Charitable Trusts & Institutions — Sections 332-354 (formerly Sections 11-13) | Registration, Exemptions & Compliance

Key Takeaways

• Section 2(15) (definition of charitable purpose) defines "charitable purpose" to include relief of the poor, education, yoga, medical relief, preservation of environment and monuments, and advancement of any other object of general public utility.
• Section 334 + 341 (Income Tax Act, 2025; formerly Section 11) grants exemption to income of charitable trusts, subject to 85% application of income in the year of receipt.
• Registration under Section 332 (formerly Sections 12A and 12AB) via Form 10A/10AB is the gateway — without registration, no exemption is available under Sections 334 and 341.
• Trusts can accumulate up to 15% of income without any conditions (Section 334(1)(a)); accumulation beyond 15% requires Form 10 and investment in prescribed modes under Rule 17C.
• Section 351 + 353 (formerly Section 13) denies exemption if income is applied for the benefit of specified persons, invested in prohibited modes, or applied outside India.
• Trusts must file Form 10B (if receipts exceed Rs. 5 crore) or Form 10BB (if receipts do not exceed Rs. 5 crore) as the audit report under Rule 17B.
• Section 133 (Income Tax Act, 2025; formerly Section 80G) provides deduction to donors — at 50% or 100%, with or without a qualifying limit — for donations to approved funds and institutions.

Section 2(15): Definition of Charitable Purpose

The foundation of trust taxation lies in the definition of "charitable purpose" under Section 2(15) of the Income Tax Act, 2025 (retained in the 2025 Act):

| Category | Description | |----------|-------------| | Relief of the poor | Activities providing financial or material assistance to economically weaker sections | | Education | Formal and informal education, including scholarships, schools, and training institutions | | Yoga | Promotion of yoga as a discipline (added by Finance Act 2015) | | Medical relief | Hospitals, clinics, medical camps, and healthcare services | | Preservation of environment | Conservation of forests, wildlife, and natural resources | | Preservation of monuments/places of artistic or historic interest | Heritage conservation activities | | Advancement of any other object of general public utility | Residual category — subject to the proviso below |

Important Proviso to Section 2(15): The advancement of any other object of general public utility shall not be considered charitable if it involves the carrying on of any activity in the nature of trade, commerce, or business unless:

• Such activity is undertaken in the course of actual carrying out of the primary charitable object, and
• The aggregate receipts from such commercial activity do not exceed 20% of total receipts in the previous year.

Rule and Form: The nature of charitable purpose must be declared in Form 10A (application for provisional registration) and Form 10AB (application for regular registration).

Section 334 + 341: Exemption of Income for Charitable Trusts

(Income Tax Act, 2025; formerly Section 11 of the Income Tax Act, 1961)

Section 334 (read with Section 341) is the core exemption provision. Income derived from property held under trust shall not be included in total income, subject to the following conditions:

85% Application Requirement (Section 334(1)(a))

• The trust must apply at least 85% of its income to charitable purposes in India during the tax year.
• The remaining 15% is automatically permitted to be accumulated (no form or condition required for this 15%).
• "Application" includes revenue expenditure for charitable activities, capital expenditure on assets held for charitable purposes, and repayment of loans taken for charitable purposes.

Accumulation Beyond 15% — Section 334(2)

Where a trust wishes to accumulate income beyond 15%, it must:

| Requirement | Detail | |-------------|--------| | Form 10 | File with the Assessing Officer on or before the due date of filing the return (Rule 17) | | Purpose | Specify the purpose for which the income is being accumulated | | Time limit | Income must be applied within 5 years from the year of accumulation | | Investment | Accumulated amount must be invested in modes prescribed under Rule 17C | | Consequence of non-compliance | If not applied within 5 years, deemed income of the 6th year (Section 334(3)) |

Form 10 must be filed electronically before the due date under Section 263 (formerly Section 139(1)). Late filing of Form 10 is not condonable.

Permitted Modes of Investment (Rule 17C)

Accumulated funds must be invested in the following modes specified under Rule 17C of the Income Tax Rules, 2026:

• Government savings certificates and post office savings
• Deposits with scheduled banks and cooperative banks
• Units of UTI and SEBI-registered mutual funds investing in government securities
• Government securities
• Deposits with NABARD, NHB, SIDBI, or IRDA-registered companies
• Equity shares or debentures of a company listed on a recognised stock exchange (up to 5% of total funds)
• Immovable property (not being a commercial asset let out for rent)

Section 334: Exemption for Voluntary Contributions

(Income Tax Act, 2025; formerly Section 12 of the Income Tax Act, 1961)

Section 334 provides that any voluntary contribution received by a trust created wholly for charitable purposes shall be deemed to be income derived from property held under trust, and shall be eligible for exemption under Section 334, subject to:

Corpus vs Non-Corpus Donations

| Type | Treatment | Rule | |------|-----------|------| | Corpus donation (with specific direction by donor) | Not treated as income of the year; exempt without the 85% application requirement (Section 334(1)(d)) | Must be invested in permitted modes under Rule 17C | | Non-corpus donation | Treated as income; 85% must be applied during the year | Subject to normal accumulation rules | | Anonymous donations | Taxable at 30% if exceeding Rs. 1 lakh or 5% of total donations, whichever is higher (Section 193 — formerly Section 115BBC) | Not applicable to trusts established for religious purposes (wholly) |

Section 332: Registration Requirement

(Income Tax Act, 2025; formerly Sections 12A and 12AB of the Income Tax Act, 1961)

Compulsory Registration

No exemption under Sections 334 and 341 shall be available to a trust unless it is registered under Section 332. The registration process involves:

| Stage | Form | Validity | Rule | |-------|------|----------|------| | Provisional registration (new trusts or fresh applications) | Form 10A | 3 years from the date of registration | Rule 17A | | Regular registration (after provisional period or renewal) | Form 10AB | 5 years from the date of registration | Rule 17A | | Conversion from provisional to regular | Form 10AB | Must apply at least 6 months before expiry of provisional registration | Rule 17A |

Section 332: Procedure for Registration

The Principal Commissioner or Commissioner shall:

• Call for documents and information (trust deed, accounts, activities).
• Conduct an inquiry regarding the genuineness of activities.
• Pass an order granting or refusing registration within 3 months (for provisional) or 6 months (for regular) of the application.
• For provisional registration, no inquiry into activities is conducted (trust deed and objects suffice).

Cancellation: Registration can be cancelled under Section 332(4) if:

• Activities are not genuine.
• Activities are not being carried out in accordance with the objects of the trust.
• Income is applied for the benefit of specified persons (Section 351(1)(c)).
• The trust has not complied with any other law that is material for achieving its objects.

Section 351 + 353: Denial of Exemption

(Income Tax Act, 2025; formerly Section 13 of the Income Tax Act, 1961)

Sections 351 and 353 are the penal counterpart of Section 334 — they withdraw exemption in specified circumstances:

Section 351(1)(c): Income for Benefit of Specified Persons

If any part of the income is used for the benefit of the author/founder, trustee, manager, or their relatives (as defined), the exemption under Sections 11 and 12 is denied. "Specified persons" include:

• Author or founder of the trust and their relatives.
• Any trustee or manager and their relatives.
• Any person who has made a substantial contribution (exceeding Rs. 50,000) and their relatives.
• Any concern in which any of the above have substantial interest (20% or more).

Section 351(1)(d): Investment in Prohibited Modes

If trust funds are invested in modes not prescribed under Rule 17C, the income from such investments is not exempt. The exemption denial is proportionate to the prohibited investment.

Section 353(8): Application Outside India

Income applied outside India shall not be treated as having been applied for charitable purposes in India, unless the trust has been created specifically for purposes outside India and is approved by the CBDT.

Section 133: Donations — Deductions for Donors

(Income Tax Act, 2025; formerly Section 80G of the Income Tax Act, 1961)

Section 133 provides deductions to donors who contribute to specified funds and institutions:

| Category | Deduction Rate | Qualifying Limit | |----------|---------------|-----------------| | PM National Relief Fund, National Defence Fund | 100% | No limit | | PM CARES Fund | 100% | No limit | | Approved universities, IITs | 100% | No limit | | Approved charitable trusts (Section 133(5)) | 50% | Subject to 10% of Adjusted Gross Total Income | | Government or approved trusts for family planning | 100% | Subject to 10% of Adjusted Gross Total Income | | Swachh Bharat Kosh, Clean Ganga Fund | 100% | No limit |

Rule and Form: Institutions approved under Section 133 must:

• Furnish a statement of donations in Form 10BD (Rule 18AB) within the prescribed time.
• Issue a certificate of donation in Form 10BE to each donor.
• Donors claim the deduction based on Form 10BE only.

Cash donations exceeding Rs. 2,000 are not eligible for deduction under Section 133.

Audit Report — Form 10B / Form 10BB (Rule 17B)

| Parameter | Form 10B | Form 10BB | |-----------|----------|-----------| | Applicability | Total receipts exceeding Rs. 5 crore OR foreign contributions received OR income applied outside India | Total receipts not exceeding Rs. 5 crore (and no foreign contributions) | | Filing deadline | One month before due date of ITR (i.e., by 30 September for trusts) | One month before due date of ITR | | Contents | Detailed audit report — income, application, accumulation, investments, compliance | Abridged audit report | | Rule | Rule 17B | Rule 16CC | | Signed by | Chartered Accountant | Chartered Accountant |

Landmark Judgement

Worked Example: Application of Income Calculation for a Charitable Trust

Facts: Dharma Education Trust (registered under Section 332, formerly Section 12AB) has the following income and application for AY 2026-27:

| Particulars | Amount (Rs.) | |-------------|-------------| | Donation receipts (non-corpus) | 1,00,00,000 | | Corpus donations (with specific direction) | 25,00,000 | | Interest on FDs (Section 11(5) investments) | 8,00,000 | | Rental income from property held under trust | 12,00,000 | | Total Income | 1,45,00,000 |

Computation of Application:

| Particulars | Amount (Rs.) | |-------------|-------------| | Corpus donations (exempt under Section 334(1)(d)) | 25,00,000 | | Income subject to 85% application | 1,20,00,000 | | 85% of Rs. 1,20,00,000 = required application | 1,02,00,000 | | Actual application during the year: | | | - Teachers' salaries and educational expenses | 70,00,000 | | - Building construction (capital expenditure for charitable purpose) | 25,00,000 | | - Scholarships to students | 10,00,000 | | Total application | 1,05,00,000 |

Analysis:

• Required application (85%) = Rs. 1,02,00,000
• Actual application = Rs. 1,05,00,000 (exceeds 85% requirement)
• Permissible accumulation (15% without conditions) = Rs. 18,00,000
• Actual accumulation = Rs. 15,00,000 (within 15%)
• Result: Entire income exempt under Section 334(1)(a).

If the trust wished to accumulate Rs. 30,00,000 (25% of income), it would need to:

1. Apply at least 85% = Rs. 1,02,00,000 (met).
2. File Form 10 for the excess accumulation of Rs. 12,00,000 (above the automatic 15%).
3. Invest the accumulated amount in modes under Rule 17C (as required by Section 334).
4. Apply the accumulated amount within 5 years for the specified purpose.

Expert Tip

Section Interconnect

• Also read: Chapter 9 — Deductions (Sections 122-154) (Section 133 deduction, formerly Section 80G, for donors contributing to approved trusts)
• Also read: Chapter 10 — TDS, TCS & Advance Tax (TDS on rent, interest, and professional fees paid by trusts)
• Also read: Chapter 13 — Penalties & Prosecution (penalties for failure to furnish Form 10B/10BB and violations of Sections 351-353)

Frequently Asked Questions

Q1: Can a trust claim exemption under Section 11 without registration under Section 12AB?

No. Registration under Section 332 (formerly Section 12AB) is a mandatory pre-condition for claiming exemption under Sections 334 and 341 (formerly Sections 11 and 12). Without registration, the income of the trust is taxed at the applicable slab rates (if AOP) or at the rates applicable to the relevant person. Trusts should apply in Form 10A for provisional registration immediately upon establishment.

Q2: Is there a time limit for applying accumulated income under Section 11(2)?

Yes. Income accumulated under Section 334(2) (formerly Section 11(2)) with Form 10 must be applied within 5 years from the end of the year in which it was accumulated. If not applied within this period, the unapplied amount is deemed as income of the year immediately following the expiry of 5 years under Section 334(3). The trust must specify the purpose of accumulation in Form 10, and the amount must be applied for that specific purpose.

Q3: If a charitable trust earns business income, is it still eligible for exemption?

Yes, subject to conditions. Under the proviso to Section 2(15), if the trust's charitable purpose falls under "advancement of any other object of general public utility," the commercial receipts must not exceed 20% of total receipts. For trusts established for education, medical relief, yoga, relief of the poor, or environmental preservation, there is no such restriction — even substantial business income incidental to the charitable purpose is exempt, provided 85% application is met.

Q4: What happens if a trust makes an investment in a non-prescribed mode under Section 11(5)?

Under Section 351(1)(d), if trust funds are invested in modes not prescribed under Rule 17C, the income arising from such prohibited investments is not exempt. The denial is proportionate — only the income attributable to the prohibited investment loses exemption, not the entire income of the trust. However, if the investment benefits a specified person under Section 351(1)(c), the denial may extend to the entire income.

Q5: How does the new Form 10BD/10BE regime affect donors?

From AY 2022-23 onwards, donors can claim deduction under Section 133 (formerly Section 80G) only on the basis of Form 10BE (certificate of donation) issued by the donee institution. The donee institution must file Form 10BD (statement of donations received) with the Income Tax Department by 31 May of the relevant assessment year. Donors should verify that the Form 10BE data matches their AIS (Annual Information Statement). Cash donations exceeding Rs. 2,000 are not eligible for any deduction under Section 133.

---