Planned Accumulation – Form 10 for Charitable and Religious Trusts

Introduction:

Charitable and religious trusts in India enjoy exemptions under Section 11 of the Income Tax Act, 1961, provided they apply at least 85% of their income for charitable or religious purposes during the financial year. They are also allowed to accumulate up to 15% of their income without any additional compliance.

However, when a trust wants to accumulate more than 15% of its income for a specific purpose (such as construction of a school, hospital, or long-term charitable project) and spend it over multiple years, it must file Form 10 with the Income Tax Department. This process is called Planned Accumulation.

1. Benefit Under Section 11(2) – Planned Accumulation

Under Section 11(1)(a), trusts must apply 85% of their income in the year of earning. But Section 11(2) allows trusts to accumulate income beyond the 15% limit if:

• The accumulation is for a specific purpose related to the trust’s objectives.

• The income is invested only in the modes specified under Section 11(5).

• The application is made within a maximum of 5 years.

• The trust files Form 10 within the prescribed time.

This provision helps trusts plan and execute large-scale projects without losing exemption.

2. What is Form 10?

Form 10 is a declaration form through which a charitable or religious trust informs the Income Tax Department that it intends to accumulate income beyond 15% for a specified purpose and will apply it in future years (up to 5 years).

It acts as an official permission to defer application of income without losing exemption.

3. When Can Form 10 Be Filed?

Trusts should file Form 10 if they:

• Intend to set aside funds for a specific project (e.g., building infrastructure, starting a hospital, purchasing land for charitable purposes).

• Require more than one year to spend the accumulated amount.

• Need to legally safeguard tax exemption while accumulating more than 15% of income.

4. Filing Process

(a) Mode of Filing

Form 10 must be filed electronically on the Income Tax e-filing portal. The form can be verified using a Digital Signature Certificate (DSC) or an Electronic Verification Code (EVC).

(b) Timeline

Form 10 should be filed before the due date of filing the return of income under Section 139(1). Delay in filing may result in denial of exemption.

(c) Details Required in Form 10

While filing Form 10, the trust needs to provide:

• Basic details (Name, PAN, Registration Number)

• Assessment Year & Financial Year

• Amount of income to be accumulated

• Period of accumulation (maximum 5 years)

• Specific purpose of accumulation

• Mode of investment as per Section 11(5)

5. Permissible Investment Modes

When a charitable or religious organisation decides to accumulate funds for a specific project under Section 11, it cannot simply park the money anywhere. To continue enjoying tax exemption, the accumulated funds must be invested only in government-approved avenues. The Income Tax Act, under Section 11(5), specifies these permissible investment options.

The organisation can place its funds in government savings certificates and small savings schemes of the Central Government, or in Post Office Savings Bank accounts. It can also keep money in accounts with scheduled banks or cooperative banks, including cooperative land mortgage and land development banks.

Investments are also allowed in units of the Unit Trust of India (UTI), as well as government securities issued by the Central or State Governments. Trusts may also invest in debentures fully guaranteed by the government or make deposits in public sector companies, with a transitional period provided if such companies later cease to be PSUs.

Other approved modes include bonds of financial corporations engaged in long-term industrial finance, housing finance bonds issued by eligible public companies, and urban infrastructure bonds for projects like water supply, sanitation, roads, or transport. Additionally, trusts may invest in immovable property (excluding plant and machinery, except where installed for the building’s use), and make deposits with the Industrial Development Bank of India (IDBI). Finally, the law also allows for any other form of investment as may be prescribed by the government.

By keeping their accumulated funds in these permissible options, organisations not only comply with the law but also ensure that their income remains tax-exempt while the funds are reserved for their intended charitable or religious purpose.

6. How is Form 10 Different from Form 9A?

Many trusts often confuse Form 10 with Form 9A, though they serve very different purposes. Form 9A applies in situations where a trust is unable to apply 85% of its income during the year due to reasons such as non-receipt of income or other genuine difficulties. In such cases, the form allows the unspent income to be carried forward, but only to the immediately following year. On the other hand, Form 10 is meant for planned accumulation of income beyond the standard 15% limit. Here, the trust specifies the purpose for which the income is being accumulated, and the law permits this accumulation to be carried forward for up to five years.

In short Form 9A is a temporary carry forward; and Form 10 is a planned accumulation.

To know more about Form 9A Click Here.

7. Consequences of Non-Filing

If Form 10 is not filed when required, the trust risks losing its exemption:

• The accumulated income will be treated as taxable income of the trust.

• Non-compliance can attract additional tax, interest, and penalty.

• Projects planned without filing Form 10 may not qualify for tax exemption.

Conclusion

Tax exemptions under Section 11 are a vital benefit for charitable and religious trusts. While a trust can freely accumulate up to 15% of its income, any accumulation beyond that requires filing Form 10 with the Income Tax Department. This form ensures that the accumulated income remains exempt, provided it is used for the specified purpose within the permitted timeframe.

At ProLead, we help organizations file Form 10 accurately and on time, ensuring full compliance with income tax laws. By taking care of these technicalities, we allow trusts and institutions to focus on their mission, while we handle their legal and tax obligations.