Provisions under the IT Act regarding exemption to a trust

The Income Tax Act of 1961 (the "IT Act") offers a number of benefits to trusts that are registered under the IT Act and created for charitable or religious purposes. The substantive provisions for exemptions accessible to religious and charitable trusts are Sections 11 and 12 of the IT Act.

However, there are several limitations outlined in Section 13 of the aforementioned Act that apply to the exemption stipulated in Sections 11 and 12. In this article, the author will explore the effects of Section 13, which purports to forbid the exception permitted in specific circumstances.

Find out about tax exemption under section 80g.

Certain revenues received by charitable or religious trusts are free from taxation under Sections 11 and 12 of the IT Act. If certain requirements are met, the following earnings received by such trusts are not taxed:-

  (a) any revenue from property held in trust that is only used for charity or religious purposes, to the degree that it is used for such reasons in India.

  (b) any revenue received in the form of gifts made with the intent that they become a part of the trust or institution's capital.

So, you should gain knowledge about section 12A.

In Section 2(15) of the IT Act, the term "charitable purposes" is defined as including the promotion of any other entity of general public usefulness, education, yoga, medical treatment, and relief from poverty. The restrictions listed in Section 12A apply to the exclusions granted under Sections 11 and 12 of the IT Act.

Given that the trusts assert exemption under Section 11 of the IT Act, it's critical to comprehend how Section 13 may affect their ability to claim the exemption in specific circumstances. The restriction in Section 13(1) states that neither the trust's income nor its assets may be used directly or indirectly to benefit the people listed. Section 13(2) provides a number of specific situations in which it is presumed that the trust's income or assets are utilised or employed for the benefit of a list of designated parties.

Know about section 80g income tax exemption.

The trust's creator, founder, anybody who has made a significant contribution to the trust or institution, etc., are all considered designated individuals under Section 13(3). Therefore, a trust runs the risk of losing the exemption granted under Sections 11 and 12 of the IT Act if it engages in any transaction, whether directly or indirectly, for the benefit of the designated people listed in Section 13(3).