the major exemptions provided under Section 11 of the Income Tax Act.
Conditions for Availing Exemption under Section 11
In order to avail exemption under Section 11 of the Income Tax Act, the following conditions must be satisfied:
- The creation of the trust must be done for the fulfilment of a lawful purpose.
- The establishment of the trust must be for charitable purposes, precisely what Section 11 deals with. According to Section 2(15), charitable purpose includes relief of the poor; education; yoga; medical relief; preservation of the environment, and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility.
Exemptions to Hospitals
If an assessee is running a hospital for a humanitarian cause, income tax shall be exempted. The same exemption is applicable to a foundation running a hospital for a similar cause.
Providing Financial Assistance
Any establishment of the assessee providing financial assistance to schools, colleges or any educational institutions is exempt under Section 11 of the Income Tax Act, 1961.
Running a School/College
A society which in itself is running a school/college is granted an exemption under Section 11 of the Income Tax Act, 1961.
Section 11 has taxable clauses subject to the provisions of Sections 60-63, which are:
- A transfer of income without transfer of an asset.
- Revocable transfer of assets.
The exemption outlined in Section 11 is also subject to the satisfaction of conditions set out in Sections 12, 12A, 12AA, 13 and as already examined, 60 -63. Moreover, the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or State Government, as the case may be, shall not form part of the income.
Judicial Decisions Relating to Section 11
- Where an institution/trust strives to provide relief to the poor, or endeavours to assist any educational or medical cause, it will constitute a charitable purpose even if it incidentally participates in the pursuing of commercial activities.
- Imparting of yoga training through well-structured yoga camps falls under the category of a provision of education, which is already covered under the ambit of Section 2(15)
- Profit motive must be the fulcrum of the trade, commerce or business if the object of the trust is the advancement of any other object or general public utility. Hence, where services were rendered without a profit motive, such services will not have anything in common with trade, business or commerce.
- Activities performed by the Bureau of Indian Standards in terms of prescribing the standards of goods/articles and implementing the same through accreditation or continuous supervision etc. , cannot be considered as trade, business or commercial activity merely because testing procedures involve charging of fees.
- Institutions established for the purpose of providing placement services to ex-army personnel, their widows and dependents, rather than to any trade, commerce or business would not be hit by the first proviso to Section 2(15).
- The activity of cattle breeding and measures taken to improve the quality of the cows and oxen would not be under the purview of profit-making, which will pave the way for its exemption, thanks to India’s position as an agricultural country.
- Where the assessee, a Government authority, was established for providing housing, community facilities, civic amenities and other infrastructural facilities, the exemption will be granted for these activities, as they are charitable in nature.
- Where activities performed by the assessee-society in organizing seminars/conferences and auto expo were performed with the primary objective of promoting the growth of automobile industry in India, such activities would not come within the ambit of the proviso to Section 2(15) even if a substantial income were generated from such activities.
- Registration of a trust can only be cancelled on any modification in the nature of the activity and not as a result of excess turnover of commercial activities.
- The property from which the income is derived should be held under trust by such charitable/religious trust institution.
- The trust must get itself registered under the commissioner of income-tax within the specified time limit.
- The charitable trust should not be created in the interest of a particular religious community/caste.
- No part of the income of such charitable trust or institutions, directly or indirectly, should benefit the settlor or other specified persons.
- The property should be entirely held for charitable purposes.
- The funds of the trust must be invested or deposited in the permissible forms and modes prescribed in Section 11(5).
- Promotion of sports and games is under the purview of charitable purpose and hence exempted under Section 2(15).
- Microfinance facilities to the poor and the needy will be exempted.
- Services performed by the Institute of Charted Accountants of India in terms of organizing seminars, conferences and workshops to educate people on commercial laws, tax laws, auditing, accounting, direct and indirect taxes, would be an object of general public utility.
Section 11 of the Income Tax Act
The contents of Section 11 of the Act are given below for reference:
Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- [a] Income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty- five per cent of the income from such property; [b] Income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of twenty-five per cent of the income from such property; [c] Income derived from property held under trust- (i) Created on or after the 1st day of April 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) For charitable or religious purposes, created before the 1st day of April 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income.