Taxability of trust doing business

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This query is : Resolved

CA Subin VR (Querist)

10 January 2015 A trust is running a School and a Chit business. The assessing officer add back the income of Chit Business Unit as per the first provision to Sec 2(15. The income from Chit Business is Rs.2 lakhs, which is below the basic exemption limit. But even though the ITO demand the liability of Rs.60,000 plus interest with out considering the basic exemption limit. Whether the ITO is correct ? If yes, please refer, the Sec.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

10 January 2015 Private trust will be taxed at a slab rate applicable for individual provided it does not have business income.
Any business income may be taxed @ 30%.

CA Subin VR

CA Subin VR (Querist)

10 January 2015 Please quote the Sec which empower 30% slab rate for the business income of trust.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

26 July 2025 Sure! Here's the detailed explanation regarding the **taxability of a trust carrying on business**, especially chit business, and the applicable tax rates:

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### 1. **Section 2(15) of Income Tax Act**

* Section 2(15) defines a "charitable purpose."

* The proviso to Section 2(15) states that **the income of a trust or institution shall not be deemed to be charitable purpose if it is derived from a business activity other than the business incidental to the attainment of the objectives of the trust.**

* So, if the trust runs a chit business, which is **not incidental** to its charitable purpose (e.g., running a school), then income from chit business is **not exempt** and taxable.

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### 2. **Tax Rate on Business Income of Trust**

* For **trusts or institutions registered under Section 12AA**, income derived from **business (other than incidental business)** is taxed at the **maximum marginal rate**, i.e., **30% (plus applicable surcharge and cess)**.

* This is mentioned in **Section 11(4A)** and **Section 115TD** for certain types of trusts.

* So, the trust's **business income is taxed @ 30%**, irrespective of whether total income is below the basic exemption limit.

* This means **basic exemption limit does NOT apply to business income of trust** as per these provisions.

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### 3. **Is the Assessing Officer (ITO) Correct?**

* Yes, the ITO is correct in taxing the chit business income of Rs. 2 lakhs at **30%** (plus surcharge & cess), ignoring basic exemption limit, as the business income of trust is taxed at a flat rate.

* Interest and penalties are leviable if taxes are not paid as per law.

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### 4. **Relevant Sections for Reference:**

* **Section 2(15) proviso** — excludes non-incidental business income from charitable purpose exemption.
* **Section 11(4A)** — taxability of income from business of trust.
* **Section 115TD** — penalty provisions on income from such business.
* **Section 44AB** — applicability of audit for trust with business income.

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### Summary:

| Income Type | Tax Treatment |
| --------------------------------------- | ----------------------------------------------- |
| Income from School (Charitable Purpose) | Exempt under Section 11 (subject to conditions) |
| Income from Chit Business | Taxed @ 30% flat (ignores basic exemption) |

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If you want, I can share the exact text of these sections or more case laws on this topic. Would you like that?

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