85% of the income is not applied for charitable purposes,
the NGO is required to accumulate or set apart such income
for future application. The incomes so accumulated will not
be included in the total income of the NGO if the following
conditions are applied :
the NGO has to given a notice to the assessing officer in
Form No. 10, alongwith a certified copy of resolution passed
by the governing body. This resolution should specify the
purpose and the period for which the income is so accumulated.
The period of accumulation cannot exceed five years under
any circumstances. Earlier this period used to be ten years
but has been reduced to five years with effect from 01.04.2002.
the NGO has to enclose copies of annual accounts alongwith
the details of investments of the money so accumulated before
the expiry of six months from the end of each relevant previous
the amount so accumulated should be invested in any one or
more forms specified in section 11(5) within six months from
the end of the each of the previous year.
ON INVESTMENTS SECTION 11(5)
forms and modes of investing or depositing the money for
accumulated income as per Income Tax Act is as follows :
investment in Government Savings Certificates and any other
securities or certificates issued by the Central Govt. under
the Small Savings Scheme ;
deposit in any account with the Post Office Savings Bank
deposits in any account with any scheduled bank or a co-operative
society engaged in carrying on the banking business (including
a co-operative land mortgage bank or a co-operative land
development bank) ;
investment in units of the Unit Trust of India.
investment in any security for money created and issued by
the Central Govt. or a State Govt.
investment in debentures of any company or corporation, the
principal whereof and the interest whereon are guaranteed
by the Central or State Government.
investment or deposit in any public sector company.
deposit with or investment in any bonds issued by a Central
Government approved financial corporation engaged in providing
long-term finance for industrial development in India.
deposits with or investments in any bonds issued by any Central
Government approved public Company formed and registered
in India with the main object of carrying on the business
of providing long-term finance for construction or purchase
w.e.f. 01.04.2001, deposits in bonds issued by a public company
engaged in long term finance for development of urban infrastructure.
investment in immovable property.
deposits with the Industrial Development Bank of India (IDBI).
any other form or mode of investment or deposit as may be
prescribed. Rule 17C of the Income Tax Rules, 1962 have so
far prescribed the following :
investment in the units issued under the Scheme of the Mutual
Fund referred to in clause (23D) of Section 10 of the Income
Tax Act, 1961 ;
any transfer of deposits to the Public Account of India;
deposits made with an authority constituted in India for
the purposes of housing accommodation, planning & development
of cities, towns and villages.
investment by way of acquiring equity shares of a depository
as defined in clause (e) of sub-section (1) of Section 2
of the Depositories Act, 1996.
TWO PERMISSIBLE TYPES OF ACCUMULATION
may be noted that under the existing provisions, two kinds
of accumulation are possible :
Accumulation upto 15% of income under section 11(1). Such
accumulations are not subject to application within a maximum
permissible period of 5 years. In other words, 15% of income
can be retained by a Charitable Organisation without applying
it for charitable purposes
in the year in which the income was accrued. This 15% accumulation
is an indefinite accumulation and the organisation does not
have to apply it for charitable purposes in subsequent years.
It can be retained as a part of its corpus of capital.
Accumulation beyond 15% of income under section 11(2). Such
accumulations are subject to application within a maximum
permissible period of 5 years. In other words income in excess
of 15% cannot be retained by a charitable or Religious Organisation.
If the income is not spent in the current year then the assessee
is permitted to spend it within the next 5 years.
WHERE ACCUMULATION IS PERMITTED
has been held that accumulation under the provisions of section
11(2), is to be specifically made only under those circumstances
where 85% of the income of the Trust could not be applied.
Section 11(2), only becomes operative beyond the 15% of the
accumulation of income which is otherwise allowed under section
- For instance, the total income of an
organisation is Rs. 1,00,000 and it applies Rs. 20,000
only for charitable purposes during the year, Rs. 80,000
remains unutilized subject to accumulation. In this case,
the assessee would be required to accumulate only Rs.
65,000 under section 11(2). As the deemed application
under section 11(1) would be Rs. 35,000 [Rs. 20,000 actually
applied + Rs. 15,000 - 15% of total income allowable
OF FORM 10 UNDER RULE 17
organisation desiring to accumulate funds has to give a notice
in writing to the Assessing Officer of its intention and
reasons for such accumulation in Form 10 under Rule 17 of
the Income-tax Rules; 1962. This notice has to be made before
the expiry of the due date of filing return under section
139(1). The following enclosures and details should be submitted
with Form 10 :
A resolution has to be passed by the governing body of the
organisation and such resolution has to be filed with the
Copies of the annual accounts of the organisation along with
the details of investment and utilization, if any, of the
money so accumulated or set apart have to be furnished before
the Assessing Officer before the expiry of six months commencing
from the end of each relevant previous year.
For accumulation of income, it is necessary that the Organisation/Trust
specific purpose or purposes for which it wants to accumulate
the funds. A general decision to accumulate listing all the
objects of the organisation would not be sufficient.
OF C.I.T TO CONDONE THE DELAY
Commissioner of Income-Tax (C.I.T) is authorized to condone
the delay in deserving circumstances. (Re: CBDT Circular
No. 273, dated 3-6-1980). Normally Trusts/Organisations make
delay in filing Form 10 and the Commissioner condones the
delay after ensuring that the failure to apply in time was
not deliberate and did not benefit the settlor, Trustee and
Founders in any manner and the accumulation of income was
necessary for carrying out the objects of the organisation.
The condonation of delay by the CIT has become even more
important, in the light of the Supreme Court ruling in Nagpur
Hotels case, (supra), where it was held that the time limit
to file Form 10 is mandatory. The CBDT circular no. 273,
dt. 03.06.1980, has empowered the CIT under section 119(2)(b)
to condone the delay in filing of application in Form 10.
FOR CONDONING DELAY
in addition to the above circular, an order No. 120/57/80-IT
(A-I) dated 3-6-1980 was issued providing the guidelines
for the Commissioner of Income-Tax, while exercising the
powers conferred under section 119(2)(b) to admit application
under section 11(2) filed beyond the time stipulated. As
per this order, the following conditions were required to
be fulfilled in order to avail condonation of delay in filing
Form 10 under section 11(2):
the genuineness of the Trust is not in doubt,
the failure to give notice to the Income-Tax officer under
section 11(2) of the Act and investment of the money
in the prescribed securities was due only to oversight,
the Trustees or the settlor have not been benefited by such
failure directly or indirectly,
the trust agrees to deposit its funds in the prescribed securities
prior to the issue of the Government sanction
extending the time under section 11(2), and
the accumulation or setting apart of income was necessary
for carrying out the objects of the Trust.
CHART SHOWING ACCUMULATION AND INVESTMENT OF INCOME