Taxability of trust in India
Trust in India are formed and registered as Non-Government Organizations (“NGO”) under the Indian Trust Act, 1882. Built as an association of individuals, altogether members of a trust work for the benefit of the trust or for society at large. Like any other organization, the trust receives some money in the form of donations, investment, membership fees or in different forms which are further used for achievement of objectives of the trust as mentioned in the trust deed at the time of formation of trust.
Any revenue or profit obtained from the activities of the trust are reused for the further benefit of the trust. For inflows of cash and income from multiple sources, the trust is also held taxable under the Income Tax Act 1961.
In this writeup, you will get to know all about how trust in India becomes eligible to comply with taxation rules under the Income Tax Act, 1961.
Trust in India
As the name suggests, trust is an association/ union of members constituted for a charitable or religious purpose not intending to do any commercial activity.
As per the Trust Act, a Trust is an arrangement where a person transfers some property to another person within his acceptance for the benefit of any third person or a group of persons or society.
Trust in India can be registered in any of the two ways i.e. by forming a Public Trust or a Private Trust.
Private Trust: A trust formed with the fundamental goal of protecting the interest of its beneficiaries who are limited in number or limited to a specific group.
Public Trust: A trust formed to benefit a large group or the general public. It captures the interest and benefit of public groups and is generally formed for scientific, religious, educational or charitable purposes.
Income Tax Return Filing by Trust
A Trust is not specifically identified as a taxable entity under the Income Tax rules, rather the word representative assessee has been aligned with the trust for its taxability.
The taxability of a trust can be obtained from the following tax provisions:
Section 10 4D(E) – Trust is an organization or institution registered under The Trust Act, 1882.
Section 139 4A: The section specifies taxability of every person who is in receipt of income before allowance or exemption under Section 11 and Section 12 from property held with any trust or other legal obligation wholly for charitable purpose, in receipt of voluntary contributions on behalf of such trust or institution is is mandatory to furnish a return of Income Tax in a prescribed manner.
Section 139 4C – The section specifies for filing of Income Tax Return by any board, body or authority or trust if it’s total income for which it is accessible exceeds the maximum exemption limit.
Section 139 4D – The section specifies for filing of Income Tax Return by every University, college or Institution registered as a trust for receipt of any income as taxable as per law in the previous year.
Section 139 4E – The section specifies for every trust a Return of Income for any income or loss received in the previous year according to the provision of the act if its income exceeds the basic exemption limit.
Section 44AB – Any trust or Institution having income above the basic exemption limit, which is required to file an income tax return under the law has to also undergo an audit of its accounts under the SECTION 44AB.
Tax Exemption and Mandatory Filing of Income Tax Return by Trust.
Any trust which has the gross total income more than the basic exemption limit as per the act has to file a tax return to the tax department of its income.
But for the following trust types an Income tax return is to be filed even if they had income below the exemption limit: Association, Institution, News Companies, Investor Protection Fund, Research Association, Core Settlement Guarantee Fund, Mutual Fund, Business Trust Debt Funds, Trade Unions, Venture Capitalists, Commission Authority and Special Board Trust.
While a trust registered as a charitable or religious trust can avail the following exemptions provided under Income Tax law :
Section 10 – Exemption on the income of an educational Institute, any voluntary contribution made to any electoral trust, income of hospital, on income of other trusts if they satisfy conditions of Section 10 (23C) iiiab/ iiiad /vi.
Section 11 – Exemption for income derived from property held with any trust made wholly for charitable or religious purposes.
Section 12 – Exemption on income from voluntary contributions received by the trust or institution made for wholly charitable or religious purposes.
ITR forms to be filed by a Trust
ITR – 5: ITR form to be filed by trust, individual, company or other persons who are not required to furnish an income tax return under Section 139 4A, Section 139 4C, Section 139 4D or Section 1394E.
ITR- 7: ITR form for trust , individuals or companies abided to file income tax under Section 139 4A ,4B,4C or 4D .
Due date for filing ITR by trust
To avoid penalties, a trust has to comply with following return filing due dates (as per current provisions) :
- Filling of Income tax return with audit by September 30.
- Where FORM 3CEB applies to the trust and need to report several party transactions and hence the due date for submission of ITR is November 30 .
- In all other cases, it is to be filed before 31st July of the assessment year.
For late filing of an income tax return by trust, a penalty of Rs 5,000/- as per Section 234 F is required to be paid if the return is furnished before 31st December of the assessment year, otherwise, it will be Rs 10,000.
While in other cases, a fine not exceeding Rs 1,000/- shall be charged if the belated return is filed where total income does not exceed Rs. 500,000/- .
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