Under section 11 of I. T. Act, income from property held for Charitable and religious purposes.

Public Trusts falling under sections 11 to 13 of the Income Tax Act have to file Income Tax Return and Trusts are exempted from payment of income tax on the trust income.

Reasons for taxing Trusts :

The grounds and reasons, which are mentioned for taxing the exempted income equally, apply to income of the trust. There are two additional reasons for taxing the trust income. Under the Bombay Public Trusts Act and other Public Trust Act of the States, every Trust pays in "Laga", 'contribution' towards the administrative cost to the State Government, which is 2% (in Gujarat) of total trust income. Trusts are governed under the Local Trust Act, Bombay Public Trust and some other Trust Acts. Every Trust is paying, in Gujarat, 2% of laga, on its total income of the trust. There is an additional reason for levy of tax on trusts. The individual assessee gets 10% of deduction under section 80G of the Income Tax Act. The Central Government is losing income as individual assessee is given benefit of 100% or 50% as the case may be Under Section 80G of the Income Tax Act and there is considerable loss of revenue due to contributions under section 80G of the Act. The Public Trusts are benefited as the main source of income of the trust is by way of contributions. The Trusts can pay 2% on their total income as income tax.

CONTRIBUTIONS FOR PUBLIC TRUSTS

There are lot of conditions enacted regarding accumulation of the Trust Fund and spending and contributing all the trust fund. The said conditions require to be reconsidered and should be made consistent as the trust will be also a tax payer like an ordinary tax payer to small extent. There should not be tax deducted at source with regard to income received by trusts.

Suggestions with regard to investment of Trust Fund :

Trusts have to invest their money in Nationalised Banks and it has become extremely difficult for trusts to manage their assets as interest rate has been considerably reduced and deductions of Income Tax made even in the case of income of trust. The provisions of TDS requires to be reconsidered with regard to trust investment and trusts should be allowed to invest their moneys in Post Office Schemes, which are not presently allowed.

The Post Office Monthly Income Scheme gives at present, 8% monthly interest, which will be very convenient for management of the trust. The relevant provisions of the Post Office Act and the relevant Schemes under the Post Office Act requires to be amended so, the Central Government will have investment of millions of rupees of the trust money. At present, entire investments in the Post Offices are transferred to the State and State will be the beneficiary considerably by deposits by the Trusts.

The Reserve Bank of India has also issued taxable Bonds and Public Trusts are allowed to invest in 8% taxable bonds.