THE INCOME-TAX ACT, 1961(Section 11 Income from property held for charitable or religious purposes)
Updated: Oct 14, 2022
Section 11 of the Income Tax Act,1961 provides exemptions for Income earned from property held under charitable trusts/societies for the activities carried out for charitable or religious purposes
subject to certain terms and conditions.
Who can claim the exemption?
- Any trust or institution which is registered under section 12AA of the Income Tax Act, 1961 can claim the exemption under this section.
- Incomes that can be claimed as exemption:
- Income received/derived from property held by charitable trust/societies, and if it is utilized
for charitable or religious purposes exemption can be claimed under section 11.
- Income received in the form of voluntary contributions with a specific direction that they shall form part of the corpus of the trust or institution. For this section, charitable or religious purposes are defined according to section 2(15) of the Income Tax Act, 1961.
Conditions for claiming exemption:
Income should be received from property held under trust wholly or in part (for the properties held in part, the exemption can be claimed only if trust has been created before the commencement of this act) for charitable or religious purposes in India. The aforesaid income should either be applied or accumulated for such purposes in India. The income accumulated or set apart for charitable or religious purposes should not exceed 15% of the total income received/derived during the previous year. In computing income under this section, any contributions referred to in Section 12 of the Income Tax Act shall be deemed to be part of the income. Section 12 deals with voluntary contributions other than those received with a specific direction that they shall form part of a corpus trust or institution. The income applied for charitable purposes which tends to promote international welfare can also be claimed as an exemption subject to the following: Trust created on or after 1-04-1952: To the extent, such income is applied to promote international welfare in which India is interested. Trust created before 1-04-1952: To the extent, income is applied for charitable or religious purposes outside India.
Any income credited or paid to any other trust or institution registered under section 12AA, being contributed with a specific direction that they shall form part of the corpus of the trust or institution, shall not be treated as an application of income for charitable or religious purposes. For determining the amount of application under this section, the provisions of 40(a)&(ii),40A (3) &(3A) shall apply as they apply in computing the income chargeable under the head profits or gains of business or profession. For Example, if a trust named “X” registered u/s 12AA received an income of Rs.1,00,000 and utilized Rs.80,000 and created a reserve of Rs.20,000.
The trust cannot claim an exemption under section 11 because 85% of the income should be utilized for religious or charitable purposes and 15% can be created as a reserve, but here only Rs.80,000 has been utilized i.e. 80% which is less than the prescribed limits.
Can the exemption be claimed if property held under trust is a business undertaking?
If the charitable trust or institution claims that the income received from business undertaking can also be claimed as an exemption, then the respective Assessing Officer shall have the power to determine the amount on which the exemption can be claimed. If the income so determined by the Assessing Officer is more than the income disclosed as per Books of Accounts of the undertaking, then such excess cannot be claimed as exemption under this section i.e. it shall be treated as income and taxed accordingly.
Example: If an institution named “X” has received an income of Rs.1,00,000 from a business undertaking and also disclosed the same in its books of accounts and made a claim regarding the same. The assessing officer determined the amount of Rs.1,50,000 as income from such a business undertaking. Then the excess amount i.e.Rs.50,000 should be treated as income in the hands of a trust or institution.
Exemption on income from business: No trust can claim an exemption under this section for the income received from the business unless such business is incidental to the attainment of the objectives of the trust.
For example, if a trust has been established to sell handmade goods but, is also selling other goods along with such handmade goods then exemption can be claimed only on such income which is received from the sale of handmade goods. The income which is received from the sale of the goods shall be treated as income and tax shall be levied respectively.
Is depreciation allowed under section 11? Yes, there is no bar on claiming any expenses including depreciation under this section. But, if the acquisition of an asset has been treated as an application of income in that previous year, then depreciation is not allowed under this section.
Exemption under section 10 If any trust or institution is registered under section 12AA or 12A, then no other provisions of section 10 (except clause 1 and clause 23C) shall be applicable for claiming exemption.