🏛️ Trust Income Tax Return (ITR) – Full Detailed Guide (India)

1️⃣ What is a Trust under Income Tax Act?

A Trust is an entity created for charitable, religious, educational, medical, or public utility purposes, governed by:

• Indian Trusts Act, 1882 (private trusts)

• Income Tax Act, 1961 (taxation)

For tax purposes, trusts are classified as:

• Charitable / Religious Trust

• Private Trust

• Public Trust

• Section 8 Company (Trust-like entity)

2️⃣ Is Filing Income Tax Return Mandatory for Trust?

✅ YES – Mandatory in following cases:

1. Trust registered under Section 12A / 12AB

2. Trust claiming exemption under Sections 11 & 12

3. Trust having any income, surplus, or donations

4. Trust receiving foreign contribution

5. Trust having business income

6. Trust required to undergo audit

⚠️ Even Nil income or loss trusts must file ITR.

3️⃣ Applicable ITR Forms for Trusts

4️⃣ Tax Treatment of Trust Income

🔹 Exempt Income (Section 11 & 12)

• Voluntary donations

• Corpus donations (with written direction)

• Income applied for charitable purposes

• Grants used for objectives of trust

🔹 Taxable Income

• Income not applied for charitable purposes

• Anonymous donations (Section 115BBC)

• Business income not incidental to objectives

• Unutilized surplus beyond allowed accumulation

5️⃣ Application of Income Rule (85% Rule)

• Trust must apply at least 85% of its income for charitable purposes

• Remaining 15% can be accumulated

• If not applied:

  • Form 10 must be filed for accumulation

  • Purpose & period (max 5 years) must be specified

6️⃣ Audit Requirement for Trusts

Mandatory Audit if:

• Trust claims exemption under Sections 11 & 12

• Total income exceeds basic exemption limit

Audit Forms:

• Form 10B – For charitable/religious trusts

• Form 10BB – For institutions under Section 10(23C)

📅 Audit Report Due Date: 30th September

7️⃣ Documents Required for Trust ITR Filing

A. Legal Documents

• Trust Deed / Memorandum

• Registration Certificate (12A / 12AB)

• 80G Certificate (if applicable)

• PAN of Trust

B. Financial Documents

• Audited Balance Sheet

• Income & Expenditure Account

• Receipts & Payments Account

• Bank statements (all accounts)

C. Compliance Documents

• Audit Report (Form 10B / 10BB)

• Form 10 (Accumulation of income)

• Donation details (with donor PAN)

• Corpus donation confirmations

• Foreign contribution details (if any)

D. Other Supporting Records

• Utilization certificates

• Grant sanction letters

• Activity reports

• Minutes of trustee meetings

8️⃣ Step-by-Step Trust ITR Filing Process

Step 1: Finalize Accounts

• Prepare audited financial statements

Step 2: Conduct Audit

• Upload Form 10B / 10BB

Step 3: Compute Income

• Gross receipts

• Less: application of income

• Less: eligible accumulation

• Identify taxable surplus (if any)

Step 4: File ITR-7 Online

• Through Income Tax e-Filing Portal

Step 5: Verification

• e-Verification via DSC / Aadhaar OTP

• Mandatory verification within 120 days

9️⃣ Tax Rates for Trusts (If Exemption Denied)

🔟 Common Mistakes by Trusts

• Not applying 85% income

• Late filing of Form 10 / 10B

• Treating corpus donation without written direction

• Mixing charitable & non-charitable expenses

• Not filing ITR despite nil income

• Non-disclosure of foreign funds

1️⃣1️⃣ Penalties for Non-Compliance

1️⃣2️⃣ Importance of Trust ITR Filing

Trust ITR is required for:

• Continuation of 12A / 80G

• Government grants

• CSR funding eligibility

• Foreign funding approval

• Legal credibility & transparency

1️⃣3️⃣ Advisory Draft – Trust Income Tax Return

Email

Subject: Advisory on Trust Income Tax Return Filing

To: [Trustee / Client Name]
Date: __________

Dear Sir / Madam,

This is to inform you regarding the mandatory filing of Income Tax Return (ITR-7) for your Trust for Financial Year [20XX–XX], in accordance with the provisions of the Income Tax Act, 1961.

Scope of Compliance:

1. Finalization of audited financial statements

2. Verification of application of income (85% rule)

3. Filing of Audit Report (Form 10B / 10BB)

4. Filing of Form 10 for income accumulation, if applicable

5. Online filing of ITR-7

6. Verification and post-filing support

Trustee Responsibilities:

• Ensure funds are used strictly for trust objectives

• Maintain proper books, vouchers, and activity records

• Provide donor and corpus contribution details

• Disclose any foreign or business income

Benefits of Timely Filing:

• Continuation of tax exemption under Sections 11 & 12

• Validity of 80G certificate

• Eligibility for grants, CSR funding, and donations

• Avoidance of penalties and cancellation of registration

We recommend completing the compliance well before the due date to ensure uninterrupted benefits.

Warm regards,
[Consultant Name]
[Designation / Firm Name]

🔹 Additional Trust Income Tax Information (Not Covered Earlier)

1️⃣ Difference Between “Application of Income” & “Expense”

Many trusts make mistakes here.

• Application of income ≠ simple expense

• Only expenses directly related to charitable objects qualify

• Capital expenditure (building, equipment for charity) is allowed as application

• Personal or administrative misuse = disallowed

📌 Incorrect classification may lead to denial of exemption.

2️⃣ Treatment of Corpus Donations (Critical Point)

Corpus donations are fully exempt only if:

• Written direction from donor is available

• Clearly mentioned as “Corpus Donation”

• Shown separately in books

❌ Without written direction → treated as normal donation
❌ Wrong reporting → taxable

3️⃣ Anonymous Donations – Special Tax

• Donations where donor identity is not available

• Taxed @ 30% under Section 115BBC

• Exceptions:

  • Religious trusts (partially exempt)

  • Donations received through proper banking channels with details

📌 Maintain donor register compulsorily.

4️⃣ Business Income of Trust – When Allowed

Business income is allowed only if:

• Business is incidental to trust objects

• Separate books are maintained

• Example:

  • Educational trust running canteen

  • Hospital pharmacy

Otherwise → entire exemption lost

5️⃣ Inter-Trust Donations (Trust to Trust)

• Donation to another 12A registered trust is allowed

• However:

  • Treated as application of income

  • Excessive routing may attract scrutiny

📌 Proper documentation required.

6️⃣ Foreign Donations & FCRA Linkage

If trust receives foreign funds:

• Must have FCRA registration

• Foreign income must be disclosed in Schedule FC

• Non-compliance can lead to:

  • Heavy penalty

  • Cancellation of registration

7️⃣ Cancellation of 12A / 80G – Hidden Triggers

Registration can be cancelled if:

• Activities not genuine

• Funds diverted

• ITR not filed regularly

• Audit report not filed

• Objects modified without approval

⚠️ Once cancelled, exemption lost permanently (unless restored).

8️⃣ Accumulation of Income – Practical Pitfalls

• Form 10 must be:

  • Filed before due date

  • Specify purpose clearly

• Vague purpose = rejection

• Utilization beyond time limit = taxable

9️⃣ Trust Asset Sale & Capital Gains

• Capital gains on sale of trust property are exempt if:

  • Sale proceeds reinvested for charitable purpose

• If not reinvested → taxable

📌 Reinvestment planning is crucial.

🔟 Trustee Remuneration & Benefits

• Trustees cannot derive personal benefit

• Excess remuneration = violation

• Reasonable salary allowed only if:

  • Mentioned in trust deed

  • Approved by board

Violation may attract maximum marginal tax.

1️⃣1️⃣ Trust Merger / Modification Tax Impact

• Merger with another trust requires:

  • Similar objects

  • Proper approval

• Modification of objects requires:

  • Fresh registration / intimation

Non-compliance → loss of exemption.

1️⃣2️⃣ Importance of Activity Report (Often Ignored)

Activity report helps in:

• Audit

• Assessment

• Grant approvals

• CSR eligibility

• Renewal of 80G / 12AB

📌 Should match financial application.

🔹 Website-Friendly “Extra Key Points” Section

Important Additional Points for Trusts:

• Application ≠ expense

• Written direction mandatory for corpus

• Anonymous donations taxed @30%

• Business income allowed only if incidental

• FCRA mandatory for foreign funds

• Trustee benefit is highly restricted

• Asset sale gains need reinvestment

• Activity report is compliance evidence