Charitable Trusts and NGO - Income Tax Benefits

All the donations received by charitable trusts are exempt from taxes, on satisfaction of certain conditions. The taxation of charitable trusts are covered under section 11 of the Income Tax Act. Only trusts established for charitable or religious purposes can claim exemption under the act, and they need to file ITR even though their income is exempt from taxation. To claim exemption, these charitable institutions are compulsorily required to get their books of accounts audited by a Chartered Accountant. Due date for ITR filing of charitable trusts FY 2024-25 is 31st October, 2025. 

This article explains in detail, the taxation of trusts and compliance requirements for trust taxation.

Conditions for Claiming Exemption

• The charitable trust should be duly registered under section 12AB of the act.
• It should be established to promote charitable or religious objectives. Charitable purposes include the following:
  • Relief of the poor
  • Education
  • Yoga
  • Medical relief
  • Preservation of environment 
  • Advancement of any other object of general public utility
• The trust should not be established for promotion of any caste or specific group of persons (such as a family). 
• 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.
• It can be established for advancement of any religious community.
• If the trust recived any income in the nature of business or commerce, apart from donations, accurate books of accounts should be maintained to claim the exemption. If not, the trust is not qualified to claim the exemption under section 11.
• The donation received by the trust should not be used for the benefit of
  • The founder
  • Significant donor
  • Trustee or manager
  • Relatives of the persons mentioned above. 
• Income Tax Returns should be filed on or before the due date, (usually 31st October of the next financial year)
• If the income of the trust exceeds Basic Exemption Limit, they are compulsorily required to get their books of accounts audited.

Income Tax on Charitable Institutions or Trusts

We have discussed below income tax on various categories of income of charitable trust below. Please be noted that the provisions predominantly deals with taxation of charitable institutions, not the donors of the charitable institutions.

*Only Charitable/ religious trust or institution registered under Section 12AA enjoys the exemption

Income Tax Slab Rates for Charitable Trusts

• It is already discussed that the income received by the charitable institutions are exempt from taxes, on satisfaction of certain conditions.
• But when the income do not satisfy the specific conditions, they are taxed at slab rates. The income tax slab rates for charitable trusts are similar to that of individuals and HUF. They are presented in the table below:

Income Tax Slabs under the New Regime FY 2025-26

Income Tax Slabs under New Regime FY 2024-25

Income Tax Slabs under Old Regime FY 2024-25 & FY 2025-26

• If the income of the trusts are not parked in specified mode of investments, or spent for the benefit of prohibited persons like founder or trustees, such amount is taxed at Maximum Marginal Rates (42.744%).
• Value of medical or educational services made available by any charitable or religious trust running a hospital medical institution or educational institution to specified person is taxable at Maximum Marginal Rate (42.744%).

How Should Income be spent to be Exempt?

• 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. 
• In addition, income utilized for
  • Purchase of capital assets, 
  • Repaying a loan for capital assets purchase, 
  • Revenue expenditure and 
  • Donation to other trust 

to the extent of 85% registered shall also be treated as applied for charitable purposes and hence exempted from tax. 

• However, if a charitable trust has borrowed the funds and used it for charitable purposes, it shall not be treated as application of income from charitable or religious purposes.

Documents Required for Registration under Section 80G and 12AB

Documents for 80G Registration: To obtain an 80G Certificate, a trust needs to provide the following documents

• PAN card
• List of donors
• MoA and Registration Certificate
• Certificate of Incorporation
• NOC
• Documents related to IT returns, Bank Statements and Book of Accounts of the last 3 years
• Form 10G
• A complete list of welfare activities
• Trust Deed, in case the NGO is a Trust
• Copy of the latest utility bills such as Water or Electricity Bills or House Tax Receipt
• A detailed list of the Board of Trustees

Documents required to obtain 12AB Certificate:

• Form 10A
• PAN card
• Documents for the creation of the Trust or NGO
• Financial statements for the three consecutive preceding years
• In the case of Section 8 Company, a Certificate of Incorporation and copies of MoA & AoA

What if 85% of Income is Not Applied?

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.

• The income is  deemed to have been applied for charitable purposes in specified scenarios
• 85% of income is neither applied nor deemed to have been applied, the trust is allowed to accumulate such unapplied portion of income under specified conditions to claim the exemption.

Let us understand the two scenarios a little more in detail 

Income deemed to have been applied  

• Where Income is not received: If the whole or any part of the income has not been received during the previous year, then income can be deemed to have been applied for that year and trust should apply such income for such purposes during the previous year in which it is received or during the previous year immediately following the previous year of receipt; or
• Where Income received is not spent: For any other reason, apply such income for such purposes during the previous year immediately following the previous year in which the income was derived.

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).

Accumulation of 85% of Income of Trust

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.

• Such trust or institution shall furnish Form No.10 – notice of accumulation of income by charitable trust or institution electronically before two months of the due date for filing the return of income
• Mention the purpose for which income is being accumulated or set aside
• Income shall not be accumulated for more than 5 years.
• Money so accumulated or set aside is invested or deposited in a specified mode and should not be donated to any other trust. The specified mode of investments are as follows:
  • Investment in government saving certificate/UTI
  • Deposit in post office savings bank/scheduled bank/co-operative bank
  • Investment in immovable property
  • Investment in any security for money created and issued by the Central or State Government
  • Company debentures fully and unconditionally guaranteed by Central or State Government
  • Investment or deposit in public sector company
  • Deposit with or investment in bonds of a financial corporation or public company (registered in India) engaged in providing long term finance for India’s industrial development

However, if income is not accumulated as above, it is taxable as follows: