Section 11 of Income Tax Act: Tax Discounts from Property Owned by Charitable Organisations
The Government of India provides hefty tax discounts on income from a property held for religious purposes or charity. Individuals who are eligible to claim such deductions need to have intricate knowledge about Section 11 of Income Tax Act. This article deals with the specific circumstances in which one can avail these tax rebates.
What is Section 11 of Income Tax Act?
Section 11 of the Income Tax Act, 1961 deals with exemptions that are earned from property owned by charitable organisations and trusts.
To be eligible for exemption under this specific section of the IT Act, any institution or trust should be registered under Section 12AA of the Income Tax Act, 1961. However, apart from this, there are certain conditions of this section that persons must be aware of to make the most of it.
Details of Section 11 of Income Tax Act
Each section of the IT Act of India, 1961, consists of certain exemptions, and there are some specific conditions that the Income Tax Department sets. In the case of Section 11 of Income Tax Act, the conditions that need to be followed are mentioned below:
- The utilisation of income that the charitable organisations receive should only be for religious purposes or works.
- The amount these trusts receive must also include voluntary contributions. The specific purpose for which certain individuals provide these funds as donations should be as per Section 12 of the Income Tax Act.
- The total income that these organisations segregate for religious purposes only must not go beyond 15% of the total revenue they received or earned during the previous year.
- The income that charitable institutions are using for religious or charitable purposes and to promote international welfare also qualifies for an exemption. However, in this case, too, there are certain conditions, for instance:
- If the trust or charitable institution was created on or after April 1 1952: The trust needs to utilise the income to promote the worldwide welfare in which India is engaged.
- In case the trust or charitable institution was established before the 1st day of April 1952: The income that would be applicable for exemption is the amount utilised for religious or philanthropic purposes outside of India.
Now that you have a brief idea of the conditions that are necessary for Section 11, to know the type of income applicable for exemption, refer to the following section.
Which Income is Eligible for Exemption from Tax under Section 11?
Once you get a clear knowledge of Section 11 of the Income Tax Act, understanding its exemptions applicable would automatically get easier. Under Section 11 of Income Tax Act, the following types of income are eligible for the exemption:
- Income that gets generated from the property that is held or owned by charitable societies or trusts (charitable institutions or trusts should make use of these funds for religious or charitable reasons.)
- Income such organisations receive in the form of voluntary contributions (in this case, the donations are supposed to be utilised as a part of a charitable society or trust’s corpus.)
Tax Treatment of Voluntary Donations
While going through Section 11 of the Income Tax Act explanation, you will come across voluntary donations for which tax exemption is applicable. These voluntary donations or contributions that charitable trusts or institutions receive can be of two different kinds. These are:
- The amount these trusts receive where the purpose is to include it in the organisation’s capital fund is termed corpus fund donation. Such donations are not applicable under provisions of Section 11(1)(d). This is why these funds or income inevitably qualify for the exemption even if the institution does not spend it.
- The amount charitable institutions receive without any direction is basically a voluntary donation. These funds automatically become a part of the trust’s revenue. That is why these are eligible for exemption only if the institution utilises them for religious or charitable activities.
When is Section 11 of Income Tax Act beneficial?
As mentioned earlier, this particular section of the Income Tax Act deals with an exemption on income utilised for charitable and religious purposes.
These charitable purposes can be:
- Medical relief
- Education
- Preservation of the environment which includes wildlife, watersheds, etc.
- Yoga
- General public utility advancement
- Relief of the economically challenged section
In terms of religious purposes, the section has no particular definition or exemptions. However, aid to any particular religion can fall under this category.
Final Word
After going through the above-mentioned information related to Section 11 of the Income Tax Act, taxpayers must assess their liabilities. If further help is necessary, one can also approach a tax consultant to know more.
FAQs on Section 11 of Income Tax Act
Ans: If 85% of the income that a trust earns is not applied, it can be set apart under Section 11 (2). This income will not be included in case of the following conditions:
If a taxpayer fails to furnish Form 10/Form 9A
If the accumulated funds are not parked in safe investment avenues
If the donation of these funds happens to a separate trust
Ans: The Income Tax department withdraws Section 11(2) exemptions in case of the following:
If you apply the funds for any other purpose besides its original accumulation purposes
If the accumulated income does not remain invested as per Section 11(5)
If you do not use the exempted amount within a specified time, it will be taxable in the following FY.
Ans: The following are some conditions that trusts must meet:
A trust should be completely for religious or charitable purposes.
Only income generated from a property that the trust owns will be eligible for exemptions.
A private trust is not eligible for benefits under Section 11. Only public religious or charitable trusts qualify for the same.
Ans: One can claim depreciation under Section 11 of the Income Tax Act. There are no limitations or any deductions that fall under depreciation. Note that depreciation is not applicable if the acquired asset falls under the application of income.
Ans: As per Section 11 (2), you can accumulate beyond 15% of your income. Keep in mind that the maximum permissible time for such accumulations is 5 years. This means that you cannot keep income beyond 15% accumulated for more than 5 years.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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