Income from property held for Charitable or religious purpose - Section 11(1) - Income Tax - Ready Reckoner - Income Tax

Income from property held for Charitable or Religious Trust purpose - Section 11(1) Following incomes of the Trust shall be exempt from tax :- (a) Corpus Donation [if it is deposited in mode prescribed u/s 11(5) ] (b) 15% of Gross Income [Set aside/standard deduction] (d) Income applied for charitable or religious purpose in India [Out of remaining 85% on Income]. Explanation 1: If 85% of income could not applied in current PY i. for the reason that the whole or any part of the income has not been received during that year (Outstanding) Assessee submits a declaration to the assessing officer on or before the due date of filing of return that such income shall be applied to such purposes in the year of receipt or in the immediately succeeding year, then such amount is treated as deemed to be applied in current PY. If such income is not applied to such purposes in the year of receipt or in the immediately succeeding year, then the amount not so applied shall be deemed to be the income of the next year in which such amount received and taxable @ 30% u/s 115BBI . ii. for any other reason and assessee submit a declaration to the assessing officer on or before the due date [at least two months prior to the due date specified u/s 139 . Amendment made by FA, 2023 ] of filing of return that such income shall be applied to such purposes in the immediately following previous year, then the amount for which such declaration is given shall be deemed to be applied to such purposes in the previous year in which income was derived. If such income is not applied to such purposes in the year of receipt or in the immediately succeeding year, then the amount not so applied shall be deemed to be the income of the next year in which such amount received and taxable @ 30% u/s 115BBI . Explanation 2 : Donation to other Trusts Any amount donated to any other trust registered u/s 12AA / 12AB or institution u/s 10(23C) shall be treated as application but if such amount is donated as Corpus of such trust/institution then it is not treated as application. Explanation 3 : For the purpose of computing application of Trust, PGBP provisions of section 40A(3), 40A(3A) and 40(a)(ia) shall apply here also (a) Section 40A (3)/(3A) -Expenditure paid in a single day to a single person more than ₹10,000 in any mode other than account payee cheque or DD or ECS not treated as application. If deduction allowed in earlier year on due basis and in current year if payment made more than ₹10,000 in cash then such amount will be treated as income of current PY. (b) Section 40(a)(ia) - If any amount paid or credited to resident and if TDS not deducted in PY or deducted but not paid to Govt. upto due date of ROI then 30% of such expenditure not allowed as application for trust. The same would be treated as application in the year in which TDS deposited. Explanation 3A : Treatment of certain donation to specified trust u/s 80G [Added by FY 2022 w.e.f. AY 2021-22] If trust having temple, mosque, gurdwara, church or other place notified u/s 80G(2)(b) , received any donation for repair or renovation of such places then trust may treat such sum as corpus donation if following conditions are satisfied: - (a) Such donation should be utilised for repair or renovation (b) Such amount should not be donated to any person, (c) Maintains such corpus as separately identifiable, and (d) Invested/deposited in modes specified u/s 11(5) . Explanation 3B : Voilation [Added by FY 2022 w.e.f. AY 2021-22] If any of condition mentioned in explanation 3A violated then such sum shall be treated as income of the PY in which violation takes place. Explanation 4 : [Added by FY 2021 w.e.f. AY 2022-23] (i) Amount applied out of Corpus Fund shall not be treated as application in current year. When the income of any subsequent PY is utilised to invest or deposit back into specified mode u/s 11(5) for such corpus, then amount shall be allowed as application in the PY in which it is invested or deposited back to corpus and to the extent it is deposited back. if following conditions are satisfied: - (a) in clause (c) of section11(1); (b) in Explanations 2, 3 and 5 of the section 11(1); (c) in the Explanation to the section 11; and (d) in clause (c) of section 13(1), at the time the application was made from the corpus. The amount invested or deposited back shall not be treated as application for charitable or religious purposes under the first proviso unless such investment or deposit is made within a period of five years from the end of the previous year in which such application was made from the corpus. Non-Applicability this explanation:- Provided also that nothing contained in the first proviso shall apply where application from the corpus is made on or before the 31st day of March, 2021. [inserted vide Amendment by FA, 2023 ] Example : Shree Ganesh Trust applied ₹ 15 lakhs in PY 2022-23 for religious purpose out of corpus fund of Trust. In this case ₹ 15 lakhs not treated as application for PY 2022-23. Suppose in PY 2023-24 Trust deposited back ₹ 7 lakhs in corpus fund out of income of PY 2023-24 then ₹ 7 lakhs shall be treated as application for PY 2023-24. (ii) Amount applied from any loan or borrowing shall not be treated as application in current year, When such loan or borrowing is repaid from the income of any subsequent PY, such repayment shall be allowed as application in the PY in which it is repaid and to the extent it is repaid. if following conditions are satisfied: - (a) in clause (c) of the section 11(1); (b) in Explanations 2, 3 and 5 of section 11(1); (c) in the Explanation to section 11; and (d) in section 13(1)(c). The amount repaid shall not be treated as application for charitable or religious purposes under the first proviso unless such repayment is made within a period of five years from the end of the previous year in which such application was made from loan or borrowing. Non-Applicability:- where application from any loan or borrowing is made on or before the 31st day of March, 2021. [Further proviso's inserted vide Amendment by FA, 2023 ] Example : Shree Ganesh Trust constructed a building during PY 2022-23 for ₹100 lakhs out of loan taken form ICICI bank. In this case ₹100 lakhs not treated as application for PY 2022-23. Suppose in PY 2023-24 Trust repaid loan of ₹60 lakhs out of income of PY 2023-24 then ₹60 lakhs treated as application for PY 2023-24. (iii) Amount paid or credited to any other trust other than corpus shall be treated as apply to the extent 85% of such sum paid or credited. [w.e.f 01.04.2024 and read with circular no. 03/2024 dated 06.03.2024 ] any amount credited or paid, other than the amount referred to in Explanation 2, to any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in section 10(23C)(iv)/(v)/(vi)/(via) , as the case may be, or other trust or institution registered under section 12AB, as the case may be, shall be treated as application for charitable or religious purposes only to the extent of 85% of such amount credited or paid. Explanation 5 : [Added by FY 2021 w.e.f. AY 2022-23] If any excess application of earlier PY's shall not be allowed to set-off in current PY, It means excess application shall not allowed to be carried forward and set-off. Explanation to Section 11 [Explanation added for whole section 11 FY 2022 w.e.f. AY 2022-23] Any sum payable by any trust or institution shall be considered as application of income in the PY in which such sum is actually paid by it (irrespective of method of accounting followed by trust). Provided that where during any PY, any sum has been claimed to have been applied by the trust or institution, such sum shall not be allowed as application in any subsequent PY. Example : Shree Ganesh Trust regularly follow accrual system of accounting. trust purchased computer for trust purpose on 25.03.2023 for ₹5 lakhs and payment to vendor made on 25.06.2023, In this case application of ₹5 Lakhs are allowed in PY 2023-24.