Exemption U/S 11 Of Income Tax Act,1961
N.Varshitha 1st year Intern
M/s SBS and Company LLP [email protected]
by
SBS Hyderabad 10th November 2018
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Section 11 deals with Income from property held for “Charitable or Religious purposes.”
The income shall be subjected to the provisions of
o Section 60 - Transfer of Income where there is no transfer of assets
o Section 61 - Revocable Transfer of Assets
o Section 62 - Transfer irrevocable for a specified period
Introduction
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Section 2(15) of Income Tax Act,1961 says Charitable purposes include:
a. Relief of poor
b. Education
c. Yoga
d. Medical relief
e. Preservation of Environment(Including water sheds, forests)
f. Preservation of monuments or places or objects of artistic or historic interest
g. Advancement of any other object of General public utility
Charitable Purposes
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Exception: Activity (g) shall not be considered as charitable purpose if
If it involves the carrying of any activity in nature of trade or commerce or business
For a cess or fee or any other consideration
Irrespective of the nature of use or application or retention of the income from such activity
However, the above activity shall be considered as charitable purpose:
If such activity is for advancement of any other object of general public utility; and
The aggregate receipts from such activity should not exceed 20% of the total receipts of such
trust or institution undertaking such activity.
Charitable Purposes
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Religious Purpose includes the advancement, support or propagation of a religion and its
tenets.
The exemption under section 11 is available only to public trusts but not to private trusts.
Private trust – Governed by Indian Trusts Act, 1882.
Public trust – Governed by general laws.
Religious purposes
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The expression “property” includes any immovable and movable property like money, shares,
securities, lands, buildings and houses. It may comprise interest in partnership firm and a
business undertaking also.
Property
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Incomes on which exemption can be claimed are as follows:
Income derived from property held under trust wholly or in part for charitable or religious
purposes in India
If the trust is created after 1-04-1952, then income derived from a property held under trust
for a charitable purpose which tends to promote international welfare in which India is
interested.
If the trust is created before 1-04-1952, then income derived from a property held under
trust for a charitable purpose which tends to promote international welfare.
Income in form of voluntary contributions made with specific direction that they shall form
part of corpus of the trust or institution.
Incomes _ Section 11(1)
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The following conditions must be satisfied in order to claim the exemption:
The trust or institution carrying out the prescribed charitable or religious activities should be
registered under section 12AA.
85% of the income derived/received shall be applied for such purposes in India.
15% of the income derived/received can be accumulated for future usage.
For the purpose of calculating such 15%, income from property held under trust also includes
voluntary contributions i.e. donations but except corpus donations.
Conditions _ Section 11(1)
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Application of Income: Income received by the trust can be applied for following various
purposes and it is considered as application of income:
Revenue Expenses
Purchase of Capital Assets
Donations to another religious/charitable trust.
Repayment of Loans taken for purchase of capital assets etc.,
Application of Income _ Sec 11(1)
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If application of income falls short of 85% of the income derived during the previous year, by
any amount
a. For the reason that whole or part of the income has not been received during the year (or)
b. For any other reason
Then assessee may make an application electronically in “Form 9A” to the AO on or before due
date of filing of return that
For reason-a : Such income shall be applied in the P.Y in which it is received or succeeding P.Y
For reason-b : Such income shall be applied in P.Y immediately following the P.Y in which
income is derived.
Deemed application of Income_Sec 11(1)
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Contravention of conditions:
If the income received is not applied for the charitable or religious purposes in the year it is
received or the succeeding year (or) income derived is not applied for the charitable or religious
purposes in the P.Y immediately following the P.Y in which it derived, then such income shall be
added back as income in the hands of trust/ institution in the year of contravention and shall
be taxed accordingly.
Deemed application of Income _Sec 11(1)
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If the trust or institution wants to accumulate more than 15% of the income then it should
satisfy the following conditions:
Assessee should file “Form 10” on or before due date of filing of return specifying the
amount and period for which the income shall be accumulated.
The period of such accumulation shall not exceed 5 years.
The money so accumulated is invested or deposited in modes specified under section 11(5).
Accumulation of Income _ Sec 11(2)
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The exemption under section 11(2) is withdrawn in the following cases and is deemed to be
income of such person for such previous year in which it is utilised as below:
a. If accumulated income is applied for purpose other than charitable or religious purposes.
b. If such income is income is accumulated for the period less than period specified by
assessee.
c. If accumulated income is applied for purpose other than the purpose for which it is
accumulated.
d. If accumulated income is invested in any other mode than specified under section 11(5).
e. If accumulated income is credited or paid to any trust/institution registered under section
12AA or any trust or institution mentioned under section 10(23C).
Accumulation of Income _ 11(3)
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Capital Gain arising on sale of capital asset held wholly under trust for charitable or religious
purposes is exempt to the extent specified here under:
Exemption on Capital Gains _ Sec 11(1)
Amount used to buy new capital asset Exemption
Whole net consideration Whole of the Capital Gains
Part of the consideration Exempted Capital Gain = Cost of new asset- Cost of transferred asset
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Capital gain arising on the sale of capital asset held partly under trust for religious or charitable
purposes is exempt to the extent specified here under:
Note: Here it is assumed that 50% of the asset is only held for charitable or religious purposes
Exemption on Capital Gains _ Sec 11(1)
Amount used to buy new capital asset Exemption
Whole of Net Consideration Capital gain*50%
Part of the consideration Exempted Capital gain= (Cost of new asset-Cost of transferred asset) *50%
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Example:
If a trust had a capital asset costing Rs.1,00,000 and sold the same for Rs.1,50,000 and then
bought a capital asset for Rs.1,30,000, then the working will be as follows:
`
Exemption on Capital Gains _ Sec 11(1)
Particulars Amount
Sale proceeds of old asset 1,50,000
Less: Cost of old asset (1,00,000)
Capital Gain 50,000
Cost of new asset 1,30,000
Cost of old asset (1,00,000)
Capital Gain Utilised 30,000
Capital gain taxable 20,000
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If property held under trust includes a business undertaking and a claim is made that the
income received from such undertaking can be claimed as exemption, then
A.O shall have the power to determine the income from such undertaking AND
Taxable Income = Income determined by the A.O – Income disclosed as per Books of
Accounts.
Exemption under sub-section (1), sub-section (2), sub-section (3) of Section 11, shall not be
applicable in relation to any income of a trust in the nature of Profits and Gains of business
unless:
Such business is incidental to the attainment of the objectives of the trust AND
Separate books of accounts have ben maintained in respect of such business
Business Income _ Sec 11(4)
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Depreciation _ Sec 11(6)
Claim of Depreciation
Asset treated as application of
Income No
Asset not treated as application of
Income Yes
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Where a trust (or) an institution has been granted registration U/s 12AA, and
The said registration is in force for any previous year, then
Exemptions U/s 10 [other than sec 10(1) and 10(23C)] shall not operate for that Previous year
i.e. trust cannot claim exemption U/s 10 for that particular previous year
Exemption U/s 10 _ Sec 11(7)
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A trust “X” having registration u/s 12AA earned the following income in the previous year
For the purpose of the example it is assumed that the trust has applied an amount of Rs.8,00,000
during the previous year for the attainment of its objects.
Example
Particulars Amount
Corpus Fund 2,00,000
Dividend received 2,00,000
Voluntary Donations 5,00,000
Income from main objects 7,00,000
Rent received 1,00,000
Agriculture Income 1,00,000
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Total income of the trust will be calculated as follows:
Example
S.No Particulars Amount
a. Voluntary Donations 5,00,000
b. Main Objects 7,00,000
c. Rent 1,00,000
d. Dividend 2,00,000
e. Agriculture Income -
f. Corpus Donations -
g. Total Income (a+b+c+d+e+f) 15,00,000
h. Less: Accumulation of Income @ 15% [ g*15%] 2,25,000
i. Total Income available for application [ g-h] 12,75,000
j. Less: Income applied during the previous year 8,00,000
k. Taxable Income [ i-j] 4,75,000
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Amendment w.e.f 01-04-2018:
Any amount paid or credited to any other trust or institution registered under section 12AA,
being a contribution made with specific direction that it shall form part of corpus of the trust
or institution shall not be treated as application of income.
Amendment w.e.f 01-04-2019:
For determining the amount of application under this section, the provisions of 40(a)&(ia),
40A (3) &(3A) shall apply as they apply in computing the income chargeable under the head
profits or gains of business or profession.
Other Points
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Thank you!!!
N. Varshitha 1st Year Intern
M/s SBS and Company LLP [email protected]
Venue: SBS and company LLP,
Hyderabad.
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