INTRODUCTION
India is the country and land of many cultures and religions and various institutions are controlled or run by these religious communities. These institutions are generally managed by the bodies the legal status depends upon their registration, whether they are registered as a society or an association of people called Trusts. The trusts are legal entities that are created for specific purposes. Every year this trust receives a huge amount of the sum in the form of donations from various people. The trusts in India are governed by the Indian Trust Act of 1882.[1] and state legislations of specific states like the Maharashtra Public Trusts Act 1950.[2] The act governs all the trusts and under it, the trusts can be formed for various purposes. The trusts in India need to comply with various legal norms such as maintenance of trust deeds, compulsory registration with the income tax authorities, registration for 80 G,[3] and registration under 12AA[4] and 12AB.[5]
In recent headlines because new rules have been formed, The Central Board of Direct Taxes has strengthened regulations for charitable, religious, and educational trusts with their income tax filings. This move comes several months after suspicions arose regarding significant tax evasion by individuals who had made substantial donations to charitable trusts.
These organizations will now be required to provide additional information, including the name, address, and permanent account numbers (PAN) of donors who contribute more than Rs 2 lakh in a single day. This provision aims to improve transparency and prevent potential tax fraud. These organizations will now be mandated to furnish extra details, which encompass the names, addresses, and permanent account numbers (PAN) of contributors who donate an amount exceeding Rs 2 lakh within a single day. The primary aim of this requirement is to bolster transparency and accountability.
In addition to the information about the donors, these trusts will also be obligated to provide a declaration confirming the activities undertaken by them…
THE TAX LIABILITY OF THE TRUSTS.
The trusts in India are subject to income tax. The tax treatment of trusts depends upon their type:
The Public Charitable Trusts: These trusts enjoy exemption under sections 11 and 12A of the Income Tax Act, 1961,[6] if they meet certain specific conditions as mentioned in sec 13. The part of income which is generally applied for charitable purposes is generally exempt from tax.
Private trusts: The income of private trusts is taxed as per the individual slab rates applicable to the trust’s income. If the trust is created exclusively for the benefit of a dependent relative.
THE TAXATION OF TRUSTS CAN BE CLASSIFIED UNDER DIFFERENT HEADS
Tax on Rental Income: the trusts in India that are registered earn income from renting out a property, such as land or building, then whatever the rental income is received will be subject to taxation.
Tax on capital gains: The trusts which are registered in India and that trust earns income from the sale of assets, such as property or shares, then that income which is received by the trust will be treated as capital gains and taxed accordingly.
Tax on income from business: if the registered trust is engaged in a business activity, then it will be taxed in the same manner as any other business entity.
Sections 11 and 12 of the Income Tax Act[7] deal with the provision regarding the tax liability of the trust.
Sec 11[8] income from the property held for charitable or religious purposes.
Income shall not be included in the total income of the p.y of the person in receipt of the income.
- Income derived from the property held under trust wholly for charitable or religious purposes &when accumulated or set apart is not more than 15% of the income from such property.
- Income from a trust created before the commencement of this act i.e. 1961.[9]
(c) Income from property trust on or before 1 April 1952 for the charitable purpose to promote international welfare to the extent to which such income is applied to such purpose outside India.
DEFINITION OF TRUST
The term charitable and religious purpose has been defined Under section 2(15) of the Income Tax Act 1961 [10]i.e. to include relief to the poor, education, preservation of monuments, preservation of the environment, preservation of places of historical and artistic interests, medical relief, yoga, promotion of sports and games and advancement of any other object of general public utility.
Sec 12 income of trusts or institutions from contributions.
General part
When calculating income according to this provision, the contributions made as per section 12 of the Income Tax Act will be considered as a component of the income outlined in this section, and the contributions mentioned in section 12 of the Income Tax Act will be regarded as part of the income.
The applicability of sections 11 & 12 of the Income Tax Act.
Section 12 A deals with the conditions for applicability of sections 11 & 12.
The trust cannot claim the exemption if it is noncompliant with section 13.[11]
- The income derived from a property held within a trust does not guarantee the well-being of the broader public.
- Furthermore, if the income generated from a trust’s property is directed towards the advancement or benefit of a specific community, the trust loses its eligibility for exemption under sections 11 and 12 of the relevant act.
- However, if the income is utilized for the betterment of marginalised groups such as SC, ST, OBC, Tribes, Women, and Children, then the trust can qualify for an exemption.
- If the trust is established for the benefit of an individual or a private person, or if the income generated from the trust serves the interests of a particular individual, any anonymous donations will not be eligible for exemption under sections 11 and 12. In cases where trusts receive voluntary contributions from individuals without providing their name, address, or PAN, such anonymous donations will be treated as regular income for the trust and will not qualify for exemption under sections 11 and 12 of the act.[12]
WHO CAN CLAIM FOR EXEMPTION?
Trusts or institutions that have been granted registration under section 12AA of the Income Tax Act, 1961,[13] are eligible to seek exemption. However, a significant change occurred after October 2020, requiring all trusts previously registered under section 12AA[14] to undergo a re-registration process under section 12AB[15] of the Income Tax Act, using the online Form 10A. This re-registration is necessary to maintain eligibility for exemption under this section. The validity of this re-registration remains in effect for 5 years.
Case laws
- Commissioner of Income Tax v. Lilavati Kirtilal Mehta Medical Trust. [16]
In this case, it was decided that where 85 % of the gross income of the assessee trust was spent on charitable activities, the assessee would be entitled to exemptions under section 11.
- Sir Rattan Tata Trust v Deputy Commissioner Of Income Tax. [17]
In this case, ITAT held there is no reason for holding the suspicion that some of the interest income may be from sources of income that are not qualified for exemption under section 11. Once all these details were on record, there is no suggestion that any part of interest income is not qualified for exemption under section 11.[18]
- ITO v. Gaudiya Granth Anuved Trust [19]
It is in this case that the Agra tribunal took a view that corpus donation cannot be taxed even if the Trust is not registered under sec 12AA[20] for the following reasons:
- Religious endowments do not lose their validity due to the absence of consecration for either the temple or the deity at the time of their establishment.
- The individuals being assessed must be considered as “individuals” for taxation purposes, as they are artificial legal entities.
- Voluntary contributions made towards the corpus of the assesse cannot be subjected to taxation.
CONCLUSION
For people who all want to serve society, and give back as their part to society the trusts serve as a medium to provide the service that they want to render. As the trust has unique characteristics and legal identity. and are governed by statutes like the Indian Trusts Acts of 1882.[21] A charity commissioner is also appointed by the government to look into matters regarding It. Thus the trusts under the Income Tax Act[22] are provided with incentives in the form of exemptions to encourage the trusts to serve the public at large.
Author(s) Name: Anuj. N. Sharma (RTMNU’s Dr. Babasaheb Ambedkar college of Law , Nagpur)
References:
[1] The Indian Trust Act 1882.
[2] The Maharashtra public trust act 1950.
[3] The Income Tax Act 1961,s 80 G
[4] The Income Tax Act 1961,s 12AA
[5] The Income Tax Act 1961,s 12AB
[6] Income Tax Act, s11.
[7] Income Tax Act 1961,s11,12
[8] Income Tax Act 1961.
[9] The Income Tax Act 1961,
[10] The Income Tax Act 1961, s2(15)
[11] The Income Tax Act 1961, s13
[12] Income Tax Act 1961, s11.
[13] Income Tax Act 1961, s12AA.
[14] Income Tax Act 1961, S12aa
[15] Income Tax Act 1961, S12ab
[16] Cen(I),Mumbai 178 ITD 338
[17] DCIT v. sir rattan Tata Trust MUM 188 ITD 151
[18] Income Tax Act 1961, S11
[19] Ito v. Gaudiya Granth Anuved Trust Taxmann 2014 (348 Agra Tribunal).
[20] Income Tax Act 1961.S11
[21] Indian Trust Act 1882.
[22] Income Tax Act 1961.
