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

Proposed Finance Bill 2015 amendment requires charitable trusts to submit Form 10 timely to retain income accumulation benefits under Section 11. The discussion addresses proposed amendments in the Finance Bill 2015 concerning the accumulation of income by charitable trusts under section 11 of the Income Tax Act. The current provision allows trusts to indefinitely accumulate 15% of income, while 85% can be accumulated for up to five years, subject to filing Form 10 and investing in specified modes. The amendment aims to clarify that Form 10 must be submitted before the due date for filing tax returns, failing which the accumulation benefit is lost, and the income becomes taxable. These changes will be effective from April 1, 2016, applicable to the assessment year 2016-17 onwards.