Section 10(38) — LTCG on Listed Equity (sunset)

Section 10(38) granted full exemption to LTCG arising from transfer of listed equity / equity-oriented mutual fund units, where STT was paid. Sunset by FA 2018 from AY 2019-20; replaced by s. 112A providing concessional 10% rate (above ₹1L threshold) instead of full exemption. Pending matters for AY 2018-19 and earlier remain governed by s. 10(38).

RULES 1962 CROSS-REFERENCE

Rule 2A — HRA computation; Rule 2B — LTC eligibility; Rule 2BA — VRS scheme conditions for s. 10(10C); Rule 2BB — special allowances exempt u/s 10(14); Rule 3 — perquisite valuation; Rule 21A — leave encashment exemption (s. 10(10AA)); Rule 21AAA — gratuity exemption (s. 10(10)).

PLANNING NOTES

(i) For exempt-income claims, retain the relevant rule-form documentation (Form 16, Form 10E for relief, Form 10BA for s. 80GG). (ii) For HRA paid to parent — execute written rent agreement, bank-trail, parent's ITR declaring rent income; this defeats any 'sham' allegation. Cite Bajrang Prasad Ramdharani. (iii) For VRS s. 10(10C) — the scheme MUST be CBDT-approved per Rule 2BA; manual VRS forfeits exemption. (iv) For agricultural-income claim, document basic operations through field-level evidence (land records, cultivation expenses, sale receipts to mandi).

Sections 11-13B — Charitable Trust Exemption Architecture

STATUTORY ARCHITECTURE

Sections 11-13B establish the charitable / religious trust exemption regime. Section 11 — exemption of income applied for charitable purposes (85% application rule, accumulation u/s 11(2) with Form 10 declaration). Section 12 — voluntary contributions (corpus donations carve-out). Section 12A / 12AA / 12AB — registration; post-FA 2020, 5-yearly renewal mandatory. Section 13 — exclusions (private religious purpose, benefits to specified persons, depreciation double-claim bar). Section 13A — political party exemption. Section 13B — electoral trust exemption.

BLOCK 2 — 2025 ACT COUNTERPART

The 2025 Act, Chapter XVII, Sections 339-353 consolidate the trust regime — registration (s. 339), 85%-application (s. 340), exemption (s. 341), modes of investment (s. 342, Schedule X), accumulation restrictions (s. 343), anonymous donations (s. 344), withdrawal of registration / penal taxation (s. 345), specified violations (s. 351), other violations (s. 353).

BLOCK 3 — COMMENTARY

JUDICIAL EVOLUTION — Charitable Purpose

The Supreme Court in ACIT v. Ahmedabad Urban Development Authority, (2022) 449 ITR 1 (SC), addressed the FA 2008 amendment to s. 2(15) — the proviso disqualifying 'general public utility' activities involving trade / commerce. The Court adopted a nuanced view, distinguishing genuine charitable activities from camouflaged commercial activities.

HELD: A trust which is undertaking activities such as 'advancement of any other object of general public utility' will not lose its charitable character merely because it charges fees or trades — provided the activity is at cost or on a not-for-profit basis, and the surplus is incidental and ploughed back into the same charitable purpose. (per AUDA ¶ 95).

RULES 1962 CROSS-REFERENCE

Rule 17 — Form 10 for accumulation; Rule 17A — Form 10A for registration u/s 12AA / 12AB / 80G(5); Rule 17C — modes of investment u/s 11(5); Rule 18AAA — Form 10B for trust audit u/s 12A(b).

PLANNING NOTES

(i) For trust registration, file Form 10A (post-FA-2020) — 5-yearly renewal mandatory by Form 10AB. (ii) For 85%-application requirement, calculate carefully — accumulation u/s 11(2) requires Form 10 declaration filing within return due date; failure forfeits exemption. (iii) For corpus donations, specify 'corpus' in donor receipt; 100% set-off available. (iv) Anonymous donations u/s 13(1)(d) read with s. 115BBC — flat 30%; aggressive AO challenge common — maintain donor identity records meticulously.

CLOSING NOTE — VOLS I-III, 1961 TREATISE

Volumes I-III cover the foundational architecture of the 1961 Act — title (s. 1), definitions (s. 2), previous year (s. 3), charging section (s. 4), scope (s. 5), residence (s. 6), deemed accrual (s. 9), exempt incomes (s. 10), and trust regime (ss. 11-13B). All cited authorities — K.P. Varghese, Bagyalakshmi, Vatika Township, Vodafone International, Engineering Analysis, R.D. Aggarwal, Pradip J. Mehta, Raja Benoy Kumar Sahas Roy, Bacha F. Guzdar, Surjit Lal Chhabda, Bajrang Prasad Ramdharani, AUDA — are Stage-1C verified. Subsequent volumes will cover Chapter IV (Heads of Income), Chapter V (Clubbing), Chapter VI-VIA (Aggregation, Set-off, Deductions), and onwards.

Bharat Tax — Ajay Arun Mehta & Associates, Chartered Accountants, Preet Vihar, Delhi 110092.