Accreted Income :
As per Section 115TD, a trust or institution is liable to pay additional income-tax on the accreted income, which arises on conversion of a trust into non-charitable form or on transfer of assets of a charitable trust on its dissolution to a non-charitable institution. The tax on accreted income shall be levied at maximum marginal tax rate and this tax is in addition to income-tax chargeable in hands of trust or institution.
The accreted income is the fair market value (FMV) of the total assets of trust as reduced by the total liability as on the specified date.
Accumulation of Income :
If income applied during the previous year for charitable or religious purpose in India falls short of 85%, the unspent amount is still deemed to be applied for charitable or religious purposes in India if the trust submits a declaration to the Assessing Officer and invest the surplus amount in the modes specified under section 11(5). This setting aside or retaining a part of the income earned by the trust is called accumulation of income.
Anonymous donation :
Anonymous Donation means any voluntary contribution where the person receiving such contribution does not maintain a record of the identity of the donor indicating his name, address, and such other particulars as may be prescribed.
Application of income :
The application of income includes all payments and expenditures for the purpose of charitable and religious purposes in India. Exemption under Section 11 is available to a trust with respect to the income applied for charitable or religious purposes in India. If the income is applied for purposes other than religious or charitable purposes, it shall be taxable under Section 115BBI.
Charitable purpose :
Section 2(15) of the Income-tax Act provides an inclusive definition of 'charitable purpose'. It includes the following:
a) Relief of Poor;
d) Medical Relief;
e) Preservation of the environment (including watersheds, forests, and wildlife);
f) Preservation of monuments or places or objects of artistic or historic interest; and
g) Advancement of any other object of general public utility.
Compliances required for tax audits :
Where assessee is required to get his books of accounts audited under any other law, it is sufficient for him to get his accounts audited under that law and furnish a report of such audit and a report in Form 3CA and 3CD by a chartered accountant by the prescribed due date. In case of others, report in Form 3CB and 3CD shall be furnished.
It is mandatory to file the tax audit report one month prior to the due date of furnishing the return of income under section 139(1) i.e. by the following dates:-
|Situations||Due date for filing of tax audit report|
|If assessee is required to furnish a report of transfer pricing (TP) in Form No. 3CEB||On or Before 31st October of the relevant assessment year|
|In any other case||On or Before 30th September of the relevant assessment year|
Corpus donation :
Corpus donation means any voluntary contributions received by a trust or an institution, created wholly for charitable or religious purposes, with a specified direction that they shall form part of the corpus of the trust or institution.
The income chargeable to tax due to withdrawal of exemption shall be computed after allowing a deduction for expenditure (other than capital expenditure) incurred in India for the objects of the institution. The deduction is allowable subject to the satisfaction of the following conditions:
a) The expenditure is not from the amount of corpus donations credited in the books of account up to the end of the financial year immediately preceding the relevant previous year;
b) The expenditure is not from any loan or borrowing;
c) Depreciation shall not be allowed in respect of an asset whose full cost has been claimed as an application of income;
d) The expenditure is not in the form of a contribution or donation to any person.
However, the income shall be computed without deduction of the following expenditures:
a) No deduction shall be allowed for the capital expenditure;
b) Disallowance shall be made under Section 40(a)(ia) for the default made in deduction of tax;
c) Disallowance shall be made Section 40A(3)/40A(3A) for the payment made in cash;
d) No deduction shall be allowed for the expenditure not incurred in India.
Section 11 provides an exemption to trust or institution in respect of income derived from property held under trust and voluntary contribution subject to various conditions:
a) The property from which the income is derived should be held under the trust;
b) The property should be held for charitable or religious purposes;
c) No part of the income or the property of the trust should be used or applied directly or indirectly for the benefit of certain specified persons;
d) The trust should be registered with the Commissioner within the prescribed time under Section 12AB;
e) Where the income of trust consists of a business income, the business should be incidental to the attainment of the objectives of the trust, and separate books of account are maintained in respect of such business;
f) The accounts of the trust should be audited and the audit report should be furnished in Form 10B or 10BB at least one month prior to the due date of submission of return of income; and
g) The funds of the trust should be invested or deposited in the permissible forms and modes only.
Interested Person :
Section 13 of the Income-tax Act restricts exemption to a charitable or religious trust to the extent of the income applied for the benefit of an interested person. The following persons are categorised as 'interested person':
a) The author of the trust or the founder of the institution;
b) Any person who has made a total contribution up to the end of the relevant previous year of an amount exceeding Rs. 50,000;
c) Where the author, founder, or substantial contributor is a HUF, a member of the HUF;
d) Any trustee of the trust or manager of the institution;
e) Any relative of such author, founder, substantial contributor, member, trustee, or manager as aforesaid; and
f) Any concern in which any of the persons referred to above has a substantial interest.
Permissible mode :
"Permissible mode" refers to the ways in which a charitable or religious trust can utilize its income without losing its tax-exempt status. The permissible mode has been specified under section 11 of the Income-tax Act
Public charitable trusts :
Public charitable trusts is a trust whose beneficiaries are the public at large.
Any trust or institution can claim exemption under Sections 11 and 12 if it is registered with the Commissioner of Income-tax. Registration under the new provision is allowed for a maximum of 5 years. The application for registration in such cases shall be filed in Form 10AB. After making necessary enquiries, the Commissioner is required to pass an order granting the registration or refusing to grant the registration within 6 months from the end of the month in which the application for registration was received.
For the purpose of section 13, relative in relation to an individual means:
(a) Spouse of the individual;
(b) Brother or sister (and their spouses) of the individual;
(c) Brother or sister (and their spouses) of the spouse of the individual;
(d) Any lineal ascendant or descendant (and their spouses) of the individual;
(e) Any lineal ascendant or descendant (and their spouses) of the spouse of the individual;
(f) Any lineal descendant of a brother or sister of either the individual or of the spouse of the individual.
Section 8 Companies :
Section 8 companies are registered under the Company Act, 2013. These companies are formed for a charitable purpose.
Specified Violation :
Section 12AB defines the meaning of 'Specified Violation' which is as follows:
a) Application of income other than for the objects;
b) Income from business not incidental to the objects;
c) Separate books not maintained for business incidental to the objects;
d) Application of income not for benefit of the public;
e) Application of income for the private religious community;
f) Activities of trust are not genuine; and
g) Non-compliance with requirements of other law.
Substantial Interest :
For the purpose of section 13, a person is deemed to have a substantial interest in concern if he (or along with 'interested persons' as mentioned above) at any time during the previous year:
(a) Holds at least 20% of equity share capital, in case of a company; or
(b) Entitled to at least 20% of profits in the case of any other concern.
Tax Audit :
A taxpayer is required to maintain books of accounts and get them audited. The requirement to maintain the books of accounts is prescribed under
Section 44AA and the requirement to get them audited is mentioned in
Section 44AB. An assessee shall get the books of accounts audited if its gross turnover or receipts during the relevant previous year exceeds the prescribed threshold limit.