What is the taxation system for charitable and religious trusts?

There’s a lot to discuss when it comes to applicable taxes and exemptions for charitable and religious trusts. Here’re certain vital points to be considered.

Registered charitable and religious institutions are public trusts  

Not-for-profit trusts that operate for a charitable purpose and offer help on a voluntary basis to people for various causes to help the society are charitable trusts. They are often involved in organizing medical checkup camps, cleanliness drives, yoga camps, promoting environmental awareness as well as education, along with other activities for the benefit of the general public.

Religious trusts, on the other hand, are more involved in activities related to one particular religion. However, some of them also work towards charitable causes. The income tax act does not identify religious institutions differently. Both, charitable and religious trusts are considered as public trusts.

Only registered trusts are entitled to exemptions

Trusts registered as per Income Tax Act u/s 12AA are entitled to exemptions. Such organizations must get their accounts audited if their gross receipts cross the Rs. 2, 50,000/ bracket.

Voluntary contributions made to the trust by the general public with directions to add the same in the institution’s corpus are exempted.

Several of such organizations often own properties. The IT Act’s section 11 offers tax exemption on the income earned by trusts from such real-estate. The part of such income that’s spent on religious or charitable purposes within India gets tax exemption. Out of the total revenue, 15 percent can be set aside by the trust. However, if the organization fails to spend the remaining 85 percent on charitable purposes, the income is taxable as per usual slab rates.

The trust can set apart some part out of the 85 percent income for up to five years. But the charity needs to provide a detailed statement about the purpose behind setting aside the revenue to the Assessing Officer. The institution also requires to furnish Form No. 10. There are multiple terms and conditions when it comes to the use of the accumulated funds.

If the concerned institution is also involved in commercial business activities, it is mandatory for them to maintain different books of accounts.

Anonymous donations received by such organizations up to one lakh rupees are taxable at five percent (of the total contribution). If the donation amount crosses rupees one lakh, the tax rate applicable is 30 percent.

What about GST exemption?

All the shops, rest houses for pilgrims, conventional halls, and other bodies that are located inside the properties owned by charitable or religious trusts are not subjected to the GST.

Income obtained by the institution after performing a religious ceremony is exempted from the goods and service tax. Even the public libraries operated by such organizations do not attract the new tax. Plus, healthcare services (except plastic surgery and hair transplant) offered by the institutions are exempted. To know more about exemptions, you should surely consider attending GST Training in Ahmedabad.

As per CBIC’s explanation, revenue earned by religious, charitable organizations from advertising rights, entry charges for yoga camps, or income derived from educational institutions owned by the trusts that are indulged in non-charitable activities is taxable.

The most confusing part is that GST applies to specific services and goods offered by religious or charitable organizations. The government provided an exemption to food served in Gurdwaras after facing harsh criticism from all sides.

What is the taxation system for charitable and religious trusts?