Trust NGO Return Filing

A charitable trust is an entity established to offer the community religious or humanitarian services. Trusts dedicated to charitable or religious objectives and devoid of commercial activities are entitled to several benefits under the Income-Tax Act.

Eligibility for Exemption

Under the Income Tax Act, income generated by a charitable trust is exempt from Income Tax, subject to specific conditions being met. These conditions include:

• The trust needs to be registered with the Commissioner of Income Tax as a Charitable Trust eligible for exemption under the Act, in accordance with the guidelines outlined in Section 12A of the Act.
• The purpose of holding the property should be charitable or religious.
• The trust’s property must be held under a trust deed or similar legal obligation.
• Trust must not have been established for the benefit of any religious community or caste group.
• Exemption is applicable only to the portion of income utilized for charitable or religious purposes.
• The income of the trust should not be utilized for the benefit of the settlor or any individual considered a close relative of the settlor.
• If the trust’s income exceeds the basic exemption limit, it needs to submit its books of accounts for audit. It’s important to note that income here refers to the trust’s earnings before applying the exemption offered to charitable trusts under the Act.
• The trust may earn income intended for future applications. In such instances, the income accumulated for future applications should be invested separately, following the provisions of the Act.
• The trust should file a return of income if its income surpasses the basic exemption limit, with the due date varying based on the trust’s circumstances.

What are the Conditions for Applying Income to be Exempt?

What are the Conditions for Applying Income to be Exempt?

To qualify for exemption, a trust must allocate at least 85% of its income towards charitable or religious purposes in India. As per the definitions outlined in tax provisions, charitable purposes encompass the following:

• Education
• Relief for the poor
• Medical relief
• Yoga
• Environmental preservation (protecting landmarks, places, and artefacts with historical or cultural value)
• The advancement of any other object of public utility is also considered a charitable purpose. However, any activity resembling trade, commerce, or business, or any service provided in connection with trade, commerce, or business, for a fee or consideration, is not deemed charitable, regardless of how the income from such activity is utilized or retained, unless:

• such trade, commerce, or business activity is conducted as part of the actual implementation of the advancement of any other object of public utility, and
• The total receipts from such activity or activities in the financial year do not surpass 20% of the total receipts of the institution or trust throughout that financial year.

• Furthermore, income used for capital asset purchases, loan repayments for capital asset purchases, revenue expenditures, and trust donations registered under Sections 12AA and 10(23C) would also be recognized as utilized for charitable purposes and would not be exempt from taxation.
• The term ‘religious purpose’ remains undefined within the Act. Religious purposes are inherently linked to religion and pertain to matters of faith for individuals or communities. Religious purpose encompasses the advancement, support, or propagation of religion and its doctrines. Income generated by a religious trust or institution is eligible for exemption, even if it benefits a specific religious community or caste.

The exemption provided under Section 11 is applicable exclusively to public religious trusts and not to trusts serving private religious purposes.

Income Tax Return Filing for Trust

Any trust that earns a total income exceeding the basic exemption limit must fulfil the requirement of filing income tax returns. Additionally, the following types of trusts must file an income tax return regardless of their gross total income:

• Research Association
• News agency
• Association or institution.
• Fund or institution
• Mutual Fund
• Securitization trust
• University or other educational institution
• Core Settlement Guarantee Fund
• Investor Protection Fund
• Trade union
• Business trust
• Infrastructure debt fund
• Body or authority, board, trust, or Board, Trust, or Commission

Documents Required for Registration under Section 80G and 12A

To acquire an 80G Certificate, the following documents are typically required:

• List of donors
• PAN card
• Certificate of Incorporation
• MoA and Registration Certificate
• NOC
• Form 10G
• A complete list of welfare activities
• Documents related to IT returns and the Book of Accounts for the last 3 years
• A Board of Trustee’s complete list
• Copy of the latest utility bills, such as Electricity or Water Bills or House Tax Receipt

To obtain the 12A Certificate, the following documents are required:

• PAN card
• Form 10A
• Documentation required for establishing a Trust or NGO.
• In the case of a Section 8 Company, a Certificate of Incorporation, and copies of the MoA and AoA
• Financial statements for three years

Deadline for Filing Trust Tax Return

The deadlines for income tax filing for Trusts are as follows:

• September 30: It is applicable if the Trust is mandated to have its accounts audited under the Income Tax Act or any other law.
• November 30: Relevant if the Trust is required to submit Form No. 3CEB. This form is necessary if the trust has engaged in specific types of related-party transactions.
• July 31: Applicable if the Trust is not required to undergo an audit of its accounts.

Procedures for Filing Income Tax Returns for Trusts

Charitable Trusts are required to file their income tax returns using either ITR 5 or ITR 7. If the Trust’s taxable income exceeds the basic exemption limit, ITR 5 can be used. However, if the Trust is mandated to file an income tax return under Sections 139(4A), 139(4B), 139(4C), 139(4D), 139(4E), or 139(4F) of the Income Tax Act, ITR 7 must be filed.

E-filing of income tax returns is mandatory for all trusts. If the Trust needs to have its accounts audited, the income tax return must be e-filed with the Digital Signature of the Chartered Accountant responsible for conducting the audit.