Section 13 of the income tax act: Circumstances where exemption for trust can be denied.
Section 13 of the income tax act: Circumstances where exemption for trust can be denied.
ncome derived from the property held by the trust is exempted u/s 11. Any contribution received as voluntarily contribution is not taxable. Trust receiving voluntarily donations can claim exemption u/s 12. Section 13 deals with the conditions where trust can not claim exemption u/s 11 and 12 of the act. Let's discuss the circumstances when the income derived from the property held or contribution received are taxable under the income tax act.
Trust working for a particular cast or religion.
When a trust is created only for the benefits of the particular religion or cast, exemption would not be available.
However, the exemption cannot be denied in the following two cases.
1.Trust created before 1st April 1962 can avail exemption even if the trust is working for a particular cast or religion.
2.Trust for the benefit of backward classes, schedules can avail exemption u/s 11.
Use of trust income for the benefit of a specified person
If the fund of trust is used in relation to the benefits of a certain specified person, no exemption will be available. The following are the specified persons as per section 13(3) for whom trust cannot use its fund for their benefits.
1. Manager /trustee of a trust or his/her relatives
2. Author /founder of trust or his/her relative
3. Substantial contributor which has contributed more than Rs. 50,000.
4. Any concern where founder/manager/trustee has an interest in such concern.
Trust income or property for benefits of the person specified u/s 13(3) by the way of the following facility.
- Loan to such person without interest
- Providing property to use without paying any consideration.
- Granting of loans without interest or any element of security.
- Usage of land, building or property without any consideration.
- Payment of salary, allowance or any other payment in excess of what it actually is.
- If service of trust is made available without adequate remuneration.
- Purchase of shares, security or property at a higher price than normal rate.
- Use of trust’s income for the benefit of any person.
NOTE: Exemption u/s 11 cannot be denied, in a case where the aggregate of the funds of the trust is invested in a concern where a person specified in section 13(3) has a substantial interest not exceeding 5% of the capital of that concern.
