THE DT CONCEPT BOOK (FINAL) (NOV/DEC 2023) – CA MAYANK TRIVEDI

3. CHARITABLE TRUST
Charitable Trust means 2(15)
Preservation
Medical Preservation
Education Relief to Poor of
Relief of Monuments
Environment

Advancement of any other object of General public utility Yoga

Not involves any activity related to trade, commerce, or Business

But it is treated as charitable purpose if aggregate receipt from Business activity is not
more than 20% of the total receipts
(No need to cancel Registration if GR > 20%, only exemption not Available)
(This Point is only for - Advancement of any other object of General public utility)

Exemption – (Benefit)
1. 11(1)
2. 11(2)
11(1)
Following Income Exempt

Corpus Donations

•Only if invested in 11(5) - Mode

15% Standard Deduction

•Always

Income applied for charitable or Religious purposes in India (out of remaining

85%)

•Capital + Revenue - application (For L&B - ignore SDV - Take actual Purchase
Price as Application)
•Loan Repayment - application (Jis year Repayment hoga tab apply)
•Donation to other trust Reg u/s 12AB & 10(23)(C) - application
•If donated as corpus - not treated as application
•Deprectaion will not be allowed
•40 (a)(ia) & 40 A(3) will be applicable
•Any Application From Corpus Donation - not treated as application

Explanation to 11(1)

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Other - Income
Income not received
Received last day of PY

Submit declaration to Submit declaration

AO to AO

upto due date of ROI upto due date of ROI

that income will be that income will be

applied applied

in year of receipt in next year

or

immediately next year

Deemed Applied in Current year

If such amount is not applied then such part of the income shall be taxed at 30% under Section
115BBI.

Explanation 3A
Income received for repairs and renovation of temples, mosques etc
 any sum received as a voluntary contribution by such trust or institution for the
 purpose of renovation or repair of such temple, mosque, gurdwara, church or other place, may,
 at its option,
 be treated as corpus donation of the trust
 provided such corpus is:
(a) applied by the trust or institution only for the purpose for which contribution was made;
(b) not utilised for making contribution or donation to any person;
(c) separately identifiable; and
(d) invested or deposited in the forms and modes specified in section 11(5).
 However, in case such trust or institution has violated any of the above conditions,
(a) such sum treated as corpus will be deemed as income of the previous year during which
violation takes place.

Expenditure allowed only on actual payment basis

 With effect from A.Y. 2022-23, any sum payable by any trust or institution shall be treated
as application of income only in the previous year when such sum is actually paid by it
 This is irrespective of method of accounting
 Thus, expenditure is allowed as application only when the payment is actually made and not
when the liability is incurred

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 However, where during any previous year, any sum has already been claimed to have been
applied by the trust or institution, such sum would not be allowed as application in any subsequent
previous year based on actual payment.

Illustration: VPS Foundation, a charitable institution registered under section 12AB set up on 1st
August 2021 is engaged in providing education in sports management. The Foundation follows accrual
basis of accounting and during the previous year 2022-23, has accrued staff’s salary expenses
pertaining to the month of March 2023 amounting to ₹ 5 lakhs. The salary was paid during the
first week of April 2023. KS, the tax advisor of the foundation has advised them that the salary
expenses provided for in the accounts will not be treated as an application of income for the
previous year 2022-23. Examine.
Answer
Upto Assessment Year 2021-22, an expenditure could be regarded as an application of income
even if it was not actually paid. However, effective from assessment year 2022-23, Explanation
to section 11 provides that any sum payable by an institution shall be considered as an application
of income only in the previous year in which such sum is actually paid by it. This is irrespective of
the previous year in which the liability to pay such sum is incurred by the institution according to
the method of accounting regularly employed by it. Therefore, the tax advisor’s statement is
correct.

11(2)
Where 85% of Income is not applied during the PY but accumulated or set apart then such set
apart income is not included in income if following conditions are satisfied.

1. Assessee should furnish Form 10 before ROI to AO stating

Purpose Period (Max - 5 Year)

2. Such money should be deposited in Sec 11(5) modes

3. Such money should not be donated to any other trust.

Exemption Withdrawn – 11(2)

1. Is applied to purposes other than the purposes for which it was accumulated
2. Ceases to remain invested in modes as per sec, 11(5)
3. If donated to any other trust
4. Is not utilized within specific time then it shall be taxable in the last previous year of the
period
For 1,2 & 3 – Taxable in the P.Y

It is Applied It Ceases It was Donated

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No Exemption u/s 11
1. Income from Private religious purpose
2. Income not invested in 11(5) modes
3.
Particular caste
Benefit of
or Community
Applied Income for

Benefit of Specified person

Specified person

Donation > ₹ Trustee/Manager Founder is HUF =

Author/Founder of Trust then member of
50,000 of Trust
HUF

And their relatives – 56(2)(x)

But if trust running – Hospital, Medical institute, Education institute

FMV of Service = Taxable (Income of Trust)

and Exemption also not available if service provided to Specified person

Taxation Of Specified Income - Section 115BBI

 New section 115BBI introduced with effect from A.Y. 2023-24, wherein certain specified
income of a trust/institution availing exemption would be chargeable at the rate of 30%.
 Further, no deduction in respect of any expenditure or allowance or set-off of any loss would
be allowed while computing specified income
 Specified income” means:
(a) income accumulated or set apart in excess of 15% of the income, where such accumulation
is not allowed under any specific provision
(b) deemed income on account of violation of certain conditions stipulated for accumulation of
income under section 11(3) and corresponding provision in section 10(23C).
(c) deemed income on account of violation of deemed application provisions specified under
Explanation of section 11
(d) any income not being invested in the forms and modes specified under section 11(5)
(e) any income which is applied for the benefit of any specified prohibited person referred to
in section 13(3).

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(f) any income derived from a property held under trust for a charitable purpose which tends
to promote international welfare in which India is interested to the extent to which such
income is not applied towards charitable purposes outside India.
Illustration: SR Trust is a registered charitable trust under Section 12AB. For the A.Y. 2023-
24, SR Trust had accumulated its income of Rs 5 lakhs for a period of five years. However, it
had failed to furnish Form 10 within the due date of filing return of income under section
139(1). Determine the tax consequences in the hand of the trust.

Answer
Section 115BBI introduced with effect from AY 2023-24 provides for levy of tax @ 30% on
certain “specified income” of a trust/institution. Section 115BBI defines specified income to include
any income that is accumulated or set apart and where such accumulated income is not allowed
under any specific provisions of the Act. One of the conditions for accumulation is to furnish a
statement in Form 10 within the due date of filing return of income, mentioning the reasons for
accumulation etc. In the given case, since Form 10 is not filed by SR Trust, the accumulated
income is not in accordance with the provisions of the Act and hence, will be treated as specified
income thereby attracting the provisions of section 115BBI. Therefore, SR Trust is liable to tax
on income of Rs 5 lakhs at 30% under section 115BBI. Further, no deduction of expenditure can
be claimed by the assessee in this regard

Section 10 Exemption not available

• Only 10(1) [Agriculture], 10(23C), 10(46) [Govt. Grant] – Available

Section 10 (23C) – Important

Govt. School/College/Hospital Other Govt.

School/College/Hospital - Pvt.

Wholly / substantially
financed by the Govt. aggregate annual receipts is
up to Rs. 5 crore

(Govt grant is >50% of which exists solely for

total receipts) educational or medical
purposes
which exists solely for
educational or medical
purposes and not for profit

and not for

profit Fully Exempt

Fully Exempt

(10,11 will not be available – either will be available)

Ek PAN mein jitne colg university hospital hai. Sb ka mila ke Rs. 5 Crore dekhna hai

Business Income
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 If business is incidental to attainment of main object of the Trust & separate BOA – then
11(1) & 11(2) – can be claimed on Business Income
 If AO finds concealed Income – 11(1) & 11(2) - Not available only for Concealed Income.

Condition for applicability of Sec 11 & 12

 Trust should be registered u/s 12AB.
 If total income (before claim exemption) is > Basic exemption limit, then furnish audit report
at least one month prior to the date of filling ROI
 The exemption u/s 11 & 12 will be available to the assessee from the P.Y. in which the
application is made e.g. if an application is made on 20-11-21, then exemption will be available
from P.Y. 2021-22 and for future years. However, earlier the assessee could not use to enjoy
the exemption for preceding years.
 A trust can enjoy exemption for preceding years if on the date of registration, the assessment
for preceding years are pending in front of the A.O. and the objects on the date of registration
and preceding years are similar

Tax Rate – Normal Slab Rate – Individual

Computation Of Income Of A Trust Violating Certain Conditions - Sections

13(10)
 With effect from A.Y.2023-24, if a trust or an institution violates certain stipulated
conditions,
 the income shall be chargeable to tax after allowing deduction for revenue expenditure incurred
for the objects of the trust/ institution.
 The following are the violations: -
(a) It has receipts from trade, commerce etc. while advancing the object of general public
utility, in excess of 20% of total receipt;
(b) It fails to maintain prescribed books of account;
(c) It fails to get its books of account audited and furnish audit report on or before the
specified date;
(d) It fails to file return of income within the stipulated time under section 139(4A) (or
139(4C), as the case may be, for the first regime trust).
 The deduction for revenue expenditure incurred is subject to fulfilment of the following
conditions:
(a) such expenditure is not from the corpus standing to the credit of the trust or institution
as on the end of the financial year
(b) such expenditure is not from any loan or borrowing;
(c) there is no claim of depreciation on those assets, whose acquisition cost has been claimed
as application of income in any previous year; and
(d) such expenditure is not in form of any contribution or donation to any person.
 While determining the amount of expenditure allowable as deduction, the following points need
to be considered:
(a) Capital expenditure is not allowed as a deduction.

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(b) Disallowance under sections 40(a)/(ia) & section 40A(3) and 40A(3A) would be attracted .
(c) No deduction in respect of any expenditure or allowance or set-off of any loss shall be
allowed to the assessee under any other provision of this Act.

115BBC - ANONYMOUS DONATION

Particulars Amount (₹) Amount (₹)
Actual Anonymous Donation (e.g) 5,00,000
Less: 1) 5% of Total Donation (e.g) 3,00,000
• Including Anonymous Donation
• Including Corpus Donation
• Including Voluntary Contribution
• Don’t consider/Consider – Govt. Grant
• Don’t consider – Gross receipt of tuition fees
or
2) 1,00,000 (actual) – whichever is higher 1,00,000 3,00,000
2,00,000
 2,00,000 – Taxable @ 30% u/s 115BBC
 3,00,000 – (Jo less hua) – added in the normal computation
Only Anonymous Donation for Charitable Purpose - Religious Purpose - not Taxable u/s 115BBC

115TD – Exit Tax

1. Accreted Income – taxable – MMR – 34.944% - When – only in 3 cases

2. Accreted Income – (Sare Value Valuation Date ke)

FMV of Total Asset XX
Less: Total Liabilities of Trust XX
Accreted Income XX
[Ispe 34.944% se tax lagega]

3. Interest
Interest - @ 1% pm / part of month for non-payment of tax within 14 days.

FMV of Total Assets

1. TDS/TCS/Adv tax/ Refund of Income Tax

2. Deferred Revenue Expense
3. Asset acquired out of agriculture Income
4. Asset acquired from date of creation of trust to date of registration
5. Asset Transferred within 12 months from the end of the month in which dissolution takes place

1. Immovable property
(a) SDV
(b) FMV – Whichever is Higher

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2. Shares
a. Quoted Shares – Average {[Highest + lowest]/2}
b. Unquoted shares (other than Equity Share) – Valuation as per Merchant
c. Unquoted Equity shares –
(A +Y – L)/Total Paid up Equity X Paid up value of Equity
A = Book Value of All Assets
Y = FMV of bullion, jewelry, precious stone, artistic work, shares, securities & immovable
property
L = Book value of liabilities

3. Other Assets – FMV

Total Liabilities

1. Corpus / Capital Fund

2. Reserve & Surplus
3. Contingent liabilities
4. Prov for tax
5. Provision (other than ascertained)

3. Exit tax pay to C.G within 14 days from

Modification of
Registration cancelled Merger Dissolution
its objects

Date on which Not applied

for fresh
The period for filling regn -
appeal to ITAT against 14 days 14 days
order rejecting the from end from the
application expires & no of P.Y. date on
The date
appeal filed by trust (60 which
of Merger
Days), period of
Applied but 12 months
OR
rejected - expires
Order in any appeal same as
confirming the Cancellation is Cancellatio
recd. by trust. n

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Valuation Date

Conversion of trust / Merger into an entity Non-distribution

institution into a form not having similar of assets on
not eligible for objects and registered dissolution within
registration u/s u/s 12AB/10(23C) 12 months from
12AB/10(23C) the end of the
month in which
Valuation date dissolution takes
Registration Modification place
-
cancelled of its objects
Date of
Merger to any other
Not applied trust reg u/s
for fresh regn 12AB, or
- within 30
days
Institution reg
u/s 10(23C)
Applied but
rejected

Valuation date - Date of dissolution

Valuation date

Registration
Modification
cancelled

Date of order Date of

of cancellation modification

Minor Points
1. Cottage Industry – Charitable Purpose – Sec 11 Allowed
2. Trust not required to Particularize each & every Object
3. Capital Expense – more than Rs. 10,000 cash – allowed as application –
40 A(3) not applicable here
4. Non TDS Deduction of Non resident – Allowed – NR wala point yaha nai lagega – yaha bas
Resident wala lagega .

Procedure for Registration – 12AB

 Apply – Online - at least 1 Month Prior to Commencement of PY
 PCIT/CIT - Shall grant Provisional Registration within 1 Month From end of the month in
which Application is made
 Validity of Provisional Registration - 3 Years
 Provisional Registration to Final Registration – Apply for Final Registration -

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Within 6 months
whichever is earlier
PRIOR to Provisional Commencement of
Approval Expires Activity whichever is earlier

5. PCIT/CIT - if satisfied - Within 6 months end of month in which application received

Object of the
Register trust
(to be granted after
satisfying about) genuineness of its
Pass order activities

Refuse to Register OOBH

6. Validity of Final Registration - 5 Years

Modification in Object
In case of modifications/adoption in the objects, the trust is required to obtain fresh registration
by making an application within 30 days from the date of such adoption / modification of objects
in the prescribed form and manner.

Cancellation of Registration
The CIT may pass an order in writing to cancel the registration subsequently, if he is satisfied
that

 Activities of the trust are not genuine or

 are not being carried out in accordance with the objects of the trust

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Mega Format
1. Total Donation XX
Less: Anonymous Donation
Less: Corpus Donation (cash mein mila tho bhi minus)
2. Business Income XX
3. Capital Gain (Actual) XX
4. Anonymous Donation not taxable u/s 115BBC XX
5. Govt. Grant XX
6. Gross Receipt of School/College XX
(if related to 10(23C) include only when GR > 5cr)
7. Other Income XX
Total XXXX
Less: 15% Exemption u/s 11(1) - Always XX
Total XXXX
Less: Actual Application
1. Admin Exp & Operating Expenses XX
2. Capital + Revenue Expense XX
3. (i) (a) If Net consideration fully utilized then Less entire CG XX
(b) If Net consideration party utilized then Less
[cost of New Asset - Cost of old Asset]
(ii) Excess of purchase price of new Asset over sale consideration of old
Asset treated as application of income, if new Asset is used for the purpose
of the trust – apply this along with the adjustment done above (i)(a) whenever
cost of new asset is more than CG otherwise apply only (i)
4. Other adjustment as given in sums XX
Total XXXX
Less: Deemed application as per Expl 1 & 2 – 11(1) XX
Add: Application for benefit of Specified person - taxable @115BBI XX
Add: Anonymous Donation chargeable u/s 115BBC XX
Total INCOME XXXX
1. Tax on application for Specified person @ 30% u/s 115BBI X
2. Tax on Anonymous Donation u/s 115BBC @ 30% X
3. Tax on balance Income (Individual tax rate) X
Total XXXX
Add: HEC @ 4% - (Bhulna mat) + Surcharge X
Total Tax Payable (rounded off) XXXX
“Excess of expense over income in PY” is no longer allowed

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