Charitable trusts in India are governed primarily by state-specific public trusts acts (like the Maharashtra Public Trusts Act, 1950) or the Indian Trusts Act, 1882 for private ones, but tax exemptions fall under Sections 11-13 of the Income Tax Act, 1961.These trusts must register under Section 12AB for tax benefits and apply at least 85% of income to charitable purposes annually.
Permitted Investments
Charitable trusts can only invest in modes specified under Section 11(5) of the Income Tax Act to retain tax exemptions on income from those investments.
Key allowed financial instruments include:
Government securities and savings certificates (e.g., small savings schemes).
Deposits with scheduled banks, post office savings, or cooperative banks.
Units of UTI or SEBI-regulated mutual funds (all types permitted).
Debentures or bonds guaranteed by Central/State Government, or from public sector companies/PSUs.
Shares of public sector companies (under conditions) and immovable property (excluding machinery).
Deposits with IDBI or bonds for urban infrastructure/long-term finance.
State rules, like Maharashtra Charity Commissioner's Circular No. 619 (July 2025), allow up to 50% of funds in additional options such as listed debt (AA+ rated), SEBI ETFs/index funds, and blue-chip equities without prior approval.
Taxation Outcomes
Income from compliant investments qualifies for exemption if the trust applies 85% of total income to charitable objects (or accumulates up to 15% without conditions, more with Form 10 filing and Section 11(5) investment).
Investments outside Section 11(5) trigger Section 13(1)(d), making that income taxable at maximum marginal rate (up to 42.744% including surcharge/cess), and may deny overall exemptions.
Capital gains can be exempt if reinvested in new charitable assets per Section 11(1A).
Audit and timely ITR filing (with Form 10 for accumulations) are mandatory for compliance.
