Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
The 85% rule
To retain its Section 11 exemption, a trust must apply (spend) at least 85% of its income towards its charitable or religious objects during the year. The remaining 15% can be accumulated or set aside without any condition. Falling short of 85% (without using the accumulation route) makes the shortfall taxable.
Accumulating more than 15%
If a trust wants to save up more than 15% — say to build a school — it must follow the accumulation procedure: specify the purpose and file Form 10, and then spend the accumulated amount within the permitted period (generally five years). Unspent accumulation becomes taxable. Confirm the current application and accumulation rules.
A worked example
Example: a trust with ₹1 crore income spends ₹88 lakh on its programmes (88%) and keeps ₹12 lakh — comfortably meeting the 85% test, exemption intact. Another wanting to retain ₹40 lakh for a building project files Form 10 to accumulate it for that purpose, then must spend it within the window. Tracking the 85% through the year avoids a year-end shortfall. Our team can monitor and plan the trust’s application.