1. Income not for the Benefit of Public – Section 13(1) (a)

Income tax exemption will not be available for any part of the Income from the Property held under a trust for private religious purposes which does not ensure for the benefit of the Public under Section 13(1) (a).

The basis of exemption under Section 11 is that the public is benefited. Hence, whatever may be the theme of Charitable activity of the trust, if the public isn’t benefited, tax exemptions wouldn’t be applicable.

2. Income from Trust for the benefit of a particular Religion or Caste

The date here is very important as institutions created before 1/4/1962, even if the purpose of the same is to propagate a particular cast or religion, would be eligible for exemption. Institutions or Trusts created after the particular date would incur the mentioned clause and thereby won’t be exempted.

On the other hand, a trust created for the welfare of Scheduled Castes, backward classes, Scheduled Tribes or women and children wouldn’t make it a religious trust. Which means, Section 11 can be applied and exemption can be claimed without any hassles.

3. Any Income Trust which Benefits Certain Person

Tax exemption will not be available for any type of Trust or Institution created after 1/4/1962, if under the terms of the trust or rules governing the Institution, any part of the Income enures to the benefit of any person mentioned below:

1. The author of the trust or the founder of the institution.
2. Any person who has made a significant contribution amounting to rupees 50,000  by the end of the relevant previous year.
3. Where such author, founder or person is a member of the Hindu Undivided Family.
4. Any trustee of the trust or manager (by whatever name called) of the institution.
5. Any person related to such author, founder, person, member, trustee or manager as  aforesaid.
6. Any concern in which any of the person mentioned in the above clauses has a substantial interest.

If any person mentioned above is benefited with income from the Trust, exemption under Section 11 would be denied and [Section 13(1) (c)] would be applicable. However, the exemption under Section 11 would be permitted if services are provided to educational or medical facilities.

4. Income or Property Used for the Benefit of a Person

Section 13(2) is applicable in the following cases, where tax exemption is not permitted. This is with reference to the persons mentioned in Section 13(3) only:

1. Granting of loans without interest or any element of security.

2. Excessive payment made to the persons despite the cost of the service being lower.

3. If the services of the trust are availed by the persons referred to in Section 13(3), but the remuneration is not being met.

4. Purchase of property from the persons referred to in Section 13(3), where the consideration paid for the same is excessive and above the normal rates.

5. Sale of a property to any person referred to in Section 13(3) for a rate much lower than the standard or normal rate.

6. If any income or property of the trust or institution is diverted during the previous year in favor of any person referred to in Section 13(3), where the value of the same exceeds Rs1000.

7. Investment of a substantial interest held by any person referred to in Section 13(3). Section 13(4) provides that where the aggregate of the funds invested in the said concern does not exceed 5% of the capital of that concern, the exemption under Section 11 will be denied only in relation to such income arising out of the said investment.