Essential conditions for exemption

The following main conditions are essential for claiming exemption under section 11

• The property from which income is derived should be held under a trust or other legal obligation.
• The property should be held for charitable or religious purposes. In the case of a charitable trust created on or after April 1, 1962, the further conditions are:
  • the trust should not be created for the benefit of any particular religious community or caste
  • no part of the income should directly or indirectly be for the benefit of the settlor or other specified persons
  • the property should be held wholly for charitable purposes.
• The three conditions mentioned above also apply to religious trust created on or after April 1, 1962.
• The exemption is confined to only such portion of the trust's income which is applied to charitable or religious purposes or is accumulated for applying to such purposes within the limits of accumulation permitted under section 11(1) and (2).
• The exemption is restricted to such portion of the income as is applied to charitable or religious purposes in India except in the cases covered by section 11(1)(c).
• The exemption from tax will not be available to any religious or charitable trust or institution in respect of business profits, unless -
  • the business is carried on by the trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Government ;
  • the business is carried on by the institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution and separate books of account are maintained by the trust/institution of such business.
• Trusts or institutions can carry out business activities if business activities are incidental to the attainment of its objectives and separate books of account are maintained. In other words, irrespective of whether any business is carried on by such a trust or institution or the business undertaking itself is held in trust, in either case, the trust or institutions is charged to tax on such profits and gains at the rates of tax applicable in the case of individuals, association of persons, body of individuals, etc., if the above conditions are not satisfied.