What is Section 11 of the Income Tax Act? Detailed Guide

Any sort of direct tax charged by the central government on the income of a person or a business which is earned during one financial year is called Income tax. Income tax is calculated with the help of various tax slabs that have been defined by the Income Tax Department. In order to regulate the rules and regulations regarding Income Tax, an act was enforced by the government of India. This act is known as the Income Tax Act. This act was enacted by the government in 1961 and contains various sections listed inside of it.

In this blog, we will try to understand one of the important sections of the Income Tax Act. We will discuss Section 11 of the Income Tax Act that deals with the taxes related to charitable trusts or religious trusts.

Under Section 11 of Income tax act, all the income that is received from a religious or charitable trust is fully tax-exempt. But section 11 of income tax levies a condition of these trusts, i.e. the trust must have separate bank accounts that are maintained by the trust and are related to the business and all the activities that are being performed by the trust are working towards realising the goal set by the respective trust. Let us dive into some inner details of section 11 of income tax act.

Requirements to avail exemptions under section 11 of income tax act

In order to be able to make use of the exemptions listed under the section 11 of the income tax act, the requirements that are listed below must be met. These are:

• The main purpose behind the creation of a trust must be lawful and beneficial for the society.
• The purpose of establishing a trust must be related to charity. This is mainly what the section 11 of income tax act deals with. These charitable pru[oses could be either education, medical relief or poverty eradication or preservation of monuments or environment or some monuments etc.

Exemptions provided to Hospitals  

If a hospital is being run by a person for some humanitarian cause, then in this case, the income tax will be exempted. aThis exemption under section 11 of income tax act also applies to any foundation that operates a hospital for the same cause.

Financial Assistance

If any organisation or establishment managed by a person provides financial assistance to some school or college or some other educational institution, then it is exempt from taxes due to the section 11 of income tax act.

Managing of a School/ College

Any society that runs a school or college all by itself is usually granted an exemption because of section 11 of the income tax act.

Provisions of Sections 60-63

There are a few taxable clauses of section 11 of income tax act which are subject to various provisions of the Sections 60-63. These are listed below:

• Transferring an income without the transference of an asset
• Transferring of assets that is recoverable

The exemptions that are mentioned under section 11 of income tax act are also subjected to the satisfaction of a variety of conditions that are set out in the Sections 12. 12A, 12AA, 13 and 60-63.

What are some of the judicial decisions related to Section 11 of Income Tax Act?

• When a trust tries hard to avail relief to the poor people or tries to provide assistance to an educational or a medical cause, it will continue to be a part of a charitable purpose even if it participates in a commercial activity for a short period of time.
• Providing yoga training through various well-structured camps is also a part of educational provision and is covered under Section 2(15).
• Profit remains the main motive for business, trade and commerce while the main motive of a trust is the advancement of any public utility or thing. Therefore, the services which are rendered without the expectation of gaining any sort of profit, then they are different from a business or trade.
• The activities that are performed by the Bureau of Indian Standards for prescribing standards of goods and services and implementing them can not be considered to be a part of trade or business just because of the testing procedures that charge fees.
• Those institutions which are established to provide various placement services to ex-army officers, their widows and their dependents.
• The activity including the breeding of cattle and the measures taken in order to improve the quality of cows and oxen is not considered a profit making industry.
• When a government authority was established in order to provide community facilities, housing facilities and other facilities related to infrastructure, a tax-exemption will be granted for these activities.
• The registration of a trust can be nullified only if the nature of the activities changes.
• The property using which the income is obtained must belong to the trust.
• The trust must be registered to the commissioner of income tax within the decided time limit.
• The trust should not be created with religious discrimination as a purpose.
• The property should be used only for purposes of charity.
• The promotion of sports and various games also falls under the category of charitable activities.
• The microfinance facilities that are provided to the poor will be exempted from any sort of taxes.

The services provided by the Chartered Accountants of India like organising conferences and holding workshops in order to educate people of various commercial and tax laws and direct and indirect taxes and more are all considered to be of general public utilisation.