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Taxability of trust under income tax act

Tax queries 332 views 2 replies

Rahul Bhati

Student CA Final

35 Points Posted on 31 May 2016

Dear friends,

1) A trust has a income from voluntary contribution of Rs. 24000 from their two members which become part of corpus fund and trust is not registered under section 12A.

2) Trust has a charitable expenses of Rs. 29000 during the year.

I want to know that:

1) whether voluntary contribution is taxable?

2) if taxable, then basic exemption limit can be considered for such income?

3) whether charitable expenses of trust can be adjusted against such voluntary contribution?

please reply....

Replies (2)

CA Rohan Dedhia

Practicing Chartered Accountant

83 Points Posted on 01 June 2016

Hello Rahul,

The entire study and Compliances of Trust taxation under Income Tax is a very vast and grey area. I am trying to answer your query on the basis of your inputs.

The Form ITR-7 is designed by the CBDT in such a way that only institutions registered u/s 12AA benefit from it.

There are many High Court rulings which state that Contributions forming part of the Corpus are not taxable. However, on processing the Return ITR-7 for non-12AA registered entity, the same is considered as taxable.

Further ITR-7 doesn't allow any expenses against income received by the Trust which is not registered u/s 12AA.

I advise you to kindly get the 12A(a) registration so that income tax compliances are sorted.

In the meanwhile kindly file ITR-5, with appropriate details so that basic exemption limit is available to you.

Of course, there are other ways you can get around it, but the above solution is recommended.