As per S.2(15) of the Income Tax Act, 1961, unless the context otherwise requires, the term “charitable purpose” includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless-
(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year.
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Rationalisation of definition of Charitable Purpose in Union Budget 2015; insertion of ‘yoga’ and substitution of Proviso (i) and (ii) w.e.f. 1 Apr. 2016
The primary condition for grant of exemption to a trust or institution under section 11 of the Act is that the income derived from property held under trust should be applied for charitable purposes in India.
‘Charitable purpose’ is defined in section 2(15) of the Act. The section, inter alia, provides that advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. However, this restriction shall not apply if the aggregate value of the receipts from the activities referred above is twenty five lakh rupees or less in the previous year.
The institutions which, as part of genuine charitable activities, undertake activities like publishing books or holding program on yoga or other programs as part of actual carrying out of the objects which are of charitable nature are being put to hardship due to first and second proviso to section 2(15). The activity of Yoga has been one of the focus areas in the present times and international recognition has also been granted to it by the United Nations. Therefore, it is proposed to include ‘yoga’ as a specific category in the definition of charitable purpose on the lines of education.
In so far as the advancement of any other object of general public utility is concerned, there is a need to ensure appropriate balance being drawn between the object of preventing business activity in the garb of charity and at the same time protecting the activities undertaken by the genuine organization as part of actual carrying out of the primary purpose of the trust or institution.
Therefore, the definition of charitable purpose has been amended to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless,- (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities, during the previous year, do not exceed twenty percent. of the total receipts, of the trust or institution undertaking such activity or activities, for the previous year. These amendments will take effect from 1 Apr. 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.
Will rent receipts from a building will be treated as an activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity and excemption under section 11 will be denied?
I assume that the building was constructed out of the charity fund accumulations. Renting out of building is not an object of a charitable institution, in general, unless it’s specifically mentioned in the Articles and Memorandum of Association of a company or Trust Deed of the trust or Bye Laws of the society and approved by the Income tax Commissioner while granting exemption u/s 12AA. Any revenue derived by the charitable business will be part of the 20% limit, but it should be used for charitable purpose defined in the objects clause. If it exceeds 20%, whole of the income of entity registered as “other general utility purpose”, will become taxable and there is a possibility of losing 12A exemption also.
Need format of undertaking letter that there will be no infringement to the 1st proviso to section 2(15) of the income tax act, 1961.
Does activities such as marketing which generates substantial income for the “Object” of the trust, be considered for exemption and considered charitable?
Will a Senior Citizen Association carrying out various activities for its member senior citizens qualify to be classified as Charitable Institution under IT Act ? The Jyeshth Nagrik Sangh conducts all its activities for members who pay annual membership fee every year. The activities comprise of cultural / music programs, speeches by local or outside speakers, celebrating birthdays every month for those senior citizen members whose birthdays fall in that month, organising sightseeing tours – by collecting some fees, with a subsidy from the Sangh, etc.
No activity is carried out in the areas of Relief to the poor, Medical aid for the poor, Educational help to the poor etc. Please clarify whether the Sangh gets recognition as Charitable Institute under Sec. 2(15) of IT Act ?
In the definition of Total Receipts for the purpose of Sec 2(15), does it include Capital receipts like sale of property as well.