Books maintained by Charitable Institutions

Books maintained by Charitable Institutions

Charity is a voluntary help either in money or kind to the needy. Collective efforts are always more fruitful. Hence, there are various Non-Governmental Organizations (NGOs) and non-profit entities constantly working on charitable activities by raising funds all over the world by forming either an institution or trust.

Efforts of such institutions play a significant role in promoting economic development and the social welfare objectives of the Government.

Their outreach and more localised approach helps to identify the needy and lend a supporting hand. For this reason, Indian government has provided various tax incentives and exemptions to charitable institutions, Section 80G being a significant one.

How should income be applied to be exempt?

In order to be exempt, trust is required to apply at-least 85% of its income to charitable or religious purpose in India. As per the definition provided under tax provisions, charitable purpose includes the following:

• Relief of the poor
• Education
• Yoga
• Medical relief
• Preservation of environment (monuments or places or objects of artistic or historic interest
• Advancement of any other object of general public utility. However, if any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration is not considered to be for charitable purposes, irrespective of the nature of use or application, or retention of the income from such activity unless:
• such activity of trade/commerce/business is undertaken in the course of the actual carrying out of such advancement of any other object of general public utility and
• the aggregate receipts from such activity/ activities during the financial year does not exceed 20% of the total receipts of the said trust or institution during that financial year

In addition, income utilised for purchase of capital asset, repayment of loan for purchase of capital asset, revenue expenditure and donation to trust registered under Section 12AA and Section 10(23C) shall also be treated as applied for charitable purposes and hence exempted from tax.

The expression ‘religious purpose’ has not been defined under the Act. Religious purposes are necessarily associated with religion and a matter of faith with individuals or communities.

Religious purpose includes the advancement, support or propagation of a religion and its tenets. The income of a religious trust or institution is entitled to exemption, though it may be for the benefit of a particular religious community or caste.

The exemption under Section 11 is available to public religious trusts only and not to trust for private religious purposes.

CBDT Notifies Books maintined by Charitable Institutions

G.S.R. 622(E).—In exercise of the powers conferred by clause (a) of the tenth proviso to clause (23C) of section 10 and sub-clause (i) of clause (b) of sub-section (1) of section 12A read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1. Short title and commencement. –– (1) These rules may be called the Income-tax (24^th Amendment) Rules, 2022.

(2) They shall come into force from the date of their publication in the Official Gazette.

2. In the Income-tax Rules, 1962, after rule 17A the following rule shall be inserted, namely: –

“17AA. Books of account and other documents to be kept and maintained.— (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: –

cash book;

ledger;

journal;

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;

original bills wherever issued to the person and receipts in respect of payments made by the person;

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;

(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, –

• record of all the projects and institutions run by the person containing details of their name, address and objectives;
  • record of the following, out of the income of the person during the previous year, namely: –
    • application of income, in India, containing details of amount of application, name and address of the person to whom any credit or payment is made and the object for which such application is made;
    • amount credited or paid to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause
• record of income of the person during the previous year, in respect of, –
  • voluntary contribution containing details of name of the donor, address, permanent account number (if available) and Aadhaar number (if available);
  • income from property held under trust referred to under section 11 of the Act along with list of such properties;
  • income of fund or institution or trust or any university or other educational institution or any hospital or other medical institution other than the contribution referred in items (I) and (II);
  • or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 of the Act or other trust or institution registered under section 12AB of the Act, containing details of their name, address, permanent account number and the object for which such credit or payment is made;
• application of income outside India containing details of amount of application, name and address of the person to whom any credit or payment is made and the object for which such application is made;
• deemed application of income referred in clause (2) of Explanation 1 of sub-section (1) of section 11 of the Act containing details of the reason for availing such deemed application;
• income accumulated or set apart as per the provisions of the Explanation 3 to the third proviso to clause (23C) of section 10 or sub-section (2) of section 11 of the Act which has not been applied or deemed to be applied containing details of the purpose for which such income has been accumulated;
• money invested or deposited in the forms and modes specified in sub-section (5) of section 11 of the Act;
• money invested or deposited in the forms and modes other than those specified in sub- section (5) of section 11 of the Act;
• record of the following, out of the income of the person of any previous year preceding the current previous year, namely: –
  • application out of the income accumulated or set apart containing details of year of accumulation, amount of application during the previous year out of such accumulation, name and address of the person to whom any credit or payment is made and the object for which such application is made;
  • application out of the deemed application of income referred to in clause (2) of Explanation 1 of sub-section (1) of section 11 of the Act, for any preceding previous year, containing details of year of deemed application, amount of application during the previous year out of such deemed application, name and address of the person to whom any credit or payment is made and the object for which such application is made;
  • application, other than the application referred in item (I) and item (II), out of income accumulated during any preceding previous year containing details of year of accumulation, amount of application during the previous year out of such accumulation, name and address of the person to whom any credit or payment is made and the object for which such application is made;
  • money invested or deposited in the forms and modes specified in sub-section (5) of section 11 of the Act;
  • money invested or deposited in the forms and modes other than those specified in sub- section (5) of section 11 of the Act;