Trust

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mohanlal (Querist)
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01 December 2011 a trust registred under sec 12A of income tax act . earned income on fd . of Rs. 12 lac on grant received from Govt. the trust had not yet started any business. all the money remains in bank . nothing is not yet use for business.
Q1- can trust get exemption.
Q2- if taxable under what head. what is tax liability.
thanks

CS, Deepak Pratap Singh

CS, Deepak Pratap Singh (Expert)
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01 December 2011 The income earned as interest on FD which is granted by the Government will be taxed as Income from Other sources and same will be taxed in the year in which it started business according to the provisions of Income Tax Act, 1961.

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mohanlal

mohanlal (Querist)
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06 December 2011 i want to know , can trust can get exemption for the same or not

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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02 August 2025 Here’s the clear position regarding your query on a trust registered under **Section 12A** of the Income Tax Act, earning interest on a government grant:

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### 1. **Can the trust get exemption on interest income from the grant?**

* **Section 11 exemption:**
Trusts registered under **Section 12A** can claim exemption under **Section 11** of the IT Act for income applied or accumulated for charitable or religious purposes.

* **Condition for exemption:**
The income (including interest on grants) will be exempt **only if** it is **utilized or applied** for charitable/religious purposes or properly accumulated for such use within prescribed time limits.

* **If the money remains unutilized:**
If the trust **has not started any activity/business and the entire grant money (and interest earned) remains unutilized and lying in bank**, then exemption under Section 11 is available **only on accumulation subject to Section 11(1A)** (i.e., the accumulation has to be in prescribed forms/accounts).

* **If the interest income is not applied or properly accumulated**, exemption may be denied.

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### 2. **If taxable, under which head and what is the liability?**

* The **interest income on the FD** is treated as **“Income from Other Sources”** under the Income Tax Act.

* The tax liability arises **if the trust fails to apply or accumulate the income as per Section 11**.

* In that case, the interest income is **taxable at normal rates applicable to the trust** (generally, trusts are taxed as per rates applicable to charitable institutions or as per the slab rates depending on type of trust).

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### Summary:

| Situation | Tax Treatment |
| -------------------------------------------------------- | ------------------------------------------------------- |
| Interest income applied/accumulated as per Section 11 | Exempt under Section 11 |
| Interest income neither applied nor properly accumulated | Taxable as Income from Other Sources |
| Trust not started business; funds lying idle | Exemption possible if properly accumulated as per rules |

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### Important Notes:

* To claim exemption on accumulated income, trust must file a **declaration in prescribed form** (Form 10) and invest/keep funds in specified modes.

* The government grant amount itself is not income, but **interest earned on that grant is income** and its treatment depends on utilization.

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If you want, I can help you with the details on how to file the declaration for accumulation or how to properly apply the funds to claim exemption. Would you like that?

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