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Taxation Of Temples In India
*By CA A. K. Jain



In India temples can be registered as Trusts, Societies or Section 25 of Companies Act. The Income Tax Act gives all categories same treatment, in terms of exempting their income or granting of 80G certificates.

Temples set up for the social causes and approved by the Income Tax Department get not only exemption from payment of tax but also the donors to such trusts can deduct the amount of donation to the trust from their taxable income. The legal framework in India recognizes activities including "relief of the poor, education, medical relief, preserving monuments and environment and the advancement of any other object of general public utility" as charitable purposes. Companies formed under Section 8 of the Companies Act, 2013 for promoting charity also receive benefits under law including exemption from various procedural provisions of the Companies Act, either fully or in part, and are also entitled to such other exemptions that the Central Government may accord through its orders.

Religious Activity

The term religious activity is not defined in the Income Tax Act. The litmus test is however, that the religious purpose must be public in nature. Therefore, a temple or a mosque may be established by a trust and expenditure on construction, reconstruction or maintenance of such temple or a mosque would be religious purpose, if the members of that faith or religion have access as a matter of right to the religious place or place of worship. On the other hand, if the temple or a religious deity is in the private premises and access / worship is available only to a family then the religious purpose would be private in nature.

Income of charitable / religious trust can be classified as follows:- 
a) Voluntary contribution
b) Income from property held under trust
c) Capital Gain from trust property
d) Anonymous Donations

a) Voluntary Contributions

Voluntary contributions are the donations received by the charitable / religious trusts which form part of income of the trust.

They are of two types:
1) Donations received with specific direction that they shall form part of corpus fund such donations are exempt.
2) Donations received without such specific instruction such donations shall form part of income from trust property.

b) Income From Property held under Trust 

Particulars
Taxability
15% of gross receipts from such trust property.

Exempt
85% of gross receipts from such trust property.

(i)  Income applied For charitable Purposes in India

Exempt to the extent to which applied for the following purposes:
1.     Purchase of capital asset
2.     Repayment of   loan for purchase of capital asset
3.     Revenue Expenditure
4.     Donation to other trusts.

Income deemed to be applied for charitable purpose in India :
In case whole or part of income is not received during that year in which it is derived.

Exempt in case:
a. Income is applied for charitable purpose in India in the year of receipt or in the immediate succeeding year.
b. Assessee submits a declaration to the Assessing Officer on or before the due date of filling of return as per section 139(1) that such income shall be applied for such purpose in the year of receipt or succeeding year.

In any other case

Exempt in case :
a. Such income is applied in abovementioned charitable purposes in the immediately succeeding year.
b. Assessee submits a declaration to the Assessing Officer on or before the due date of filling of return as per section 139(1) that such income shall be applied for such purpose in the immediate succeeding year.

(ii) Income not applied for charitable / religious purpose in India 
(a) Accumulated for specific purpose in India.
 Modes in which income shall be accumulated for specific purpose.
1. Investment in government saving certificate / UTI
2. Deposit in post office savings bank / scheduled bank.
3. Investment in immovable property.
4. Deposit with or investment in bonds of a public company having main object of providing long term finance for urban infrastructure/industrial development/residential house, in India.

Exempt in case if accumulated for specific purpose in India subjected to following conditions:
a) Assessee gives notice to  Assessing officer specifying purpose and period     (cannot exceed 5 years) of accumulation before assessment is complete.
b) Accumulated amount is deposited / invested in specified form.
Withdrawal of Exemption in the following cases:
Particulars                Year of withdrawal
Applied for purpose for which it is other than the
Accumulated or set apart.

Income of previous year in which so applied.

Ceases to be invested in the forms specified u/s11(5).

Income of previous year in which it so ceases.

If not utilised till 5 years or immediately succeeding year.

Income of previous year immediately following expiry of 5th year.

Donated to  registered trust.

Income of previous year in which income is so donated.

Not accumulated for specific purpose in India

Taxable in case income is not applied for charitable / religious purpose in India and is also not accumulated for specific purpose in India.


c) Capital Gains

The capital gain arising from the transfer of a property held by religious/charitable trust shall be taxable as under:

1) If the Cost of new asset is greater than and equal to net consideration from asset sold then entire capital gain is exempt.

2) If the Cost of new asset is less than net consideration from asset sold then the Capital Gains Exempt is equal to  Cost of new asset Less Cost of old asset.

d) Anonymous Donations 

Anonymous donations are basically the donations where the person receiving the donations doesn’t maintain any record of the person giving the donation. eg. Offerings given in temple in donation box.

Taxability 

Step 1: Compute the total amount of anonymous donation received by the charitable / religious institution. 

Step 2: Compute 5% of the total donations (corpus donations + anonymous donations + other donations not forming part of corpus) .

Step 3: Select the higher of the following two: 
a) Amount computed in step 2 or 
b) 1,00,000 

The amount computed in step 3 shall be exempt and the remaining amounts of anonymous donations are taxable in the hands of such charitable / religious institution @ flat 30%. 

Cases where Anonymous Donations not be Taxable

Where donations are received by trust established wholly for religious purpose (no charitable purpose).

eg. Donations given by devotees to trust owning a temple.

However in case such religious / charitable trust also runs a school / medical institution / educational institution, etc and the donations are received with specific direction that they are for such school / institution then such donations shall be taxable.

Forfeiture of Income Tax Exemption 

1) Income Tax Act specifies the circumstances under which the benefits under Income Tax Act would not be available to an organisation. An organisation, under the following circumstances, may risk losing its exemptions. 

(i) If the income is not applied for the benefit of the public.

(ii) If the income is applied for the benefit of any particular religious community or caste.

(iii) If the income or property of the Trust or Institution is applied / used for the benefit of the persons who may be the founders, trustees, managers, chief functionaries, major donors, relatives of the founders or persons who have a substantial interest in the organisation. 

(iv) If the funds are applied in modes other than those specified. 

Service Tax on Construction of Temple

Service Tax is exempt on construction of a building owned by an entity registered under the Income Tax Act  and meant predominantly for religious use by general public .

Donation And Deduction

The donation to the trust  which has valid 80G registration at the time of making donation shall only eligible to claim deduction u/s 80G.

Donation to Foreign Trust: - Donations made to foreign trusts do not qualify for deduction under this section. 

Condition for claiming deduction for donation under section 80G :

Donation made are eligible to be claimed as a deduction under section 80G in all cases except in cases where the donation has been made in kind (examples: food, clothes, medicine, etc.). 

The Donation receipt should necessarily mention the following details :

(i) The name and address of the trust

(ii) The name of the donor

(iii) The amount donated 

(iv) The registration number of the trust, as give by the Income Tax Department u/s 80G along with its validity. 

Registration under Income Tax Act

All trusts are required to register under The Income Tax Act. They have to maintain accounts and get there accounts audited by a Chartered Accountant along with that they should also file annually Income Tax return.

Filing of Return of Income

If the total income of trust exceeds the minimum amount which is chargeable to Income Tax without giving effect to the exemption provisions. 

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