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  7. Understanding Incomes Exempted under Section 11 of Income Tax Act, 1961

Incomes Exempted Under Section 11 of Income Tax Act,1961

Updated on: 16 Jan, 2024 05:49 PM

Section 11 of the Income Tax Act,1961 is a provision that grants exemption to certain incomes earned by trusts or institutions registered under section 12AA of the Act and are engaged in charitable or religious activities. The exemption depends on various conditions and limitations specified in sections 11 to 13 of the Income Tax Act. The main purpose of this exemption is to encourage and support the social welfare activities carried out by such trusts or institutions in India.

Contents

What is Section 11 of the Income Tax Act?

Section 11 of the Income Tax Act provides exemptions to income derived from property held under trust or institutions wholly for charitable or religious purposes to the extent that such income is applied to charitable and religious purposes in India. The exemption is subject to certain conditions and limitations specified in the Act. The exemption is available only to registered trusts or institutions that have obtained a certificate of registration from the Income Tax Department under Section 12A or Section 12AA of the Act.

Which income can be claimed as an exemption under Section 11?

  • Income received from property held under trust wholly for charitable or religious purposes.
  • Income accumulated or be applied to such purposes in India, to the extent of 15% of the income from such property.
  • Income received by the trust should be in the form of voluntary contributions.
  • Capital gains from transferring a capital asset held under trust or institution to the extent that the net consideration is invested or deposited in specified modes within the prescribed time limit.

What are the Conditions for claiming exemption?

  • The trust or institution should be registered under section 12AA of the Income Tax Act.
  • The income of charitable institutions and trusts should not benefit the settler directly or indirectly.
  • The trust or institution created or established should not benefit any particular religious community or caste.
  • Any sum of the income or property of the trust or institution should not be applied directly or indirectly for the advantage of any person defined in section 13(3) of the Act, such as the author, founder, trustee, manager, relative, etc. of the trust or institution.
  • The trust or institution should comply with the conditions and requirements prescribed under section 11(5) and section 13(1) of the Act regarding the mode and manner of investment and deposit of its funds.

What are the modes of investment under Section 11(5) of income tax act?

  • Deposits with or investment in any security issued by the Central Government.
  • Deposits with or investment in any security issued by a financial corporation that is engaged in providing long-term finance for industrial advancement in India and which is eligible for deduction under Section 36(1)(viii).
  • Deposits with or investment in any shares of a public sector company.
  • Deposits with or investment in any debentures issued by, or for any company or corporation, both the principal and interest are fully and thoroughly guaranteed by the Central Government or a State Government.
  • Investment in immovable property. (Plant and machinery does not include)
  • Deposits with the Post Office Savings Bank Accounts.
  • Investment in units of the UTI established under the Unit Trust of India Act 1963.
  • Investment in any units of any mutual fund and acquiring shares of National Skill Development Centre etc.
  • Any other mode of investment or deposit may be prescribed by the Central Government.

Frequently Asked Questions

Q- What is section 12A of the Income Tax Act?

Section 12A of the Income Tax Act mandates the registration of a trust or institution for claiming exemption under section 11 of income tax act 1961. It contemplates a trust or institution as an eligible entity for the registration.

Q- What is section 13 of Income Tax Act?

Section 13 of Income Tax Act 1961 deals with the provisions related to Income from property held for charitable or religious purposes. It specifies that any income derived from property held under trust wholly for religious or charitable purposes shall not be included in the previous year's total income of the person receiving such income.

Q- What is section 12AA of the Income Tax Act?

Section 12AA of Income Tax Act, 1961 deals with the procedure for registering trusts and institutions that are eligible for exemption under Section 11 and Section 12 of the Act. It mandates that all trusts and institutions claiming exemption under Section 11 or Section 12 must apply for registration with Income Tax Department.

Q- Is depreciation allowed under section 11?

Yes, there is no bar on claiming any expenses including depreciation under this section. But, if on acquisition of an asset it has been treated as application of income in that previous year, then depreciation is not allowed under this section.

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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.