Charitable/Religious Trusts & Institutions – Simplified

You must have heard about some of Charitable Trust or Religious Trust or any Trust which is doing both. You could find that in the form of NGOs, Mandir Trusts, Gurudwaras Trusts etc. They generally receive their source of operation by way of contributions, donations etc.   They mainly work toward the betterment of the Society and serve public at large. Their causes are pious and society needs them.  And that’s why in the tax system also they have been provided with a lot of benefits in order to enhance and promote them.   So, today we are going to discuss the concept of Charitable/Religious Trusts and various tax benefits which the govt. has provided them. Let’s understand them: 1. What is Charitable/Religious Trust? Charitable Trust: It is the Trusts which has an objective of Charitable Purposes and provides voluntarily help. They are non-profit based and their main purpose is toward activities which are for the benefit for the Society at large. Charitable Purpose includes various acts like the relief of the poor, promoting education, yoga, medical relief, preservation of the environment, preservation of monuments (e.g Taj Mahal, Red fort etc.) and also Advancement of any other activities which are of general public benefit.   Religious Trust: Religious Trusts has not been defined under the income tax act. The creation of Religious Trust is governed by the personal laws of the religion. But in general connotation, it can be deemed as the Trusts which are involved in the activities of promoting religion or particular belief. But in reality, most of the Religious Trusts also promote the charitable causes as well e.g. education, medical facility, providing food the poor etc. and such types of Trust are called Charitable & Religious Trust. 2. How it is being created? For this, we have to understand the types of Trusts first. Trusts can be categories mainly in two categories: (i) Private Trusts  (ii) Public Trusts The Private trusts are covered under the provisions of Indian Trusts Act, 1882 and its creation are also done as per the type of trust and as per the relevant provision of the said act. While here we are talking about Charitable and/or Religious Trusts; these are the trust which comes under the category of Public Trusts. There is no central Act for applications in all the States. But various states such as Bihar, Madras, Madhya Pradesh, Orissa, etc. have enacted their own acts prescribing conditions and procedure for the administration of Public Trusts. 3. How to get the benefit under the Income tax act? For having the benefit of exemptions under the income tax act, 1961 the Charitable or Religious Trusts have to get themselves registered under the income tax act u/s 12AA. If the objects of Trust has been modified later on from that of which was initially declared while taking the registration, then the Trust has to apply for the modification of the Registration Certificate of such Trust. If such modification is not been done then exemptions would not be allowed. [FA, 2017] Also, Return must have been filed within due date. If Gross Receipts exceeds Rs. 2,50,000/- then the accounts of Charitable or Religious trust must be audited to get the tax benefit available to the Trusts under the act. 4. What tax benefits are available to it? As the main purpose of giving the tax benefits to the Charitable/Religious Trusts is to promote their social welfare and religious causes and that’s why the exemptions provided to these Trusts have also been linked with the fulfillment of such causes. The Trusts need to pay the taxes on the receipts which has not been utilized for the said purposes. The Tax Calculation will be done as follows: Gross Receipts from property held under Trust                                      xxx [including voluntary donation*] Less: 15% Ad-hoc Deduction (It will be given in every case)                   xxx Less: Expenditure towards the main purpose of such Trust                   xxx                                                                                                 Total Income          xxx          Now tax would be calculated on such total income. The tax rate on Trusts would be same as on Individuals. [*This shall not include donation towards Corpus. Any Voluntary Donation towards Corpus of Trust shall always be Exempt.] EXCEPTIONS: Further, there might be cases when the Trust was not able to expend the amount towards the attainment of the main objective. In that case, there are various ways which the trust can opt to avoid the disallowability of exemption. These ways are discussed as follows:- (i) If the Income was not applied to charitable/religious purposes due to reason that the AMOUNT WAS NOT ACTUALLY RECEIVED (but receivable) in the previous year then; If the Trust declares this before the due date of filing of return that Trust would apply this income towards its religious/charitable purposes in the year in which it will be RECEIVED or immediately NEXT YEAR OF RECEIPT then such income would be allowed in the current year itself (even if this has not been spent actually). [If not utilized within such time limit it will be considered as income and no exemption would be given later on] (ii) FOR ANY OTHER REASON; which means even if the Trust does has received its income actually but did not apply it towards charitable/religious purposes for any other reason (which may anything) then; If the Trust declares before the due date of filing of return that it would utilize this amount for charitable/religious purposes in the immediately NEXT YEAR (next year of year to which income belongs), then it would be allowed in the current

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