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CLAIMING EXEMPTION U/S 11

CLAIMING EXEMPTION U/S 11- NECESSARY PRE-REQUISITES FOR ACCURATE PROCESSING OF ITR

1. Return of income in prescribed form ITR-7 needs to be filed on or before the due date mentioned u/s 139(1).

Section 139(1) applies to-

a) Every person who has a total income that exceeds the exemption limit.

b) Any private, public, domestic or foreign country located and or doing business in India.

c) Any firm including LLP or unlimited liability partnership.

d) Any resident who has an asset outside India, or any resident who retains signing authority for an account based outside India- tax return needs to be filed mandatorily irrespective of amount of tax liability.

e) Every HUF, AOP, BOI- if the total income of these bodies or entities exceeds the prescribed exemption limit, they are liable to file income tax return.

VOLUNTARY FILING:

i) U/s 139(1c) certain classes of people are exempt from filing income tax.

ii) After issuing the notice, it should be placed before the House of Parliament for 30 days when the sessions go on immediately following the notification.

NOTE: Along with the applicable return (ITR-7), audit report in form 10B also needs to be e-filed.

2. For claiming the benefit of deemed application under section 11(1);

SECTION 11(1); if in the previous year, a charitable organization is not able to utilize 85% of its income, then the organization has an option to apply such income in the year of receipt or in the year immediately following the year of accrual of income.

If the income is applied in the succeeding year, it will be treated as deemed to have been spent in the previous year.

NOTE; in such a case, form 9A has to be e-filed before the prescribed due date.

3)For claiming benefit of accumulation u/s 11(2);

SECTION 11(2); Where 85% of the income of a charitable trust as referred above, is not applied to charitable or religious purposes in India during the previous year, but is accumulated or set apart, either in whole or in part, for application to charitable/ religious purposes in India, such income will not attract tax liability provided the trustee gives notice to the assessing officer in the prescribed Form No.10 specifying the purpose and period for which income is to be accumulated.

NOTE; Form 10 has to be e-filed before prescribed due date.

 

 

4) If a trust is registered under section 12A (for NGO's) and 12AA (Charitable trust of institutions) shall avail no exemptions u/s 10 except the following;

Exemption u/s 10 - which deals with agricultural income.

Exemption u/s 10(23C)- which deals with any income received by any person on behalf of the following-

i) PM's national relief fund

ii) PM's fund( promotion of Folk Art)

iii) PM's aid to students fund

iv) national foundation for communal harmony

v) any educational institution which is;

     a) a non profit earning body and wholly or substantially financed by the Govt

     b) a non profit earning body whose aggregate annual receipts do not exceed the    

       prescribed limit

     c) a non profit earning body other than those mentioned above, but are approved by the

       prescribed authority.

vi)  any hospital or other institution for the reception and treatment of persons from illness/ mental defectiveness/ treatment of persons during convalescence/ persons requiring medical attention.

   any hospital or institution existing solely for philanthropic purposes;

   a) which is  wholly or substantially financed by the government

   b)whose aggregate annual receipts do not exceed prescribed limits.

   c) other than those mentions in i and ii, but is approved by the prescribed authority.

vii) any other fund established for charitable purpose notified by central government.

viii) any trust/ institutions set up wholly for religious purposes or purposes notified by the central government.

 

NOTE; No other exemption claims to be made under the following sections:

a) U/s 10

b) Section 10A (commuted value of pension received)

c) Section 10AA (amount received as leave encashment on retirement)

d) Section 13A (house rent allowance)

e) Section 13B

f) Deductions under chapter VI A.

 

5) If a trust is engaged in a charitable purpose called "any other object of general public utility" and the activity falls under the ones mentioned in section 2(15), then aggregate annual receipts from such activity is to be provided along with its percentage in schedule part A other details.

Firstly, let us get a better understanding of section 2(15)-

 Under section 2(15)- "charitable purposes" includes-

  a) Relief to the poor

  b) Education

  c) Medical relief

  d) Advancement of any other object of general public utility

 

Secondly, let us understand what is meant by "any other object of general public utility"

Any other object of general public utility includes the following impacted objects-

i) Promotion of literature, arts and culture

ii) Furtherance of national integration

iii) Promotion of trade and commerce

iv) Promotion of international undertaking

v) Promotion of sports

vi) Promotion of handicrafts

vi) Care and protection of animals and birds (other than wildlife)

 

6) Any income declared u/s 11(1B), 11(2), 12(2), 13 is fully taxable and can avail no exemption u/s 11.

Let us get a better understanding of each these sections.

section 11(1B)-  this sections includes the income derived from property held under trust in part only for such purposes, the extent to which such income is applied to such purposes in India. Also when any income is set apart for application, the extent to which the income is set apart should not exceed 25% of the income from such property.

section11 (3); any income referred to under accumulated or setting apart of trust income which-

a) Is applied to purposes other than charitable or religious purposes or ceases to be accumulated or set apart for application

b) Ceases to remain invested or deposited in any of the forms or modes specified in subsection 5.

c) is not utilized for the purpose for which it is so accumulated/ set apart during the period referred to in a) , or it is not utilized in the year immediately following the expiry thereof, it shall be deemed to be the income of such a person in the previous year in which it is so applied or ceases to be accumulated or set apart.

Section 12(2); section 12 deals with income from property held under trust.

Section 12(2) includes value of medical or educational services, provided free of cost or at a concessional rate, by a charitable or religious trust running a hospital or medical institution or an educational institution to a person specified u/s 13(3).

Section 13; includes the following types of income

a) if income is not applied or benefit of the public (13(1)(a))

b) if income is applied for benefit of a particular religious community. (13(1)(b))

c) if income or property of trust or institution is applied for the benefit of persons specified in section 13(3) who may be founders, trustees, managers, who have a substantial interest in the organisation.

d) if  funds are applied in modes other than those specified in section 11(5) -( dealing with modes of investing or depositing money available to a trust) or shares of companies other than a government company are held.

 

NOTE;  before entering the details , it is to be made certain that any income already applied towards objectives is not entered here.

7) To claim exemption u/s 11, all incomes must be entered in schedule AI.

Schedule AI includes the aggregate of income referred to in section 11 and 12 forming a part of corpus during the previous year as per section11(1)(d)  excluding voluntary contribution made with a specific direction and voluntary contributions.

8) The details of projects /institutions run by trusts and details of registrations or approvals have to be necessarily provided in schedule part A General.

Some details of registrations include;

i) The details of trustees like name, occupation, address, age, father's name etc.

ii) Address proof of trustees

iii) Electricity bill or house tax receipt or water bill receipt or ownership proof of property.

 

CLAIMING EXEMPTIONS U/S 10, PRE-REQUISITES FOR ACCURATE PROCCESSING OF ITR

1) if the trust is registered u/s 12A and 12AA , no exemption other than section 10(1) and 10(23C) is allowed. For details refer to point 4 in the above section.

2) For claiming deduction u/s 10(23C) iv,v,vi,via; the return of income in the prescribed form that is, ITR 7, needs to be e-filed on or before the due date mentioned under section 139(1).

Conditions to be fullfilled for claiming deduction under these sections are as follows;

 a) An application in Form No. 56 (for claiming exemption under section 10(23C)(iv) and (v) and in Form No. 56D (for claiming exemption under section 10(23C)(vi) and (via)  has to  be filed with prescribed authority, i.e., Commissioners of Income-tax (Exemptions).

     b)  It should furnish such documents (including audited annual accounts) or information, which the prescribed authority, i.e. Commissioners of Income-tax (Exemptions) may consider necessary in order to satisfy itself about the genuineness of the activities of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution.

c)     It should apply its income, or accumulate  it for application, wholly and exclusively to the objects for which it is established and in a case where more than fifteen per cent of its income is accumulated on or after the 1st day of April, 2002, the period of the accumulation of the amount exceeding fifteen per cent of its income shall in no case exceed five years.

d)  Funds should not be invested or deposited for any period during the previous year otherwise than in any one or more of the forms/modes specified in section 11(5). However, this condition is not applicable in the following cases;

i)  any asset  which forms  part of the corpus of the fund, trust or institution or any university or other educational institution or any hospital or other medical institution as on the 1st day of June, 1973;

ii) Equity shares of a public company, held by any university or other educational institution or any hospital or other medical institution where such equity shares form part of the corpus of any university or other educational institution or any hospital or other medical institution as on the 1st day of June, 1998

iii) Debentures of a company acquired by the fund, trust or institution or any university or other educational institution or any hospital or other medical institution before the 1st day of March, 1983;

iv) Any accretion to the shares, forming part of the corpus of the fund mentioned in point no. (i) and (ii), by way of bonus shares allotted to the fund, trust or institution or any university or other educational institution or any hospital or other medical institution;

v) Voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify.

e) For claiming exemption under section 10(23C)(iv) and (v), the fund, trust or institution, as the case may be, should disinvest by March 30, 1993, all the investment made before April 1, 1989, otherwise than in any one or more of the forms or modes specified in section 11(5).

f) For claiming exemption under section 10(23C)(vi) and (via), the university or other educational institution or any hospital or other medical institution, as the case may be, should disinvest by March 30, 2001, all the investment made before June 1, 1998, otherwise than in any one or more of the forms or modes specified in section 11(5).

NOTE; If taxable income exceeds exemption limit, Audit report in form 10BB needs to be efiled along with the return.

3) In order to claim exemption u/s 10, follow this sequence;

In part A General---  Under " details of projects/ institutions run by you" go to head ------"section under which exemption is claimed''--- select the appropriate sub-section/sub clause of section 10.

4) In order to claim exemption u/s 10, the amount of exemption needs to be entered in rows 8-10. A detail of the different rows and their applicability;

a) Item 1 – 4ii: The amounts shall be auto-populated from respective schedules.

b) Item 4iii – 12b: These are user enterable fields where the assessee can make adjustments as specified at the individual fields. The total fields shall be auto calculated and populated accordingly.

c) Claim of exemption u/s 10 is to be made in items 8 – 10.

d) Item 13 – 17: These fields shall be auto-populated from the respective schedules.

e) Item 18: The claim of “Deduction u/s 10A or 10AA”

f) Item 19: “Deductions under chapter VI-A)

g) Item 20 and 21: These fields shall be auto-populated

h) Item 22: Total of agricultural income for rate purposes is to be entered.

i) Item 23 and 24: These fields shall be auto-populated

j) Item 25: Income chargeable at maximum marginal rates to be mentioned separately.

5) Under section 10(23C)(iiiad) ;in case of  any university or other educational institution existing solely for educational purposes and not for purposes of profit, if the aggregate annual receipts of such university or educational institution do not exceed the amount of Rs.1 crore, it  can avail of this exemption.

The exemption under section 10(23C)(iiiad) of the Act is available on the educational activities of an assessee and if the assessee is carrying on only this sole activity during the year, the exemption cannot be denied to it on the basis that it has other objects also in its trust deed.

NOTE; To claim exemption u/s 10(23C)(iiiad) and (iiiae), a detail of aggregate annual receipts has to be filed in Schedule part A- general.

6) Selection of the correct section in which return is to be filed is important:

Return under section 139(4C) is required to be filed by every –

(i) Scientific research association referred to in section 10(21)

(ii) News agency referred to in section 10(22B)

(iii) Association or institution referred to in section 10(23A)

(iv) Institution referred to in section 10(23B)

(v) Fund or institution or university or other educational institution or any hospital or other medical institution referred to in section 10(23C)(iv)/ (v)/ (vi) if the conditions mentioned in section 139(4C) are satisfied.

Return under section 139(4D) is required to be filed by every university, college or other institution referred to in clause (ii) and clause (iii) of sub-section (1) of section 35, which is not required to be furnish  return of income or loss under any other provision of this section.

Return under section 139(4E) is required to be filed by a business trust, which is not required to furnish return of income or loss under any other provision of this section.

Return under section 139(4F) is required to be filed by an investment fund referred to in section 115UB, which is not required to furnish return of income or loss under any other provision of this section.

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