Form 9A and Form 10 of Income Tax Act

[Krishna Murthy]

Sir, An organisation being Trust whose income is chargable under Sec 11 and 12 of Income Tax Act is allowed to accumulate its income to be utilised in the future years in case its application of income falls short of 85%. However, there are two Forms available namely Form 9A and Form 10. Should both these forms to be filed for accumulation purpose. What exactly is the difference between these two forms. Pls clarify.

[CASusheel Gupta]

A trust can accumulate 85% under 11(2) by way of investment and form 10 needs to filed. The amount invested to be applied in next five years.

Remaining 15% needs to be applied within the relevant previous year. In case 15% is not applied, then form 9A is to be filed. Then this 15% shall not be included in the income of trust forever with no obligation as to application.

Other experts views are solicited.

CA Susheel Gupta

[ANURAG SHARMA]

Dear Mr Murthy,

I will quote extract from Circular No. 7/2018 dated 20.12.2018. which will clear your doubts.

"Under the provisions of section 11 of the Income-tax Act, 1961 ( hereafter 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.

2. The Finance Act, 2015 amended section 11 and section 13 of the Act with effect from 01.04.2016 (A.Y. 2016-17). Consequently, Income-tax Rules, 1962 (hereafter ‘Rules’) were also amended vide the Income-tax (1st Amendment) Rules, 2016. As per the amended provisions of the Act read with rule 17 of the Rules, 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, inter alia, that such person submits the prescribed Form No. 10 electronically to the Assessing Officer within the due date specified under section 139(1) of the Act.

3. Further, where the income from the property held under trust and applied to charitable or religious purposes falls short of 85% of the income derived during the previous year for the reason that the income has not been received during that year or any other reason, then on exercise of the option by submitting in Form No.9A electronically by the trust/institution on or before the due date of furnishing the return of income, such income shall be deemed to have been applied for charitable or religious purpose."

Therefore, a trust can accumulate 15% of its income indefinitely without any condition.

In respect of balance 85%, if the trust is unable to apply fully 85% for charitable purposes, it can accumulate an amount upto a period of 5 years by submitting Form 10 in which it has to mention the purpose for which the amount is accumulated.

However if the trust is unable to apply 85% due to the fact that it has not received the amount or for any other reason, it can file Form 9A mentioning the fact that the trust has not been able to utilise the amount for the reason the fund has not been received or for any other purpose.

In both the cases, once the forms are filed, the amount will be deemed to have been applied in the FY for which the forms were filed.

In case of Form 10 amount, the amount can be utilised in any of the subsequent 5 years for the purpose for which it was accumulated. In case of Form 9A amount, (i) the amount has to be utilised in the FY in which it will be received or subsequent FY. (ii) in case where the same could not be applied for any other reason, say it was received in the last week of March and hence could not be applied, the amount has to be applied in the subsequent FY.

Regards,

CA.Anurag Sharma (9831581824)

[Krishna Murthy]

Sir, thank you for the excellent explanation in this matter. This has cleared the entire doubts i had in this matter. Thank you again sir.

AI Summary

Trusts Can Accumulate Income Under Sections 11 & 12 with Form 10; File Form 9A for Unused Income Exemption An organization structured as a trust under Sections 11 and 12 of the Income Tax Act can accumulate income for future use if its application falls short of 85%. Form 10 is required for accumulating 85% of income for up to five years, specifying its purpose. If 15% of the income is not applied within the relevant year, Form 9A must be filed, exempting it from trust income permanently. The discussion clarifies the conditions and differences between the two forms, emphasizing compliance with the amended provisions and electronic submission requirements.