Rationalisation of provisions of section 11 relating to accumulation of Income by charitable trusts and institutions

[Admin TMI]

Question - What are the proposed changes regarding the accumulation of income by charitable trusts and institutions in Finance Bill 2015 ?

[Admin TMI]

Rationalisation of provisions of section 11 relating to accumulation of Income by charitable trusts and institutions

Under the provisions of section 11 of the Act, the primary condition for grant of exemption to trust or institution in respect of income derived from property held under such trust is that the income derived from property held under trust should be applied for the charitable purposes in India. Where such income cannot be applied during the previous year, it has to be accumulated and applied for such purposes in accordance with various conditions provided in the section. While 15% of the income can be accumulated indefinitely by the trust or institution, 85% of income can only be accumulated for a period not exceeding 5 years subject to the conditions that such person submits the prescribed Form 10 to the assessing Officer in this regard and the money so accumulated or set apart is invested or deposited in the specified forms or modes. If the accumulated income is not applied in accordance with these conditions, then such income is deemed to be taxable income of the trust or institution.

In order to remove the ambiguity regarding the period within which the assessee is required to file Form 10, and to ensure due compliance of the above conditions within time, it is proposed to amend the Act to provide that the said Form shall be filed before the due date of filing return of income specified under section 139 of the Act for the fund or institution. In case the Form 10 is not submitted before this date, then the benefit of accumulation would not be available and such income would be taxable at the applicable rate. Further, the benefit of accumulation would also not be available if return of income is not furnished before the due date of filing return of income.

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.

AI Summary

Accumulation of charitable income requires timely Form 10 submission and prompt return filing or accumulation benefit will be lost. The Finance Bill 2015 requires charitable trusts and institutions to submit Form 10 before the due date for filing their return and to file that return by its due date as preconditions for claiming the accumulation-of-income exemption; failure to submit Form 10 on time or to file the return on time will disqualify the trust from the accumulation benefit and render the income taxable. The amendments take effect from 1 April 2016 and apply to the subsequent assessment year.