Do you know that charitable/religious deeds through donation or by conducting those activities can help you save tax? Section 80G of the Indian Income Tax Act provides provisions for the same. As per 80G, you can deduct your donations to Central and State Relief Funds, NGOs and other charitable institutions to arrive at your taxable income.
In this article, we will tell you how and when to claim deductions on donations made to Charitable Trusts and NGOs and how the tax laws are applied on the trusts conducting charitable/religious activities.
“The word ‘Charity’ connotes altruism in thought and action. It involves an idea of benefiting others rather than oneself” Supreme Court in the case Andhra Chamber of Commerce [1965] 55 ITR 722 (SC).
Charity is a selfless voluntary help either in money or kind to the needy. Hence, there are various Non-Governmental Organizations (NGOs) and non-profit entities constantly working on charitable activities by raising funds all over the world by forming either an institution or trust.
Trusts can be created for charitable purposes or religious purposes or both.
Efforts of such institutions play a significant role in promoting economic development and the social welfare objectives of the Government. Their outreach and more localised approach help to identify the needy and lend a supporting hand. For this reasons, the government has provided various tax incentives and exemptions to charitable institutions, as well as benefit of Section 80G to persons providing donations to these institutions/trusts.
We have discussed below income tax on various categories of income of charitable trust:
Category of income | Income subject to tax | Taxability |
Donations/voluntary contributions | Voluntary contributions with a specific direction to form part of corpus of trust or institution | Exempt* |
Voluntary contribution without such specific direction | Forms part of income from property held under trust, exemption is available on such donations subject to certain conditions | |
Anonymous donations i.e., donations where donee does not maintain record of identity/any particulars of the donor | Donation exceeding higher of: i) 5% of total donations received by trust or ii) Rs 1,00,000 | Excess anonymous donation taxed at 30% |
Anonymous donation received by
| Taxable in the same manner as voluntary contributions (without specific direction) as above | |
Income from property held under trust for charitable or religious purpose | Income applied for charitable or religious purpose in India | Exempt* |
Income accumulated or set aside for the application towards charitable or religious purpose in India | Exempt* to the extent of 15% of such income. This means at least 85% of income from property to be applied for charitable and religious purpose in India as above and balance 15% can be accumulated or set aside. [i.e., It can be claimed as exempt even if the said income is not spent] | |
Income from property held under trust created for charitable purpose which tends to promote international welfare in which India is interested | CBDT either by general or special order has to direct that such income shall not be included in the total income of trust | Exempt* |
Capital gain from asset held under trust in whole | Net consideration is utilised fully for acquiring another capital asset | Entire capital gain is deemed to have been applied for charitable and religious purpose and hence is exempt* |
Net consideration is utilised partially for acquiring another capital asset | Capital gain utilised in excess of cost of old asset transferred is considered to have been applied for charitable and religious purpose and is exempt* |
*Only Charitable/ religious trust or institution registered under Section 12AA enjoys the exemption
Suppose the income of trust from property held under trust for charitable or religious purpose is to be claimed as exempt. In that case, a trust is required to apply at least 85% of its income to charitable or religious purposes in India. As per the definition provided under tax provisions, charitable purpose includes the following:
In addition, income utilised for the purchase of capital assets, repayment of a loan for the purchase of capital assets, revenue expenditure and donation to other trust to the extent of 85% registered under Section 12AB / Section 10(23C) shall also be treated as applied for charitable purposes and hence exempted from tax.
The expression ‘religious purpose’ has not been defined under the Act. Religious purposes are necessarily associated with religion and a matter of faith with individuals or communities. Religious purpose includes the advancement, support or propagation of religion and its tenets. The income of a religious trust or institution is entitled to exemption, though it may be for the benefit of a particular religious community or caste.
The exemption is available to public religious trusts only and not to trusts for private religious purposes.
Documents for 80G Registration: To obtain an 80G Certificate, a trust needs to provide the following documents
Documents required to obtain 12AB Certificate:
If a trust or institution is unable to apply 85% of its income from property held under it, the income is still exempt if the following conditions are met.
Let us understand the two scenarios a little more in detail
Such option is to be exercised in Form 9A to be furnished electronically by the trust within the time allowed for filing return of income u/s 139(1).
If a minimum of 85% of the income of trust or institution has not applied or deemed to have been applied as above, it is allowed to accumulate or set aside. And such income shall be exempt, if following conditions are satisfied.
However, if income is not accumulated as above, it is taxable as follows:
Category of violation | Year of taxation |
If income is applied for purpose other than charitable or religious | Year of such application |
Income ceases to be invested as specified | Year in which it ceases to be invested as specified |
Not utilised for the purpose for which it was accumulated or set aside up to 5 years | Last year of accumulation period |
As mentioned already, income not exceeding 15% can be accumulated or set aside for its application in India. Further, one can even accumulate or set aside 85% of the income, not applied for the specified purpose for its application in India. Such accumulations must be through the following modes of investment:
No exemption is available to the following incomes of trust/institution:
**Specified person for this purpose are as below: