In India, donations are made by people to ensure they are making efforts for a good cause. But there’s another side of the story, as well, which is related to tax benefits. Thus, the Indian Government offers a range of tax rebates under Section 11 of the Income-Tax Act to enhance the efforts of religious and charitable institutions. These incentives are designed to support organizations engaged in activities that benefit the public and further social welfare.
However, these rebates are not universally applicable. They are available only for certain types of income and come with specific eligibility criteria that entities must meet to qualify. If you want to fully understand how these tax benefits can be utilised, including the necessary conditions for claiming them.
Let’s explore the ins and outs of Section 1 1 of the Income Tax Act.
What Does Section 11 of the Income Tax Act Mean?
In simple terms, Section 11 of the Income Tax offers tax exemptions for income earned by trusts or institutions dedicated entirely to charitable or religious purposes, as long as that income is used for those purposes within India. However, to qualify for this exemption, the trusts or institutions must meet certain conditions and limitations outlined in the Act. Furthermore, individuals who are officially registered with the Income Tax Department under Section 12A or Section 12AA are eligible for these benefits.
Exemption Under Section 11 Of Income Tax Act
Here is a list of the exemptions under Section 11 of the Income Tax Act. It includes the following:
- One of the first exempts is that the income earned by institutions earned from properties used for religious or chariatble purposes is exempt.
- Secondly, up to 15% of a trust’s total revenue earned in the previous financial year from these activities can be exempt.
- Furthermore, funds received by charitable institutions or trusts, which are given with a specific direction to become part of the trust’s corpus, are exempt.
- Lastly, capital gains from selling capital assets are exempt. However, the condition is that the net proceeds are used to acquire a new capital asset held for wholly charitable or religious purposes.
What are the Conditions for claiming exemption?
Here are the conditions that must be met to claim the exemption under Section 11 of the Income Tax Act.
- The trust or institution must be registered under Section 12AA of the Income Tax Act.
- The income of the charitable institution or trust must not directly or indirectly benefit the settlor (the person who created the trust) or any related parties.
- The trust or institution should not be set up to benefit any specific religious community or caste.
- The income or property of the trust or institution must not be used to advantage any person defined in section 13(3) of the Act, such as the author, founder, trustee, manager, or their relatives.
- The trust or institution must follow the investment and deposit guidelines specified in Section 11(5) and Section 13(1) of the Act.
What Kinds of Incomes are exempt for charitable trusts?
Here is a list of the income exempt for charitable trusts. Let’s take a look at them.
Section 11 (1)(a):
It includes income from property held and used entirely for charitable or religious purposes within India is exempt. However, any income saved for future use should not exceed 15% of the total income from that property.
Section 11(1)(b):
It refers to income from properties held and used partially for charitable or religious purposes in India, which is exempt for trusts established before the Act. Income set aside for future use is also exempt, provided it doesn’t exceed 15% of the total income from that property.
Section 11(1)(c):
Income from property used for promoting international welfare or charitable purposes outside India is exempt if;
- The trust was established on or after April 1, 1952.
- The trust was created before April 1, 1952, and the property is used for charitable or religious purposes outside India.
Section 11(1)(d):
It includes income received as voluntary contributions, provided the funds are directed to be part of the trust’s corpus and invested according to Section 11(5), which is exempt.
Section 11(2): Accumulation Beyond 15% of Income:
Charitable trusts may accumulate up to 15% of their total income from eligible properties. At least 85% of the income must be used for charitable or religious purposes.
Section 11(4) Of Income Tax Act:
When charitable institutions include business undertakings, the assessing officer can assess the business’ income and determine if it exceeds the reported income. It ensures that the business income is not included
Section 11(5) Of Income Tax Act:
It prescribes the mode of investment for the exempt income, including;
- Investments in immovable property (excluding machinery and plants).
- Government Savings Certificates and other securities issued by the central government.
- Public sector company shares (subject to conditions).
- Deposits with scheduled banks or cooperative societies engaged in banking.
- Post Office Saving bank accounts.
- Investments in UTI units.
- Securities issued by financial corporations involved in long-term industrial financing in India.
Frequently Asked Questions
Listed below are the frequently asked questions related to Section 11 of the Income Tax Act.
Section 11 (1A) covers the transfer of capital assets held by trusts for religious or charitable purposes and how these assets are treated for tax purposes.
Under Section 11, trusts can claim a deduction of up to 15% of their income from properties used for religious or charitable activities.
Section 11(1A) provides a tax exemption for up to 15% of the income from properties held by trusts or institutions involved in religious or charitable purposes.
Donations for religious purposes are fully exempt from tax. However, anonymous donations to medical or educational institutions or other non-religious donations are taxable under Section 115BBC. In such cases, the tax is 5% of the donation amount or Rs. 1,00,000, whichever is higher.
Section 11(5) allows investments in Central Government Securities, post office savings accounts, UTI units, and shares of public sector companies, and more.
No, deductions under Section 80TTB are not available in the new tax regime.
