Charitable Trust Taxation Under ITA 2025: Section 12AB Registration, 85% Spending Rule

Charitable trusts and institutions enjoy income tax exemption under the Income Tax Act 2025, provided they are registered under Section 12AB and comply with the 85% application of income rule. This guide explains the complete tax framework for trusts and NGOs.

Registration Under Section 12AB

All charitable trusts, NGOs (Section 8 Companies, Societies, Trusts) claiming income exemption must register under Section 12AB. Registration is valid for 5 years and must be renewed. New trusts: provisional registration for 3 years on application in Form 10A.

Conditions for Exemption

• Registration: Must be registered u/s 12AB
• 85% Application: At least 85% of income must be applied towards charitable objects during the year
• No benefit to specified persons (trustees, substantial contributors, relatives)
• Not for profit of specific religion/caste (some exceptions for religious trusts)
• Investments: Must be in specified modes only

Accumulation of Income

If a trust cannot apply 85% in the current year, it can accumulate the balance for up to 5 years if:

• Resolution passed to accumulate
• Form 10 filed before the ITR due date specifying purpose of accumulation
• Amount invested in specified modes

Voluntary Contributions

• Corpus donations (with specific direction to treat as corpus): not treated as income
• Non-corpus donations: treated as income, must be applied 85%
• Anonymous donations above Rs. 1 lakh (or 5% of total donations, whichever higher): taxed at 30%

80G Approval for Donors

Trusts registered under Section 12AB can separately apply for 80G approval. Donors to 80G-approved institutions can claim deduction of 50% or 100% (institution-specific) from their taxable income. 80G registration is in Form 10G.

ITR-7 Filing

Trusts, Section 8 Companies, and other entities claiming exemption under Sections 10/11-13 must file ITR-7 with detailed Schedule IE (income and expenditure), Schedule 12A (registration details), and Form 10B/10BB (audit report).