Form 10 Income Tax: Meaning, Purpose, and Filing Process

Introduction

What is Form 10 in Income Tax?

Say a trust aims to build a hospital and intends to accumulate any income it gets. As a trust, it can usually claim tax benefits if at least 85% of the income is utilised for charitable activities or any other activity relevant to the trust’s intentions. But here, since it is accumulating, will the tax benefits lapse? Form 10 (Income Tax) steps as a solution in such situations. 

Form 10 under the Income Tax Act is used by charitable and religious trusts that want to accumulate income instead of applying it immediately for their declared purposes. Filing this form ensures that such accumulation doesn’t lose tax exemption benefits under Section 11(2) of the Act. 

If you’re managing a trust or institution, understanding Form 10 is important for long-term financial planning.

Importance of Form 10 for Charitable and Religious Trusts

When you’re unable to utilize the entire income of your trust in the same year, Form 10 helps you legally set aside the funds for future use. This is especially useful when your projects are large or span multiple years, allowing you to retain tax exemption on unapplied income as long as it’s declared properly.

Who Needs to File Form 10?

Eligible Entities Under Section 11(2) of the Income Tax Act

Any charitable or religious trust or institution in India can file Form 10 income tax if they plan to accumulate income rather than apply it immediately for their stated objectives. This filing helps them continue claiming tax exemptions under Sections 11, 12AA, and 10(23C) of the Income Tax Act.

To be eligible, the organisation must be registered under the relevant section, and it must declare the intention to set aside income for future use within the compliance limits of Section 11(2). This is especially useful when the income exceeds what can be spent within a financial year.

Applicability to Charitable and Religious Institutions

Form 10 is applicable to trusts and institutions working for religious or charitable causes. This includes those involved in education, healthcare, or public welfare. NGOs operating as societies or Section 8 companies must first register under Section 12AB to qualify. Only after this registration can they claim exemptions and submit Form 10 to set apart income for future activities.

Purpose of Filing Form 10

Declaration for Accumulation or Setting Apart of Income

Charitable or religious trusts that wish to accumulate income beyond the standard 15% must declare the amount, duration (up to 5 years), and specific purpose using Form 10 (Income Tax). This declaration is required under Section 11(2) of the Act.

Ensuring Tax Exemption on Unapplied Income

Unapplied income may become taxable unless declared properly. Filing Form 10 ensures you don’t lose tax benefits, even if the money remains unused in that financial year. It supports compliance with direct tax norms.

Conditions for Accumulation of Income Under Section 11(2)

Permitted Period for Accumulation (5 Years)

Trusts or institutions can accumulate more than 15% of their income for up to five years, provided they submit Form 10 within the income tax return deadline. The funds must be invested or deposited as per the modes listed under Section 11(5).

Specific Purpose Requirement

The reason for the accumulation must be clearly stated in Form 10. Common purposes include:

• Setting up new hospitals, schools, or similar infrastructure
• Expanding existing charitable projects
• Awaiting legal or regulatory approvals
• Preparing for future large-scale initiatives

Clear documentation of intent helps maintain eligibility for exemption under Section 11.

Details Required in Form 10

Information About the Trust/Institution

The form asks for basic details such as:

• Name, address, and PAN of the trust or institution
• Year of establishment and registration number
• Section under which the form is being filed (e.g., Section 10(23C)(a), 11(2)(a), or 11(2)(a) read with 10(21))

Details of the Income to Be Accumulated

You need to mention:

• Total amount being set aside
• Percentage of total income allocated
• Year of accumulation and amounts applied in previous years
• Balance left for application and the status of funds already set apart
• A declaration that the funds are invested as per the modes allowed under Section 11(5)

Understanding this section also helps build awareness about how accumulation is treated differently compared to income tax calculation on salary, where income must be declared and taxed annually without such exemptions.

Purpose for Which Income is Being Set Apart

Clearly mention why the income is being accumulated, for instance, infrastructure projects, expansion of existing initiatives, or regulatory delays. Also, state the duration (not exceeding five years) within which the funds will be used for the mentioned purpose.

Step-by-Step Process to File Form 10

Online Filing Through Income Tax Portal

1. Log in to the Income Tax e-filing portal
2. Go to e-File > Income Tax Forms > File Income Tax Forms
3. Select Form 10 from the list
4. Fill in the required details, including purpose, amount, and period
5. Verify and submit with DSC or EVC

Documents Required for Successful Submission

• Registration certificate under 12A/12AB
• Trust deed
• Income statements
• Proof of specific purpose (like board resolutions or project plans)

Consequences of Non-Filing or Incorrect Filing of Form 10

Loss of Tax Exemption Benefits

Failing to file Form 10 on time or with accurate details may result in your income being taxed. The exemptions under Section 11(2) would not apply.

Penalties and Compliance Risks

Incorrect declarations or delayed filing can lead to scrutiny and possible penalties under professional tax compliance rules. It also affects the trust or the institution’s financial credibility.

Recent Updates Related to Form 10 Filing

Changes Introduced in the E-Filing Procedures

Recent changes introduced through the Finance Act, 2022 made it mandatory to file Form 10 online via the Income Tax portal. From 1st April 2023, this requirement applies to all charitable or religious institutions that fall under Section 10(23C) or are registered under Sections 12AA or 12AB of the Income Tax Act. To retain tax exemption on the said income, Form 10 must be submitted at least two months before the due date for filing the income tax return under Section 139.

The online system now auto-fetches details such as registration numbers, helping reduce manual errors. However, the trust must still clearly state the amount being accumulated, the intended purpose, and the duration, which cannot exceed five years. The funds can also be parked in investment options, but only ones allowed under Section 11(5).

While Form 10 deals with income accumulation and exemption, other statutory deductions like professional tax may still apply depending on the state and structure of the organisation or its employees.

Best Practices for Filing Form 10

Maintaining Proper Documentation and Records

Always keep board resolutions, project plans, or correspondence handy to support the reason for income accumulation. This helps in any future assessment.

Timely Declaration and Specific Purpose Identification

Don’t wait until the last minute. File well before the due date with all details ready. Mention exact purposes like “construction of a training centre” rather than general goals to avoid vagueness and rejection.

Conclusion

Form 10 Income Tax is not just a formality; it protects your tax-exempt status while giving you flexibility to plan large-scale programs. Before filing, ensure your trust is registered under Section 12AB through Form 10A income tax. If you’re unsure, consulting a tax expert or a stock market advisory company with experience in nonprofits might help clarify your position.

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