Charitable trust
This query is : Resolved
17 March 2018
In case of a family charitable trust having PAN, but not registered u/s 12A, there is Rental Income of Rs.70000 per year. Against this income the trust makes donations and expenses. This is the only corpus every year. How it will be taxed w.e.f. a.y. 2018-19 and afterwards.
19 March 2018
Any opinions on taxation of trusts please.
19 July 2024
For a family charitable trust that is not registered under Section 12A of the Income Tax Act, 1961, the taxation of its rental income and treatment of donations and expenses are as follows:
### Taxation of Rental Income
1. **Gross Rental Income:**
- The annual rental income of Rs. 70,000 received by the trust is taxable under the head "Income from Other Sources."
2. **Calculation of Taxable Income:**
- From the gross rental income of Rs. 70,000, deductions can be claimed for any expenses directly related to earning the rental income, such as property taxes, maintenance charges, repairs, etc.
- The net income (after deducting allowable expenses) will be added to the total income of the trust.
### Taxation of Donations and Expenses
1. **Donations:**
- Any donations made by the trust from its income are eligible for deduction under Section 80G of the Income Tax Act, provided the recipient is eligible for such deduction. The extent of deduction depends on the type of recipient and the limits specified under Section 80G.
2. **Expenses:**
- Other expenses incurred for charitable purposes, administration, or management of the trust may be allowed as deductions under the provisions of the Income Tax Act, subject to fulfillment of conditions.
### Tax Computation
- **Total Income:**
- The total income of the trust will include the net rental income (after deductions) and any other income earned during the financial year.
- **Tax Calculation:**
- Calculate the income tax payable on the total income of the trust at applicable rates for A.Y. 2018-19 and subsequent assessment years.
### Key Points to Consider
- **Non-Applicability of Exemptions:** Since the trust is not registered under Section 12A, it does not qualify for exemptions available to charitable trusts, such as exemption of income applied for charitable or religious purposes.
- **Tax Rates:** The trust will be taxed at normal income tax rates applicable to A.Y. 2018-19 and subsequent years for income from other sources.
- **Filing of Income Tax Return:** The trust must file its income tax return (Form ITR-7) disclosing all income and expenses, and compute its taxable income accordingly.
### Recommendation
Given the taxation implications, it might be beneficial for the family charitable trust to consider applying for registration under Section 12A of the Income Tax Act. Registration under Section 12A would exempt the trust's income applied for charitable purposes from tax and allow for more efficient utilization of funds towards charitable activities.
Consulting with a tax advisor or a chartered accountant would be advisable to ensure compliance with tax laws and optimize the tax efficiency of the trust’s operations.
### Taxation of Rental Income
1. **Gross Rental Income:**
- The annual rental income of Rs. 70,000 received by the trust is taxable under the head "Income from Other Sources."
2. **Calculation of Taxable Income:**
- From the gross rental income of Rs. 70,000, deductions can be claimed for any expenses directly related to earning the rental income, such as property taxes, maintenance charges, repairs, etc.
- The net income (after deducting allowable expenses) will be added to the total income of the trust.
### Taxation of Donations and Expenses
1. **Donations:**
- Any donations made by the trust from its income are eligible for deduction under Section 80G of the Income Tax Act, provided the recipient is eligible for such deduction. The extent of deduction depends on the type of recipient and the limits specified under Section 80G.
2. **Expenses:**
- Other expenses incurred for charitable purposes, administration, or management of the trust may be allowed as deductions under the provisions of the Income Tax Act, subject to fulfillment of conditions.
### Tax Computation
- **Total Income:**
- The total income of the trust will include the net rental income (after deductions) and any other income earned during the financial year.
- **Tax Calculation:**
- Calculate the income tax payable on the total income of the trust at applicable rates for A.Y. 2018-19 and subsequent assessment years.
### Key Points to Consider
- **Non-Applicability of Exemptions:** Since the trust is not registered under Section 12A, it does not qualify for exemptions available to charitable trusts, such as exemption of income applied for charitable or religious purposes.
- **Tax Rates:** The trust will be taxed at normal income tax rates applicable to A.Y. 2018-19 and subsequent years for income from other sources.
- **Filing of Income Tax Return:** The trust must file its income tax return (Form ITR-7) disclosing all income and expenses, and compute its taxable income accordingly.
### Recommendation
Given the taxation implications, it might be beneficial for the family charitable trust to consider applying for registration under Section 12A of the Income Tax Act. Registration under Section 12A would exempt the trust's income applied for charitable purposes from tax and allow for more efficient utilization of funds towards charitable activities.
Consulting with a tax advisor or a chartered accountant would be advisable to ensure compliance with tax laws and optimize the tax efficiency of the trust’s operations.
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