It may be noted that under the existing provisions related to , 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.
In short, where a trust or institution is unable to apply 85% of its income from property held under them, the income is still exempt if the following conditions are met.
- The income is deemed to have been applied for charitable purposes in specified scenarios.[section 11(1)]
- 85% of income is neither applied not deemed to have been applied, the trust is allowed to accumulate such unapplied portion of income under specified conditions to claim the exemption.[11(2)]
Deemed application under [section 11(1)]:
Where whole or any part of the income has not been received during the year, the assesse has an option to apply such income for such purposes during the previous year in which it is received or during the previous year immediately following the said previous year. [Section 11(1)(a)]
Where assesse fails to apply whole or any part of the income received during the year, the assesse has an option to apply such income such purposes during the previous year immediately following the previous year in which the income was derived. [Section 11(1)(b)]
Above such option is to be exercised in form 9A to be furnished electronically to the assessing officer with or without digital signature by the trust on or before due date of filing the return.
Where 85% of the income not applied [section 11(2)]
Where 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:
- Such trust or institution furnishes Form No. 10 – notice of accumulation of income by charitable trust or institution electronically to assessing officer, on or before the due date for filing the return of income.
- Mention the purpose for which income is being accumulated or set aside.
- Income shall not be accumulated for more than 5 years and years in which income accumulated or set aside due to order or injunction of any court to be excluded in computing 5 years.
- Money so accumulated or set aside is invested or deposited in specified mode as mentioned under section 11(5).
Above such option is to be exercised in form 10 to be furnished electronically to the assessing officer with or without digital signature by the trust on or before due date of filing the return.
Filling of form 10 under rule 17
The organisation desiring to accumulate funds under section 11(2) 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 Form 10.
- 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 must indicate 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.