Taxability of charitable trust

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CA SONIYA AGARWAL (Querist)
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20 September 2014 WHEN IS CHARITABLE TRUST CHARGEABLE TO MAXIMUM MARGINAL RATE OF TAXATION AND WHEN SLAB RATE OF INDIVIDUAL IS APPLICABLE.

Yogesh Shukla

Yogesh Shukla (Expert)
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20 September 2014 Charitable or religious trusts, which may otherwise be eligible for tax exemption, are liable to forfeit this exemption under Section 13 of the Act. It is applicable in the following circumstances:-

Where the trust is created after March 31, 1962, any part of the income of the trust ensures, under the terms of the trust deed, directly or indirectly, for the benefit of specified categories of persons such as, the author of the trust, trustee or manager of the trust, substantial contributor to the trust and any relative of such author, trustee, etc.

Any part of the income or any property of the trust is used or applied during the relevant year, directly or indirectly, for the benefit of specified categories of persons.

The trust funds(with certain exceptions) are invested in contravention of the investment pattern of such funds.
Where a charitable or religious trust forfeits tax exemption in the circumstances mentioned at (a) to (c) above, the trust shall be charged to tax at the maximum marginal rate. A trust will attract the maximum marginal rate of tax only on that part of income which has forfeited exemption under the above circumstances and not on the entire income of the trust.