Taxation of charitable trust or religious institution in India as per Income Tax Act

Priyanka Sah | Last updated: 07 May 2020

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This article explains the tax benefits available to charitable trusts and religious institutions in India. It details what constitutes a charitable purpose, including relief of the poor, education, and environmental preservation. The piece also covers how income from property, donations, and capital gains are taxed, along with specific provisions for anonymous donations and situations where tax exemptions might not apply.

Introduction A charitable trust is an irrevocable trust established for charitable purposes. A charitable trust enjoys a varying degree of tax benefits in most countries. In India, trusts set up for the social causes and approved by the Income Tax Department get not only exemption from payment

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FAQ :

A charitable purpose includes relief of the poor, education, yoga, medical relief, preservation of the environment, preservation of monuments, and advancement of any other object of general public utility.

Charitable trusts can undertake commercial activities if they are part of their primary charitable objective and if the aggregate receipts from these activities do not exceed 20% of the trust's total receipts for the year.

Donors to approved charitable trusts can deduct the donation amount from their taxable income under Section 80G of the Income Tax Act. The trust itself may also receive tax exemptions on its income.

Exemptions can be withdrawn if accumulated income is used for purposes other than intended, if funds are not invested in specified modes, or if the income is not utilised within the stipulated timeframes.

Anonymous donations are generally taxable at a rate of 30% if they exceed a certain threshold (5% of total donations or Rs. 100,000, whichever is higher), unless the trust is purely religious and the donation is an offering.