Section 11(6) – Depreciation Rules for Charitable and Religious Trusts

Charitable & religious trusts are an integral part of India’s socio-economic structure. Income deriving from property held in trust wholly for charitable or religious purposes is granted several exemptions under the Income Tax Act. These exemptions, however, created the need for clarification on how depreciation should be treated if the trust can claim a deduction for capital expenditure.

That is the main focus of Section 11(6) of the Income Tax Act, introduced via the Finance (No.2) Act 2014. The later act was designed to introduce more clarity in taxation when it comes to double benefits provided to charitable institutions at the end of the fiscal year. The changes proposed through Act 2014 are just, and they provide both taxation & trust applicants with clear guidelines. They clarify double benefits that some charitable organizations enjoy as they are applying for capital assets without consideration for income depreciation.

Objective of Section 11(6)

This section is aimed at preventing double deduction. It means that you should not deduct the same amount first as a capital expense & then again as depreciation.

Who is this applicable to?
Charitable & religious trusts that can claim exemption under Section 11.

Effective from: Assessment Year 2015-16.
The clause was inserted by the Finance (No.2) Act, 2014.

However, can a trust claim depreciation?
No, unless the capital expenditure in question has not already been treated as the application of income.

The overall impact of the clause is that one should first calculate income without claiming depreciation if depreciation has already been claimed after claiming the application.

️ Meaning of Income from Property Held for Charitable or Religious Purposes

The term “income from property held for charitable or religious purposes” includes any income of the nature referred to above which has been earned from a source of the trust — rent, donation, interest, or the like — and which is required to be or has been applied to such trust property.

This income is exempted under Section 11(1) if:

• Actually spent on trust purposes in India, or
• Presumed to have been retained for future as per the limits specified."

Section 11(6) is, therefore, a conjoined clause — it explains depreciation with the said exemption.

Also Read: Modes of Investment for Charitable & Religious Trusts

Whether Depreciation is Allowable U/s 11(6) or Not

Case 1:
If a trust has purchased an asset from loan or borrowing, & the same amount is not claimed as an application of income, then depreciation is allowable.
Reason: There is no question of double deduction.

Case 2:
If a trust buys a property from its realized income & has shown the same as application of income, then claiming depreciation would be a double benefit.
Here, Section 11(6) disallows depreciation.

Example:
Let’s assume Saraswati Education Trust has earned income of ₹30 lakh in FY 2024–25. Out of this ₹15 lakh it has purchased a building, where a school would be run.

Before Section 11(6): ₹15 lakh was the application of income. Depreciation of ₹1.5 lakh per annum could also be claimed — a double deduction.
After Section 11(6): ₹15 lakh remains allowable as application, but depreciation on the above building cannot be claimed.

Judicial View Before Section 11(6)

Before this amendment, various courts had ruled in favor of taxpayers.
Some key judgments include:

• CIT vs. Institute of Banking (2003): Depreciation was considered necessary even if capital expenditure was treated as application.
• CIT vs. Market Committee (2011): Depreciation was allowed to reflect the true income picture.

These judgments led to inconsistency, prompting the government to standardize by activating Section 11(6).

Post-Amendment Scenario

At the trigger of 2014, the exact worded phrase in Section 11(6) overrides earlier judgments.
Now, depreciation is not allowable u/s 11(6) if the asset cost was claimed as application of income.

The government’s purpose through Section 11(6) includes:

• Uniform treatment of income & expenditure."
• No duplication of deductions.
• Transparency in compliance.

This also affects newer subsections for accumulation & set-aside rules.

Also Read: Accumulated Income of Charitable Trusts and Its Tax Implications

Before vs After Section 11(6)

Example of Compliance

Let’s take another example of Gyan Jyoti Charitable Trust:

• Total income: ₹50,00,000
• Capital expenditure on new library: ₹20,00,000
• Depreciation (as per accounting): ₹2,00,000

As per Section 11(6):

• ₹20,00,000 is treated as application of income.
• Depreciation of ₹2,00,000 must not be included when determining exempt income.

Claiming depreciation here would risk exemption denial to the trust.

Impact on Charitable and Religious Institutions

The introduction of Section 11(6) enforces accounting discipline for trusts. It recognizes that:

• Institutions must keep true & fair records of funds applied for charity.
• Depreciation should be accounted only once.
• The definition of application must be consistent across the tax framework.

Although exempt income for Indian nonprofits may reduce slightly, it ensures transparency, legitimacy, and audit trail accuracy.

Key Takeaways from Section 11(6)

• Income should be computed without double deductions.
• Depreciation is allowed under Section 11(6) only when the asset cost was not claimed earlier as application.
• Applies to charitable and religious trusts.
• Inserted by Finance (No.2) Act, 2014, effective AY 2015–16.
• Objective: ensure fair computation of income arising from property held under trust for charitable or religious purposes.

Also Read: The Essential Guide for NGO Registration and Tax Exemption

FAQs on Section 11(6) Income Tax Act

Q1. What’s the main object behind Section 11(6)?
To prevent double deduction of capital expenditure & depreciation by trusts.

Q2. From which year is Section 11(6) applicable?
From Assessment Year 2015–16 onwards."

Q3. Is depreciation wholly disallowed for trusts?
No. It is allowed when the purchase cost of an asset was not claimed earlier as application.

Q4. Is this applicable for all charitable institutions?
Yes, for all institutions claiming exemption under Section 11.

Q5. What’s the consequence of violating this rule?
If a trust takes double deduction, the AO can disallow depreciation & reduce exemption eligibility.

Conclusion

The insertion of Section 11(6) in the Income Tax Act has provided essential clarity for trusts and charitable institutions. It ensures transparency, consistency, and accountability by restricting depreciation claims when capital expenditure has already been claimed as application.

For trusts, this means accurate accounting and stringent recordkeeping of income & expenditure.

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