Income Tax Compliance requirements increased for Charitable and Religious trusts

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The Finance Budget 2018 has brought fundamental changes in the relief provided to hospitals, educational institutions, trusts and funds registered under section 10(23)(C) & section 11, these changes are worth noting as far as compliance to provisions of some the provisions of Income tax Act applicability are concerned.

Below is the brief on changes done, for easy understanding of Students and Professionals: –

Section 11 as per Income Tax Act, 1961

As per section 11 of the Income tax Act, the portion of the income derived from property held under  trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property shall not be included in the total income of the person.

In short, if the trust has applied at least 85% of the receipts for the charitable or religious purposes in India than whole 100% of the income will be exempt.

From Financial year 2018-19 onwards provisions of section 40(a)(ia), 40A (3) & 40A(3A) are required to be considered while computing 85% applicability of Income of hospitals, educational institutions, trusts and funds registered under section 10(23)(C) & section 11.

Note: –

Section 40(a)(ia): 30% Disallowance of Expenses for non-deduction or non-payment of TDS.

Section 40A (3):  Disallowance of 100% of expenditure if payment is made by any mode other than account-payee cheque or draft exceeding INR 10.000/-.

Section 40A (3A):  Disallowance of 100% of expenditure if payment is made in excess of INR 10,000 in a day otherwise than account payee cheque or account payee bank draft, for an allowance made in the assessment for any year on the basis of incurred liability, to be treated as income of the year in which such payment is made.

Logically charitable & religious entities do not carry any business activities. So the institutions or trust carrying the charitable & religious activities were out of the scope of section 40(a)(ia),40A (3) & 40A(3A).

Provisions of above mentioned sections have been made mandatory by union Budget 2018-19, in respect of application of income for trust &institutions carrying charitable & religious activities.

1. 30 % of Expenditure would not be considered as application of income under section 10(23C) and section 11 of the Act, if TDS thereon is not deducted or deducted but not deposited to the Government. As per section 40(a)(ia).

2. 100% Expenditure would not be considered as application of Income u/s 10(23C) and Section 11 of the Act, if payment for any expenditure is made in cash exceeding 10,000/- in a day. As per section 40A (3) & 40A (3A).


Let’s understand the same with the help of an example: –

Gross receipts from properties held under trust for religious/charitable purposes- INR 10,00,000/-

Expenditure incurred on above activities- INR 9,00,000/-

Out of the above expenditure, Payment of Rs 50,000 is made without deducting TDS & payment of INR 25,000 is made in cash.

Now the computation of income will be as follows: –



FY 2018-19

 FY 2017-18

Gross receipts from properties-

Rs. 10,00,000

 Rs. 10,00,000

Less: -10% ad-hoc deduction

Rs. 1,00,000

 Rs. 1,00,000

Less: -Amount expended1

Rs. 8,60,000

 Rs. 9,00,000

Total income

Rs. 40,000

 Rs. 0


1 Amount of Expenditure

Expenditure made

Rs. 9,00,000

Less: -30% disallowance for non-deduction of TDS

Rs. 15,000

Less:-Disallowance made for cash payment

Rs. 25,000

Total expenditure

Rs. 8,60,000


So from above example we can easily make out that the liability will increase if there is non-compliance of Section 40(a)(ia),40A (3) & 40A(3A) by charitable & religious entities

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