Charitable Trusts And NGOs Tax Benefits in India: How To Claim Tax Benefits
Charity involves doing kind deeds, and NGOs (Non-Governmental Organisations), as well as charitable organisations, work to generate funds for this purpose. As the efforts contribute to economic development and social welfare, the Government of India (GOI) encourages the work by offering charitable trusts and NGOs tax benefits.
Section 80G of the Income Tax Act offers deductions on gifts and donations to Central Government and state government relief funds, NGOs, charitable organisations, etc. There are also other tax deductions and exemptions applicable to them. These will be discussed in more detail in the following sections.
Understanding Charitable Trusts and NGOs
Collective effort is highly effective when it comes to mobilising funds to help the needy. That is why many non-profit entities form institutions or trusts to raise funds and engage in charitable activities.
A trust refers to an obligation attached to the ownership of a property declared and accepted by its owner. When the aim of a trust is to benefit a community or a section of a community, it is called a charitable trust. A charitable trust’s primary purpose is to directly help the general public by providing help for the poor, medical relief, education, etc.
NGOs are non-profit associations that function independently of the government. They can be registered as a trust (under the Indian Trust Act, 1882), a company (under The Companies Act, 2013) or a society (under Societies Registration Act, 1860). NGOs can be involved in a variety of activities, including advocacy, environment, social, education or human rights work.
Various Sections of the Income Tax Act, including Section 11, Section 12, Section 12A, Section 12AA and Section 13, offer tax benefits to charitable trusts and NGOs. Moreover, charitable organisations with Section 80G certifications attract more donors as it allows people to get tax benefits for donations.
Income Tax on Charitable Trusts and NGOs
The following income tax rules are applicable to various categories of incomes of charitable institutions and trusts. These institutions must be registered under Section 12AA of the Income Tax Act to be eligible.
| Income Category | Income Subject to Tax | Taxability |
| Capital gains from assets held by a trust | If used to acquire another capital asset fully | Entire capital gain is exempt |
| Used partially to acquire another capital asset | Capital gains used over the cost of assets are exempt | |
| Voluntary contributions | Donations taken with a clear purpose of forming a trust/institution | Fully exempt |
| Donations without a clear goal | Certain incomes are taxable | |
| Anonymous donations to organisations that do not maintain records of donors | Donations more than 5% of total donations or Rs. 1,00,000 | 30% taxation rate |
| Where donations are received by a trust established for religious/charitable purposes | Certain incomes are taxable | |
| Income from property held by a trust made for religious/charitable purposes | Income used for charitable/religious purposes | Fully exempt |
| Income set aside for charitable/religious purposes | Exemption of up to 15% of the income accumulated | |
| Income from property held by a trust which intends to promote international welfare | If CBDT allows exemption by general or special order | Fully exempt |
Charitable Trusts and NGOs Tax Benefits List
The following Sections of the Income Tax Act allow tax exemptions for charitable trusts and NGOs in India:
- Section 10: Non-profit universities and other educational institutions under Section 10(23C)(iiiab) and (iiiad) can get tax exemption on annual receipts not more than Rs. 5 crores. Incomes from hospitals or other medical institutions that exist solely for philanthropic purposes are also tax-exempt.
- Section 11: This Section provides tax exemption for income derived by a charitable institution from a property. Exemption u/s 11 is limited to income used for charitable/religious purposes to the extent of 15% of income accumulated from house property.
- Section 12: Section 12 allows tax exemptions on income from voluntary contributions to charitable/religious institutions. Voluntary contributions that an electoral trust receives are also tax-exempt, subject to certain conditions.
- Section 12AB: To get tax benefits in India, NGOs and charitable institutions registered under Section 8 needed to register under Section 12A. From April 1, 2021, all charitable institutions must get registration under Section 12AB, which would remain valid for five years.
Tax Exemption of Income for Charitable Trusts and NGOs
A trust exempt from taxes in India must use at least 85% of its income for charitable/religious purposes. As per definitions provided under income tax laws, here are some purposes that such charitable institutions can have:
- Promoting education
- Environment preservation
- Helping the poor
- Advancement of general public utility
- Trade/commerce/business for improvement of public utility
The aggregate receipts for such activities cannot be more than 20% of the total receipts of the charitable trust or NGO. Income used for various purposes such as loan repayment, revenue expenditure, contributions of trust, etc., are tax-free when used by a trust registered u/s 12AA and Section 10(23C).
The IT Act does not define ‘religious purposes’. Advancement, support and promotion of religion and its beliefs are included under such purposes. Incomes of institutions primarily engaged in such activities are tax-exempt though this applies only to public religious trusts under Section 11.
Final Word
In India, there are various charitable trusts and NGO tax benefits. Trusts created wholly for charitable/religious purposes and for promoting specific international welfare can claim their entire income/donations as tax exemptions. However, they must have at least 85% of funds received for specified purposes.
FAQs on Charitable Trusts And NGOs Tax Benefits
Ans: Yes, its income can be exempt if the trust fulfils the following conditions:
a) He/she uses the income for charitable purposes under specific conditions
b) If a trust does not apply the income, it can accumulate an unapplied part of income under particular conditions.
Ans: The following conditions need to be fulfilled:
a) The trust or institution must furnish Form 10
b) It should invest the money via approved modes
c) The trust should mention the purpose of these funds
d) The income should not be set aside for over 5 years.
Ans: The following are some exceptions when these tax benefits do not apply:
a) When a religious trust’s income from the property is not used for public benefit.
b) The value of medical or educational services goes to specific persons
c) Any business profits that are not incidental to its charitable/religious aims
d) Its entire income goes towards the indirect benefit of a particular religion/caste/community.
Ans: You need to file an application to register your trust u/s 12A. Along with this application, you need to submit a copy of the trust’s PAN card, documents for its establishment, account statements, trust deed, registration certificate, etc. Upon submission, the commissioner may ask for additional documents for verification.
Ans: ers tax deductions from 50% to 100% of donations given to certain charities. Only donations made to certain registered and valid charitable institutions qualify for income tax deductions. All taxpayers, including individuals, companies, HUFs and non-residents, can claim this tax benefit.
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