Trusts formed for charitable or religious purposes which are not intended to do commercial activities are allowed various benefits under the Income-Tax Act, inter-alia, and exemption. The term “religious purpose” is not defined under the Income-Tax Act but “charitable purpose” is defined as to provide relief to the poor, education, medical relief, preservation of environment (including water bodies, forests and wildlife) and preservation of historical and artistic monuments or places or objects, and the improvement of any other objective beneficial to the general public provided that it’s not for charitable purpose but if it involves any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, 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, unless carrying out any other object of general public utility and the aggregate receipts from such activity or activities during the previous year, do not exceed 20% of the total receipts.
Tax Rate & Payment
A trust is chargeable to tax as per the slab rates which are applicable to an individual.
Surcharge: Surcharge at the rate of 15% will be added to the amount of income-tax when total income exceeds 1 crore rupees but It will be subject to marginal relief.
Education Cess: The amount of income-tax and the applicable surcharge, shall be further increased by education cess and secondary and higher education cess calculated at the rate of 2% and 1% respectively of such income-tax and surcharge.
A trust can pay its income-tax either by physical payment by furnishing the hard copy of the challan at the designated bank branch or e-payment mode by making payment by using the electronic mode.
Filing Return of Income
It is mandatory that a trust must file the return of income from any commercial activity. Further a trust a also required to file return of income if its gross total income exceeds the maximum amount which exempted from tax.
A trust who is required to file return of income according to the provision using either in ITR 7 or in ITR 5.
It is also compulsory for a trust to file return of its income electronically with or without using digital signature. Return can also be filed by a trust using Electronic Verification Code but a trust which is required to get its accounts audited must file the return electronically under digital signature.
Registration of Trust
It is mandatory for a trust to get the registration completed using Form No. 10A to claim exemption. Although there is no time-limit to apply for the registration but exemption would be available only from the financial year in which such application is made. Exemption to a trust could not be denied in respect of earlier assessment years provided that objects and activities of the trust for such preceding assessment years were same. In application along with Form No. 10A the documents about where the trust is created and where the trust or institution has been in existence during any year or years are required.
Income of a charitable and religious trust is exempted from taxation with certain conditions under various provisions.
Some of the exemptions allowed under certain conditions are:
• Exemption for income derived from property held under trust wholly for charitable or religious purposes to the extent such income is applied for charitable or religious purpose in India.
• Income in the form of voluntary contributions received by a trust or institution created wholly for charitable or religious purposes.
• Voluntary contributions received by an electoral trust.
• Income of an educational institute.
• Income of a hospital or other institution.