Trust and NGO Income Tax Under ITA 2025: Section 12AB, Section 11, Section 80G & Form 10BD

Trust and NGO Income explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

1. Trusts and NGOs: A Separate Tax World

Charitable and religious trusts, educational institutions, hospitals, and non-governmental organisations operate under a completely different income tax framework from businesses and individuals. ITA 2025 Sections 11-13 and 10(23C) provide substantial income tax exemptions for qualifying organisations that serve public charitable purposes. However, the compliance requirements are stringent, the documentation is extensive, and recent legislative changes (including the new registration regime under Section 12AB from 2022) have significantly tightened the framework. Every trustee, NGO director, and institutional finance officer must understand these provisions in depth.

2. Section 12A/12AB Registration: The Gateway to Exemption

A charitable trust or institution cannot claim income tax exemption under Section 11 unless it is registered under Section 12A (old regime) or the new Section 12AB (introduced from 1 June 2020):

• Section 12AB registration: all new applications for registration go to the Principal Commissioner (Exemption) via the IT Portal
• Provisional registration: 3 years (for new trusts/institutions without activity history)
• Regular registration: 5 years (for institutions with 3+ years activity history); must be renewed every 5 years
• Section 12A (old) converted to Section 12AB: all trusts registered under old Section 12A must re-register under the new 12AB framework (most have already done so)

3. Section 11: The Income Exemption Framework

Section 11 provides income tax exemption to registered charitable trusts when the following conditions are met:

• The income must be from property held under trust for charitable/religious purposes
• 85% of income must be applied (spent) for charitable purposes in India in the same year
• 15% can be accumulated (saved) for future use
• If the 85% application test is not met: the trust can accumulate by filing Form 10BB before the return filing deadline, specifying the purpose and period (up to 5 years)
• Excess application (above 100% in a year): can be carried back to count against prior year shortfall (specific provisions)

4. Section 13: Restrictions on Trust Exemption

Section 13 withdraws the Section 11 exemption in specific situations -- these are the primary compliance traps for trusts:

• If the trust provides ANY benefit to specified persons (trustees, their relatives, related businesses) beyond what is ordinarily provided to the public: exemption is lost for that year
• Investment in prohibited modes (shares of private companies, certain risky instruments): exemption can be lost
• Anonymous donations above Rs 1 lakh: taxable at 30% even for registered trusts
• Corpus donations: accumulated corpus funds cannot be diverted for non-charitable purposes

5. Form 10BD and Form 10BE: Donor Deduction Infrastructure

For donors to claim Section 80G deduction, the charitable organisation must comply with new reporting requirements:

• Form 10BD: the trust must file a statement of donations received from each donor by 31 May of the following year
• Form 10BE: the trust must issue a donation certificate to each donor
• Without Form 10BD filing and Form 10BE issuance: donor cannot claim Section 80G deduction even if donation was made and receipt obtained
• This requirement, introduced from FY 2021-22, has forced systematic digitisation of donation records for charitable organisations

6. Section 80G: Categories and Deduction Rates

Donors can claim Section 80G deduction when donating to approved institutions:

• 100% deduction without qualifying limit: Prime Minister National Relief Fund, National Defence Fund, National Calamity Relief Fund, etc.
• 100% deduction with 10% ATI qualifying limit: select national institutions
• 50% deduction without qualifying limit: specific nationally important institutions
• 50% deduction with 10% ATI qualifying limit: most other approved charitable institutions
• The trust must have current Section 80G approval (separate from Section 12AB registration) to provide deduction to donors

7. Section 10(23C): Educational and Medical Institutions

Universities, colleges, schools, and hospitals can claim income exemption through Section 10(23C) instead of Section 12AB:

• Universities and educational institutions with annual receipts below Rs 5 crore: apply to Principal Commissioner
• Larger universities: apply to Central Board of Direct Taxes (CBDT)
• The institution must exist for educational/medical purposes and not for profit
• Annual application and approval process differs from Section 12AB
• Surplus: any surplus from educational/medical activities must be applied for the educational/medical purpose (no profit distribution)

8. Audit Requirements for Trusts

Trust audit requirements are extensive:

• Section 162 (tax audit) applies to trusts with receipts above threshold
• Section 12AB registered trusts: must file audit report in Form 10B if gross receipts exceed Rs 5 crore
• Form 10B: filed by the CA with the ITR; extensive disclosures about income application, accumulation, investments, and Section 13 compliance
• ITR-7: specific ITR form for trusts and NGOs (not ITR-6 for companies)
• Due date: 31 October for audit cases

9. FCRA: Foreign Donations

Trusts and NGOs receiving donations from foreign sources must comply with the Foreign Contribution Regulation Act (FCRA) -- separate from ITA compliance:

• FCRA registration: required for receiving foreign contributions for charitable purposes
• Separate designated FCRA bank account: all foreign contributions must go through this account at SBI New Delhi Main Branch
• Annual FCRA return: file Form FC-4 by 31 December
• Income tax: foreign contributions to registered trusts: not separately taxed; treated as corpus/income per Section 11

10. CSR Donations: Corporate Perspective

Companies mandated under Companies Act to spend on CSR activities:

• CSR spending: NOT deductible as business expense under Section 37 (specifically prohibited)
• CSR donations to Section 80G-approved organisations: deductible under Section 80G by the donating company
• The company claiming 80G deduction for CSR donation: requires the recipient trust to have valid 80G approval and issue Form 10BE
• Strategic alignment: companies can direct CSR to causes important to them; the 80G deduction effectively reduces the net cost of CSR compliance

11. Why TaxClue

Trust and NGO compliance -- Section 12AB registration, Section 11 application/accumulation, Form 10BD/10BE donor management, Section 13 compliance, and ITR-7 filing -- requires specialised nonprofit sector tax expertise. TaxClue serves charitable trusts, educational institutions, and healthcare foundations. Contact us under ITA 2025.