04 February 2021
Dear Expert, my client is running a superannuation fund trust, where in, from FD's, trust earned a interest of around Rs.44lakhs, which will in turn be spent for Welfare of trust members, i.e., Employees, Now my Doubt is, how will the trust be exempted from Income tax for above trust, Because, though it applied to commissioner for Approval of a superannuation fund under fourth schedule to Income tax, it benefits the Employer who contributing to the recognized trust U/s.36 of IT act & Employee as deduction U/s.,80C, how will it benifit trust? And to benifit the trust, my 12AA application was rejected, saying that, its not benificial to general public. Request for Expert Guidance.
06 July 2024
It seems there are a few aspects to consider regarding your client's superannuation fund trust and its tax exemption status:
1. **Superannuation Fund Trust**: A superannuation fund trust typically provides retirement benefits to employees. Contributions made by the employer to the trust are deductible under Section 36 of the Income Tax Act. These contributions are exempt from tax when they are received by the superannuation fund.
2. **Interest Income**: The trust has earned interest income of Rs. 44 lakhs from FDs. For a trust to be exempt from income tax under Section 10(23AAB) of the Income Tax Act, the income derived should be applied solely for the benefit of employees. In this case, since the interest income is intended to be spent for the welfare of trust members (employees), it aligns with the purpose of a superannuation fund trust.
3. **Tax Exemption Application (12AA)**: Your client applied for 12AA registration, which grants tax exemption to charitable or religious trusts. The rejection may have occurred because the trust's activities were not deemed beneficial to the general public. However, for a superannuation fund trust, the focus is on benefiting employees rather than the general public.
4. **Exemption Under Fourth Schedule**: Superannuation funds can seek exemption under the Fourth Schedule to the Income Tax Act. This schedule outlines the conditions under which contributions and accumulations in superannuation funds are exempt from tax. The trust needs to comply with these conditions, including ensuring that the funds are applied solely for the benefit of employees.
5. **Next Steps**: - **Review of Rejection**: If your client's 12AA application was rejected, it might be beneficial to review the grounds of rejection. Ensure that the trust's activities and the utilization of income align with the criteria for superannuation fund trusts. - **Compliance**: Ensure the trust complies with all regulatory requirements under the Income Tax Act, especially those outlined in the Fourth Schedule for superannuation funds. - **Consultation**: Consider consulting with a tax advisor or legal expert specializing in trusts and tax exemptions. They can provide specific guidance tailored to your client's situation and help navigate the process of obtaining tax exemption for the trust.
In summary, while the trust's income from FDs is taxable, it can potentially qualify for exemption under the provisions applicable to superannuation funds if the income is applied solely for the benefit of employees. Ensure compliance with all statutory requirements and consider seeking professional advice for specific guidance on your client's case.
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