Section 11(1)(c) of the Income Tax Act, 1961, deals with the exemption of income of a charitable or religious trust. This section provides that any income that is applied or accumulated for charitable or religious purposes, which is in excess of 15% of the total income of the trust, shall not be included in the total income of the trust for that assessment year. In this blog, we will discuss Section 11(1)(c) of the Income Tax Act, 1961, in detail with proper headings.
Introduction
Charitable and religious trusts are entities that are set up with the primary purpose of promoting a charitable or religious cause. These trusts are established for the benefit of society, and their income is often exempt from income tax under Section 11 of the Income Tax Act, 1961.
Meaning of Section 11(1)(c)
Section 11(1)(c) of the Income Tax Act, 1961, provides an exemption to income received by charitable or religious trusts. The section states that any income received by a trust that is applied or accumulated for charitable or religious purposes in excess of 15% of the total income of the trust, shall not be included in the total income of the trust for that assessment year.
Conditions for claiming exemption under Section 11(1)(c)
To claim exemption under Section 11(1)(c), the following conditions must be satisfied:
- The trust should be a charitable or religious trust
- The income should be applied or accumulated for charitable or religious purposes
- The income should be in excess of 15% of the total income of the trust
Meaning of “applied for charitable purposes”
The term “applied for charitable purposes” refers to the utilization of the income received by the trust for the promotion of a charitable cause. The income should be spent on activities that are considered to be charitable in nature, such as providing education, medical relief, or promoting environmental protection.
Meaning of “accumulated for charitable purposes”
The term “accumulated for charitable purposes” refers to the retention of the income received by the trust for the promotion of a charitable cause. The income should be kept aside for future use on activities that are considered to be charitable in nature.
Consequences of non-compliance
If a trust fails to comply with the conditions mentioned in Section 11(1)(c), the income that is not utilized or accumulated for charitable purposes will be treated as taxable income for that assessment year.
To understand the implications of Section 11(1)(c) of the Income Tax Act, it is essential to have a clear understanding of the term “charitable purpose.” The Income Tax Act, 1961, defines charitable purpose as follows:
a) Relief of the poor
b) Education
c) Medical relief
d) Preservation of the environment (including watersheds, forests and wildlife)
e) Preservation of monuments or places of historic or artistic interest
f) Advancement of any other object of general public utility
If the income received by the trust is applied or accumulated for any of the above purposes, it will be eligible for exemption under Section 11(1)(c). However, it is important to note that the trust must be able to provide evidence that the income has been utilized for the promotion of charitable purposes.
The 15% rule under Section 11(1)(c) requires that a minimum of 85% of the total income of the trust must be utilized for charitable purposes. The remaining 15% of the income can be accumulated for future use on charitable activities.
It is important for charitable and religious trusts to maintain proper records of their income and expenditure to ensure compliance with the conditions of Section 11(1)(c). Failure to maintain proper records or non-compliance with the conditions of the section can result in the trust losing its exemption status and being liable to pay taxes on its income.
It is also worth noting that Section 11(1)(c) is not applicable to private trusts, i.e., trusts that are set up for the benefit of specific individuals or families.
Conclusion
In conclusion, Section 11(1)(c) of the Income Tax Act, 1961, provides an exemption to income received by charitable or religious trusts. However, to avail of the exemption, the trust must comply with the conditions mentioned in the section. The trust must apply or accumulate the income for charitable purposes and must maintain proper records of its income and expenditure. Failure to comply with the conditions of the section can result in the trust losing its exemption status and being liable to pay taxes on its income.
Read more useful content:
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Frequently Asked Questions (FAQs)
What is Section 11(1)(c) of the Income Tax Act, 1961?
Section 11(1)(c) of the Income Tax Act provides an exemption to income received by charitable or religious trusts that are applied or accumulated for charitable or religious purposes.
What is a charitable trust?
A charitable trust is an organization that is set up to promote charitable activities for the benefit of society. It can be established for a wide range of charitable purposes such as education, medical relief, or the advancement of any other object of general public utility.
What is the minimum percentage of income that must be utilized for charitable purposes under Section 11(1)(c)?
At least 85% of the total income of the trust must be utilized for charitable purposes under Section 11(1)(c).
Can a trust accumulate income for future use under Section 11(1)(c)?
Yes, a trust can accumulate up to 15% of its total income for future use on charitable activities.
What are the consequences of non-compliance with Section 11(1)(c)?
If a trust fails to comply with the conditions mentioned in Section 11(1)(c), the income that is not utilized or accumulated for charitable purposes will be treated as taxable income for that assessment year.
Is Section 11(1)(c) applicable to private trusts?
No, Section 11(1)(c) is not applicable to private trusts that are set up for the benefit of specific individuals or families.
Can a trust claim exemption for income received from business activities?
Yes, a trust can claim exemption for income received from business activities if the income is utilized for charitable purposes.
What type of records should a trust maintain to comply with Section 11(1)(c)?
A trust should maintain proper records of its income and expenditure to ensure compliance with the conditions of Section 11(1)(c). These records should clearly indicate the amount of income utilized for charitable purposes.
What is the definition of “charitable purpose” under the Income Tax Act, 1961?
The Income Tax Act, 1961, defines charitable purpose as the relief of the poor, education, medical relief, preservation of the environment, preservation of monuments or places of historic or artistic interest, and the advancement of any other object of general public utility.
Can a trust claim exemption for income received from investments?
Yes, a trust can claim exemption for income received from investments if the income is utilized for charitable purposes. However, the trust should maintain proper records of the investments and the income received from them.
