Trust Income Computation and Application Guidelines
Learn about income computation of trusts using ITR-5 vs. ITR-7, types of institutions, components of income, application of income, and important guidelines including amendments by FA2022 for charitable and religious trusts.
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Computation of Income of Trust & ITR-5 vs. ITR-7 CA. IP. Anoop Bhatia
Types of Institutions for Discussion: Charitable Institutions Religious Institutions Section 10(23)(iiiab) & (iiiac) Institutions Section 10(23C)(iiiad) & (iiiae) Institutions Section 10(23C)(vi) & (via) Institutions
Components of Income of a Charitable / Religious Trust: Voluntary Contibutions Non-Anonymous Contributions Corpus Contributions From Charities* Anonymous Contributions Investment Activities From Activites Corpus Business Income of Trust Business Activities Incidental Business Rental Income Other Income Capital Gain Income
Components of Application of Income of a Charitable / Religious Trust: Application for promoting the objectives of the Trust Administrative & Establishment Expenses of the Trust Inter-Trust Donations Deemed Application: Sec 11(1) [Cl. (2) of Explanation 1] Accumulation: Sec 11(2)
Riders on Application of Income: Inter trust donations are allowed but corpus donations to other charitable / religious institutions are not allowed. FA2017 The application of income to be determined after considering the provisions of section 40(a)(ia) and 40A(3) / (3A). FA2018 Applications would not include the amount spent from utilization of corpus fund (yet in the year of replenishment of corpus application may be claimed). FA2021 Application would not include the amount spent from any loan or borrowings. (yet in the year of repayment of such loan or borrowing application may be claimed). FA2021
Riders continue.. Application would not include the amount spent from utilization of corpus fund (yet in the year of reinvestment of such amount into 11(5) maintained specifically for such corpus). FA2021 Application to be computed without any set-off or deduction or allowance of any excess application of any of the year preceding the previous year. FA2021
Riders continue. Amendment by the FA2022 Application of income to be considered on actual payment basis. Explanation. For the purposes of this section, any sum payable by any trust or institution shall be considered as application of income in the previous year in which such sum is actually paid by it (irrespective of the previous year in which the liability to pay such sum was incurred by the trust or institution according to the method of accounting regularly employed by it):
Formula Charitable Trust & 10(23C)(vi) / (via) institutions: for Total Income computation of a
Formula for Total Income Computation of a Religious Trust:
Text of the Provisions of Section 115BBC: Anonymous donations to be taxed in certain cases. 115BBC. (1) Where the total income of an assessee, being a person in receipt of income on behalf of any university or other educational institution referred to in sub-clause (iiiad) or sub- clause (vi) or any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) or any fund or institution referred to in sub-clause (iv) or any trust or institution referred to in sub-clause (v) of clause (23C) of section 10 or any trust or institution referred to in section 11, includes any income by way of any anonymous donation, the income-tax payable shall be the aggregate of (i) the amount of income-tax calculated at the rate of thirty per cent on the aggregate of anonymous donations received in excess of the higher of the following, namely: (A) five per cent of the total donations received by the assessee; or (B) one lakh rupees, and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the aggregate of anonymous donations received in excess of the amount referred to in sub-clause (A) or sub-clause (B) of clause (i), as the case may be.
Sec 115BBC continues.. (2) The provisions of sub-section (1) shall not apply to any anonymous donation received by (a) any trust or institution created or established wholly for religious purposes; (b) any trust or institution created or established wholly for religious and charitable purposes other than any anonymous donation made with a specific direction that such donation is for any university or other educational institution or any hospital or other medical institution run by such trust or institution. (3) For the purposes of this section, "anonymous donation" means any voluntary contribution referred to in sub-clause (iia) of clause (24) of section 2, where a person receiving such contribution does not maintain a record of the identity indicating the name and address of the person making such contribution and such other particulars as may be prescribed.
Formula for Total Income Computation of a 10(23C)(iiiab) / (iiiac) / (iiiad) / (iiiae) institution Blanket Exemption hence Income & ExpenditureAccount should be relevant. ITR-7 presentation for 10(23C)(iiiab) & (iiiac) Institutions:
10(23C)(iiiad) & (iiiae) Institutions: subject to aggregate annual receipts not exceeding 5 crores (FA 2021) ITR-7 presentation for 10(23C)(iiiad) & (iiiae) Institutions:
Tax Rate applicable for a Charitable / Religious Trust / Institutions NIL For Income covered u/s 13(10): At Slab Rate For Specified Income: 30% (as per Sec 115BBI) For Accreted Income u/s 115TD: MMR
Sec 13 (10) and (11) inserted by the FA 2022 (10) Where the provisions of sub-section (8) are applicable to any trust or institution or it violates the conditions specified under clause (b) or clause (ba) of sub-section (1) of section 12A, its income chargeable to tax shall be computed after allowing deduction for the expenditure (other than capital expenditure) incurred in India, for the objects of the trust or institution, subject to fulfilment of the following conditions, namely: (a) such expenditure is not from the corpus standing to the credit of the trust or institution as on the end of the financial year immediately preceding the previous year relevant to the assessment year for which income is being computed; (b) such expenditure is not from any loan or borrowing; (c) claim of depreciation is not in respect of an asset, acquisition of which has been claimed as application of income, in the same or any other previous year; and (d) such expenditure is not in the form of any contribution or donation to any person.
Sec 13 continues. Explanation. For the purposes of determining the amount of expenditure under this sub-section, the provisions of sub-clause (ia) of clause (a) of section 40 and sub-sections (3) and (3A) of section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head "Profits and gains of business or profession". (11) For the purposes of computing income chargeable to tax under sub-section (10), no deduction in respect of any expenditure or allowance or set-off of any loss shall be allowed to the assessee under any other provision of this Act.
Sec 13(8) (8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year.
Sec 12A(1) (b) / (ba) 12A.(1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely: (b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, (i) the books of account and other documents have been kept and maintained in such form and manner and at such place, as may be prescribed; and (ii) the accounts of the trust or institution for that year have been audited by an accountant defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and the person in receipt of the income furnishes by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed; (ba) the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section.
Insertion of the provisions of Sec 115BBI (FA2022) Specified income of certain institutions. 115BBI. (1) Where the total income of an assessee, being a person in receipt of income on behalf of any fund or institution referred to in sub-clause (iv) or any trust or institution referred to in sub- clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), of clause (23C) of section 10 or any trust or institution referred to in section 11, includes any income by way of any specified income, notwithstanding anything contained in any other provision of this Act, the income-tax payable shall be the aggregate of (i) the amount of income-tax calculated at the rate of thirty per cent on the aggregate of such specified income; and (ii) the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the aggregate of specified income referred to in clause (i). (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing the specified income referred to in clause (i) of sub-section (1).
Sec 115BBI continues.. Explanation. For the purposes of this section, "specified income" means (a) income accumulated or set apart in excess of fifteen per cent of the income where such accumulation is not allowed under any specific provision of this Act; or (b) deemed income referred to in Explanation 4 to the third proviso to clause (23C) of section 10, or sub-section (1B) or sub-section (3) of section 11; or (c) any income, which is not exempt under clause (23C) of section 10 on account of violation of the provisions of clause (b) of the third proviso of clause (23C) of section 10, or not to be excluded from the total income under the provisions of clause (d) of sub-section (1) of section 13; or (d) any income which is deemed to be income under the twenty-first proviso to clause (23C) of section 10 or which is not excluded from the total income under clause (c) of sub-section (1) of section 13; or (e) any income which is not excluded from the total income under clause (c) of sub- section (1) of section 11.
ITR filing by Trust / Institution
ITR filing of the Trust: Applicable Provisions Section 12A Section 139(4B) / (4C) etc. Section 13
Is it compulsory for the Trust to file ITR ? 12A. (1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely: -------- (ba) the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section.
Provisions of Sec 139(4A) S 139 (4A) Every person in receipt of income derived from property held under trust or other legal obligation wholly for charitable or religious purposes or in part only for such purposes, or of income being voluntary contributions referred to in sub-clause (iia) of clause (24) of section 2, shall, if the total income in respect of which he is assessable as a representative assessee (the total income for this purpose being computed under this Act without giving effect to the provisions of sections 11 and 12) exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1).
S 139 (4C) Every (e) fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub- clause (v) or any university or other educational institution referred to in sub-clause (iiiab) or sub-clause (iiiad) or sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (iiiac) or sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10; .. shall, if the total income in respect of which such research association, news agency, association or institution, person or fund or trust or university or other educational institution or any hospital or other medical institution or trade union or body or authority or Board or Trust or Commission or infrastructure debt fund or Mutual Fund or securitisation trust or venture capital company or venture capital fund is assessable, without giving effect to the provisions of section 10, exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form29and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1).
ITR Filing & Accumulation: Sec 13(9): Nothing contained in sub-section (2) of section 11 shall operate so as to exclude any income from the total income of the previous year of a person in receipt thereof, if (i) the statement (form 10) referred to in clause (a) of the said sub- section in respect of such income is not furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year; or (ii) the return of income for the previous year is not furnished by such person on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the said previous year.
ITR-5 vs. ITR-7 which one to fill ? ITR-5 applicable for: For persons other than- (i) individual, (ii) HUF, (iii) company and (iv) person filing Form ITR-7 ITR-7 applicable for: For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) only
Books of Accounts & Audit
Maintenance of Books of Accounts by the Trust: (FA 2022) 12A. (1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely: (b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, (i) the books of account and other documents have been kept and maintained in such form and manner and at such place, as may be prescribed; and (ii) accountant defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and the person in receipt of the income furnishes by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed; the accounts of the trust or institution for that year have been audited by an
List of Books of Accounts to be maintained: Rule 17AA 17AA. (1) Every fund or institution or trust or any university or other educational institution or any hospital or other medical institution which is required to keep and maintain books of account and other documents under clause (a) of tenth proviso to clause (23C) of section 10 of the Act or sub-clause (i) of clause (b) of sub-section (1) of section 12A of the Act shall keep and maintain the following, namely: (a) books of account, including the following, namely: i. Cash book ii. Ledger iii. Journal iv. Copies of bills whether machine numbered or otherwise serially numbered, wherever such bills are issued by the assessee, and copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by the assessee; v. original bills wherever issued to the person and receipts in respect of payments made by the person; vi. any other book that may be required to be maintained in order to give a true and fair view of the state of the affairs of the person and explain the transactions effected;
Rule 17AA continues. (b) books of account, as referred in clause (a), for business undertaking referred in sub-section (4) of section 11 of the Act; (c) books of account, as referred in clause (a), for business carried on by the assessee other than the business undertaking referred in sub-section (4) of section 11 of the Act; (d) other documents for maintaining: covering clause (i) to (x) (2) The books of account and other documents specified in sub-rule (1) may be kept in written form or in electronic form or in digital form or as print-outs of data stored in electronic form or in digital form or any other form of electromagnetic data storage device. (3) The books of account and other documents specified in sub-rule (1) shall be kept and maintained by the fund or institution or trust or any university or other educational institution or any hospital or other medical institution at its registered office:
Filing of Form 10B / 10BB Conditions for applicability of sections 11 and 12. 12A. (1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely: (b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, (i) the books of account and other documents have been kept and maintained in such form and manner and at such place, as may be prescribed; and (ii) the accounts of the trust or institution for that year have been audited by an accountant defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and the person in receipt of the income furnishes by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed; (Rule 17B)
Rule 17B (prior to substitution) 17B. Audit report in the case of charitable or religious trusts, etc. The report of audit of the accounts of a trust or institution which is required to be furnished under clause (b) of section 12A, shall be in Form No. 10B."
Rule 17B (post substitution) wef 01.04.2023 Audit report in the case of charitable or religious trusts, etc. 17B. The report of audit of the accounts of a trust or institution which is required to be furnished under sub-clause (ii) of clause (b) of sub-section (1) of section 12A, shall be in (a) Form No. 10B where (I) the total income of such trust or institution, without giving effect to the provisions of sections 11 and 12 of the Act, exceeds rupees five crores during the previous year; or (II) such trust or institution has received any foreign contribution during the previous year; or (III) such trust or institution has applied any part of its income outside India during the previous year; (b) Form No. 10BB in other cases.
Applicability of Form Form No. 10B Type of Trust Particulars Trust / Institutions registered u/s 12AB Trust / Institutions registered u/s 12AB Trust / Institutions registered u/s 12AB Trust / Institutions approved u/s 10(23C) Trust / Institutions approved u/s 10(23C) Total Income of Trust (without exemption) > 5 Crores Received any Foreign Contribution Application of Income outside India Total Income of Trust (without exemption) > 5 Crores Received any Foreign Contribution Form No. 10B Form No. 10B Form No. 10B Form No. 10B Form No. 10BB Trust / Institutions approved u/s 10(23C) Application of Income outside India Form No. 10BB Any other case of a Trust / Institution not covered above
Form 10B vs. 10BB Form 10B: Page 1 Main Report, Page 2 to 18Annexures Form 10BB: Page 1 Main Report, Page 2 to 6Annextures
Details of Loan & Borrowings and Corpus Investments
