Charitable and religious trusts and institutions in India enjoy special status under income tax laws, given their role in serving public good. However, this status comes with defined formation procedures, compliance obligations, and taxation rules, which have undergone significant amendments in recent years.
Charitable or religious trusts can be formed as:
Trusts under the Indian Trusts Act, 1882 (for private trusts) or under general law (for public charitable/religious trusts)
Societies under the Societies Registration Act, 1860
Non-profit Companies under Section 8 of the Companies Act, 2013
Key requirements include:
Charitable or religious objectives (as defined under Section 2(15) of the Income Tax Act)
Proper trust deed or memorandum of association
Registration with the Income Tax Department under Section 12AB for income tax exemption
Trusts must maintain proper books of accounts, receipts, and records of donations and expenditures.
Annual return filing (Form ITR-7) is mandatory.
Board of trustees or managing committee must ensure funds are used solely for approved objectives.
Cannot divert income to benefit specified persons (Section 13 violations can lead to denial of exemption).
Donations must be tracked and, if eligible, registered under Section 80G for donor benefit.
Mandatory re-registration of all existing trusts under Section 12AB for continuing exemption.
Validity: 5 years, renewable.
Provisional registration available for new trusts for 3 years.
Income applied for charitable or religious purposes is exempt.
At least 85% of income must be applied in the same year to retain exemption.
Accumulation of up to 15% allowed without conditions.
Additional accumulation permitted under Section 11(2) with proper form filing (Form 10).
Fully exempt if received with a specific written direction and invested in approved modes under Section 11(5).
Allowed only if incidental to the objectives and separate books are maintained.
Non-compliance results in denial of exemption for such income.
Trusts seeking donor benefit under Section 80G must apply separately.
Electronic filing and renewal every 5 years now mandatory.
Statement of donations (Form 10BD) and certificates (Form 10BE) must be filed and issued annually.
If conditions under Section 12AB, 11, or 13 are violated:
Entire income becomes taxable at maximum marginal rate.
Penalties and interest may apply.
Audit (Form 10B) mandatory if total income exceeds the basic exemption limit.
Annual filing of Form 10B/10BB, Form 10BD (donor list), and ITR-7 is essential.
Failure to file within due dates can lead to denial of exemption and other penalties.
The tax regime governing charitable and religious trusts has become more compliance-driven and transparent with recent amendments. To retain tax exemptions and public trust, these entities must ensure timely registrations, accurate disclosures, and strict adherence to statutory obligations under the Income Tax Act.
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Charitable and religious institutions play a pivotal role in public welfare, and the Indian Income Tax Act provides various exemptions and benefits to encourage their functioning. However, with recent legislative amendments, compliance and governance frameworks have been significantly strengthened to ensure transparency and accountability.
Charitable and religious organizations in India can be constituted as:
Trusts under general law or specific state trust laws
Societies registered under the Societies Registration Act, 1860
Section 8 Companies under the Companies Act, 2013 (not-for-profit companies)
A legal deed or constitution document defining objectives and operations
Clearly defined charitable or religious purposes as per Section 2(15) of the Income Tax Act, including:
Relief of the poor
Education
Medical relief
Preservation of environment or monuments
Advancement of any other object of general public utility
Mandatory for availing income tax exemption under Section 11 and 12
Fresh and re-registration required; valid for 5 years
Provisional registration for newly formed trusts, valid for 3 years
Separate registration to allow donors to claim tax deduction on donations
Must be renewed every 5 years
Trusts must file Form 10BD and issue Form 10BE to donors annually
Charitable and religious institutions must follow strict operational guidelines:
At least 85% of total income must be applied for charitable or religious purposes in India
Remaining 15% may be accumulated without specific conditions
If 85% is not spent, excess can be carried forward by filing Form 10 under Section 11(2)
Fully exempt, provided written direction is obtained from the donor
Must be invested in specified modes under Section 11(5)
Audit is mandatory if income exceeds the basic exemption limit
Form 10B or 10BB (based on conditions) and ITR-7 to be filed annually
Books of account and records of receipts, payments, and donations must be maintained
Allowed only if incidental to the charitable objectives (e.g., sale of products made by beneficiaries)
Must maintain separate books of accounts
Income applied for charitable or religious purposes is exempt
Conditions:
Activities must not benefit any specific individual (Section 13)
Assets/income should not be diverted for personal use
Trust must not engage in non-charitable trade/commercial activities beyond the allowed threshold
Breach of conditions results in forfeiture of exemption
Income becomes taxable at the maximum marginal rate (MMR)
Penalty and interest may also apply
| Form | Purpose | Due Date |
|---|---|---|
| Form 10A/10AB | Registration/Re-registration under 12AB/80G | As notified |
| Form 10 | Accumulation of unspent income | Before due date of ITR |
| Form 10B/10BB | Audit report | One month before ITR |
| Form 10BD | Statement of donations received | 31st May |
| Form 10BE | Donation certificate to donors | 31st May |
| ITR-7 | Annual income tax return | 31st October (if audit applicable) |
Mandatory re-registration for all existing trusts under new Section 12AB
Donations reporting via Form 10BD/10BE
Corpus donations must be invested in Section 11(5) modes only
No exemption if return not filed within due time (Section 139(4A))
Enhanced scrutiny on related party transactions and commercial activities
The taxation and compliance regime for charitable and religious trusts is now more structured and transparent. While tax exemptions remain generous, institutions must adhere to strict governance, filing, and reporting requirements to continue enjoying benefits under the law. Timely registration, careful application of funds, and accurate documentation are crucial to ensuring regulatory compliance and public confidence.
| RAM DUTT SHARMA Formation Management And Taxation Of Charitable And Religious Trust & Institutions Under Income Tax Laws As Amended |
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