Tax Exemption for Charitable Trust

Last updated : March 18th, 2020 05:15 pm

Tax Exemption for Charitable Trust

A Trust is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another. Charitable Trusts and Section 8 Company are eligible for tax exemption under Sections 11, 12, 12A, 12AA and 13 of the Income Tax Act. Charitable purpose includes relief of the poor, education, medical relief, preservation of 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. In this article, we review the tax exemption for Charitable Trust in India.

Charitable Trust

A Charitable Trust is a Trust wherein the purpose of the Trust is directed to the benefit of the community or a section of the community, as distinguished from an individual or a group of individuals. Where the primary purpose of the settlor is to benefit the members of his/her family and relations and only remotely or indirectly the general public, then the Trust is not a Charitable Trust. Details about Charitable Trust registration can be found in the article on “How to form a Charitable Trust“.

Charitable Trust Carrying on Business

There is no prohibition on a charitable trust from carrying on business. The income from a business conducted by a charitable trust shall also qualify for tax exemption provided certain criteria’s are fulfilled. In addition, any income of a charitable trust shall not qualify for tax exemption unless the business is incidental to the attainment of the objects of the trust and separate books of account are maintained in respect of such business. For instance, if a charitable trust is established for medical relief, then the manufacturing of medicines, the running of dispensary or a hospital, or a nursing home shall be considered to be a business incidental to the objective of the charitable trust.

Trust claiming Tax Exemption under Section 10

Trusts and institutions formed for promotion of scientific research, education, sports, certain professions, khadi and village industries, etc., or as hospitals and notified charitable or religious institutions, are entitled for total exemption from tax under Section 10 of the Income Tax Act.

Trust claiming Tax Exemption under Section 11

Section 11 lays down that any income, profit or gain derived from property held under trust or other legal obligation wholly for religious and charitable purposes, shall not be included in the total income of the trust or institution in so far as such income is applied or accumulated for application to such purposes.

Trust eligible for Tax Exemption

The following charitable or religious trusts are entitled to exemption under section 11 and section 12, on fulfillment of certain conditions:

Trusts created wholly for charitable or religious purposes and applying their income to such purposes in India.
Trusts created before 1.4.1962 in part only for charitable or religious purposes and applying (or accumulating) their income to such purposes, in India.
Trusts created before 1.4.1952 for charitable or religious purposes, authorised by a general or special order of the Board, and applying their income to such purposes outside India.
Trusts created on or after 1.4.1952, for the charitable purpose of promoting international welfare in which India is interested, authorised by a General or special order of the Board, and applying their income for such purpose outside India.
Charitable trusts created for the benefit of scheduled castes, tribes, backward classes or women and children.

GST on the service of display of name or placing of name plates

As per the circular on 11th October 2019, GST on donations or gifts received from individual donors by charitable organisations exempted for displaying name plates in the name of the individual donor for acknowledging the donors. The relevant notification is provided below:

GST Exemption on Displaying name of donor