In India, religious organisations hold significant socio-economic sway as places of worship, benefaction, and preservation of culture. The issue of taxation of temples and religious organisations is a contentious subject, often pitting the taxation of religion against religious freedom – both constitutionally protected rights consequently resulting in the State financial obligations. This article examines the extent to which religious organisations can claim exemption from taxation, particularly under the Income Tax Act, 1961, and in the context of the Goods and Services Tax. The article will engage with, reflect on, and examine the experience of legal battles in relation to the intervention of the State in the administrative control of temples, abuse of exemption by some trusts, unequal treatment of Hindu temples compared to other religious organisations, and examine if there is a case for constructing taxation of religious organisations. The research operates through the lens of examining legislative provision, case law and decisions, and an international comparative viewpoint, and a normative framework balancing counted based autonomy and accountability, on transparency with respect to revenue.
INTRODUCTION
In India, religious institutions are deeply embedded in the culture and society, functioning not just as centres of faith and devotion. Temples, mosques, churches, and gurudwaras (Sikh places of worship) have traditionally served as sites of education, charity, health care, and social justice, in addition to being places of worship. They are also an incredibly rich source of wealth and receive billions of rupees in donations and gifts every year. For example, the Tirumala Tirupati Devasthanams, in southern India, is one of the wealthiest religious institutions in the world, and the Padmanabhaswamy Temple in Kerala is famous for its incredible wealthy bounty of treasures estimated in the billions of rupees. For every Tirumala or Padmanabhaswamy Temple, there are small shrines and mosques who rely on donations from local supporters to exist. The wide range of wealth, and lack of consistency in religious spaces, raises interesting anxieties with respect to how religious bodies should best be treated in a taxation context.
The foundational framework for establishing this relationship between the State and religion originates within the Constitution of India. Articles 25 to 28 grant freedom of religion, and the autonomy to govern its own processes, according to personal beliefs. However, this freedom to profess one’s own religion is not absolute, as State can place a limitation through what is considered public order, morality and health affairs. Furthermore, Article 27 stipulates that State is prohibited from making any one citizen pay taxes to promote any specific religion, and therefore, establishes the concept of secularism even in the State’s revenue scheme. However, these constitutional guarantees notwithstanding, there has been significant government interference with the administration of religious institutions, especially regarding Hindu temples, through the Hindu Religious and Charitable Endowments (HR&CE) Acts across multiple states including Tamil Nadu, Andhra Pradesh and Karnataka. The restriction of the State’s administration of Hindu temples vis-à-vis religious institutions such as mosques and churches can operate without State interference, has been questioned as discriminatory and contrary to the concept of secularism.
RESEARCH QUESTIONS
- What limitations, if any, should be placed on tax exemptions for religious institutions in India’s secular democracy?
- Is it unfair for the state to control Hindu temples while leaving other religious institutions alone?
- Does tax code, effectively, the state tax them with no commensurate tax support for charities and to most religious institutions potentially undermine their religious or charitable function to the extent it violates the heart of the religious institution?
- Is financial transparency compatible with faith-based autonomy?
RESEARCH OBJECTIVE
- To explore taxation rules applicable to religious organizations in India.
- To assess exemptions from taxation under the Income Tax Act and GST relating to temples and trusts.
- To assess cases related to taxation and regulation of religious institutions.
- To assess the state’s power to regulate Hindu temples relative to other religious institutions.
- To examine the implications of tax exemptions on state revenue and the common good.
- To examine international practice of taxation of religious organizations.
- To make recommendations for reforms to enhance accountability and transparency while maintaining religious freedoms.
LITERATURE REVIEW
The taxation of religious institutions in India has attracted significant interest in law, economics, and public policy for its complexity that includes constitutional protection, statutory treatment and socio-economic ramifications. As M.P. Jain and H.M. Seervai observe, Articles 25-28 of the Constitution provide protections for religion and Articles 25(2)(b) and 27 enable the State to intervene on a secular side in order to promote transparency and abuse of the finances or donations made to religious institutions. Courts have found common ground in interpreting these articles, particularly in Shirur Mutt v. Commissioner of Hindu Religious Endowments (1954) and Sri Adi Visheshwara v. State of U.P. (1997), which delineate a distinction between sacred religious functions as those that would not be interfered with by the state and secular financial / administrative functions as those the State may regulate religious institutions for purposes of accountability. Legal scholars and public policy scholars have indicated that statutory exemptions in Sections 11-13 of the Income Tax Act, 1961 provide incentives to religious and charitable organizations for charitable / prosocial behavior, albeit implemented in ways intended by those wealthy temples and trusts for commercial activities such as renting of property, or accommodations, with those gaps being called for better transparency in CAG reports. Academics also address selective oversight as legislations provide oversight as to compliance with the Hindu Religious and Charitable Endowment (HR&CE) Acts, applying primarily to Hindu temples where temples could have been under social and local (usually Hindu) control, under different legislation in other states, mandated by Hindu Institutions influence. A similar consideration applies for Goods and Services Tax (GST) literature where difficulties arise to determine what is religious versus commerce, leading to tax disputes, and inconsistency in tax enforcement. The comparative literature from the United States and United Kingdom, however, suggested legislative framework with mandatory reporting, audits, and digital monitoring, could promote accountability without usurping the autonomy of religious institutions. In summary, while there is body of research, there remains questions around non-Hindu religious institutions, to quantify socio-economic benefits of religious bodies, and how to equitably enforce legislative exemptions. That is, the literature indicates greater tensions between protecting religious freedoms while financial accountability is equally important, suggesting policy which support religious institutions with autonomy, transparency and fairness.
ANALYSIS
The constitutional statutory interpretation of law and socio-economic aspects: Taxation of religious institutions is in a complicated intersection of the constitutional law, statutes, judicial interpretation, and socio-economic aspects. The issue lies in the fact that there is a need to provide a balance between faith-based autonomy and financial disclosure to allow the secular principles to be maintained and at the same time, provide religious institutions with the opportunity to carry out their charitable and spiritual activities. In this analysis, these dimensions are examined.
1. Constitutional Perspective
Articles 25 to 28 of the Indian Constitution ensure religious freedom but do not make these freedoms absolute. Article 25 allows the religion and spread of religion, whereas Article 26 gives the religious denominations the right to control their own affairs in religious matters. But the State still has the authority to control secular things that are related to religious organizations, such as property and money. Article 27 also denies citizens the right to be forced to give taxes to a certain religion. These clauses provide the principle of fiscal secularism in which both religious freedom and the role of State to control financial practices are stated.
Cases have made available the outlines of this constitutional structure. In Shirur Mutt v. The Chief Commissioner of Religious Endowments, Mysore & Ors, (1954) The Supreme Court was able to distinguish between the religious and the secular in Commissioner of Hindu Religious Endowments (1954), where the management of religious affairs is sacrosanct and should not be interfered with by the State, but that State may regulate relationships over secular matters like the making of accounts.
This was used in later decisions, such as Sri Adi Visheshwara of Kashi Vishwanath Temple, Varanasi v. State of Uttar Pradesh & Others, (1997) the Court stated that the State had a right to take control of the administration of the temples in order to keep financial accountability. It has been suggested by constitutional experts that these decisions represent an effort to strike a balance between autonomy and transparency but opponents have pointed out that a selective control, mostly over Hindu temples, may give the impression of unequal treatment, leading to issues of secularism in the Article 14.
2. Statutory Framework
Income Tax Act, 1961, gives religious and charitable trusts exemptions in Section 11 and 12. Section 11 permits the tax-free status of income gained through property held under charitable or religious purposes provided they are used to accomplish these purposes. Section 12 rejoices the same to voluntary contributions and Section 13 disapproves exemptions in instances where personal purposes or political benefits are made by using the income. These are aimed at promoting charitable and religious action without causing excess tax load.
However, in spite of this framework, there are practical issues. Big religion organizations tend to run a sort of commercial operation, e.g. the sale of prasad, tours, or educational establishments, which could bring significant income. Although courts have viewed charitable purpose as rather broad, such income will not always receive thorough scrutiny, which results in the possibility of abuse. As an example, rich temples such as Tirupati or Padmanabhaswamy have large real estates and investments and may create a lack of transparency in financial reporting. Comptroller and Auditor general reports and NGOs reports reveal that there are discrepancies in implementing financial disclosure requirements that compound matters of accountability.
With GST regime, religious services are not tax, but the commercial ancillary services are taxable. This difference has caused lawsuits, with institutions stating that there is no separation between what is offered and services and religious practice. The vagueness makes implementation more challenging and creates doubts of the fairness of tax legislation in application, particularly where big organizations are involved as corporate entities.
3.State Intervention and the HR&CE Acts
In several Indian states, under HR&CE Acts, Hindu temples are required to give the management of their temple properties to government appointed boards. The main justification is that temples have financial resources that should be accounted and/or fairly used in a public and transparent way. Clearly, legitimate accounting of temple property is a good idea on balance, preventing the abuse of funds being funneled to non-ticketed activities, however, states’ involvement in the autonomy of temples, welfare of temples, and well-being of temples raises legitimacy and justice issues. Conversely, mosques, churches, and gurdwaras have significant leeway to manage their own entities without state involvement which creates an inconsistency that has enraged constitutional scholars and others.
To be fair, state involvement has sometimes led to great results in terms of efficient management of temple resources and some legitimacy regarding surplus funds from temples being used for social services and welfare programs, but critics have also criticized states’ involvement on the grounds of political abuse, bureaucratic ineffectiveness, and the misalignment of statutory financial accountability. Ultimately, the goal must be to make sure the oversight process is administratively accountable rather than doctrinally accountable, so that it does not modify religious practices, and is done to foster accountability.
4. Implications for the Socioeconomic Role of Religion
The socioeconomic role of religious institutions is significant. Many temples operate hospitals, schools, and communal programs, often replacing or filling the void left by the State. Because of tax exemptions, they can devote more assets/resources to these activities. Still, the transfer of wealth into summarized multi-crore mega-temples coupled with unchecked financial practices raises issues of equity and fairness. Some economists assert that multi-crore mega-temples, which pay no tax on this wealth, run contrary to ordinary citizens and businesses, which must pay taxes, and thereby undermine perceptions of fairness.
Furthermore, the exemption of these guests can lead to the creation of unreported accumulations of wealth. Revenue collected as cash donations, discretionary spending, and political patronage may disguise the flow of money and creates openings to facilitate black money or money laundering. Therefore, promoting and enhancing financial accountability while respecting and preserving religious autonomy presents an important social-economic challenge.
5. Comparative International Perspective
A comparative perspective raises alternative approaches to balancing the exercise of religious freedom with the public responsibility of fiscal accountability. In the United States of America, churches are exempt from income tax, but are subject to reporting requirements. Redeeming that exemption, however, requires that churches limit their commercial activities to a certain dollar value; otherwise, exemptions are lost. The United Kingdom’s Charity Commission similarly limits commercial opportunities, but exerts more significant restrictions upon religious charities than do state and federal authorities in the U.S. Their charity commission operates with prohibitive guidelines with regard to transparency and audit requirements. These examples indicate that safeguarding faith can also be consistent with accountability, particularly from a regulatory perspective by exercising the same rules across the board, and by implementing requirements for churches to report publicly and privately available information that engages public awareness.
For India, the foregoing would seem to provide useful lessons. A uniform regulatory approach in the context of all religions may allay perceptions of favoritism or biases. A requirement to disclose certain information and independently engage in auditing may also reduce instances of conflict or contradiction with public expectations. Finally, and in line with this framework, a greater reliance on digitization may help both secure and showcase donation and expenditure.
6. Challenges and Policy Dilemmas
In the presence of legal and constitutional regimes, many challenges continue to exist. The line between religious activities and secular activities is often blurry, which complicates enforcement. The state regulates Hindu temples but not other religious institutions, raising questions of equal treatment. Rich temples function like big businesses yet are exempt from many regulations for charity purposes. The political and cultural sensitivities of religion make policy interventions extremely controversial. Reform must therefore proceed with caution to manage a balance between religious autonomy, secular ideals, revenue needs, and public accountability.
7. Gaps in Literature
Although a lot of commentary has been made, a few gaps still remain in extant scholarship. To begin with, comparative examination of the treatment of the various religions in India in terms of tax and state control is not done adequately. The practices of churches, mosques, and gurdwaras are not extensively studied, as the majority of such researches are devoted to the Hindu temples. Second, there has been little focus on the importance of technology in achieving financial transparency including the use of technology to track donations. Third, whereas the economic critiques point to revenue losses, not many studies analyze in detail the social welfare functions that religious institutions fulfill and the appropriateness of exemptions.
Synthesis
Put cumulatively, there is an indication of the literature that there should be acceptance of religious freedom and monetary independence, but responsibility and consistency are also important. The followers of the secular control principle are constitutional theorists and proponents of exemption of rich institutions are the economists. The judicial precedents are trying to find the golden mean between religious and secular roles but controversies still exist. Comparative models point out that even when a transparency mechanism is in place, it will not violate the religious rights. The dilemma facing India is not whether it should tax religious institutions but rather create a regime that is fair, transparent and secular and at the same time take into consideration the cultural peculiarity of the faith-based institution.
METHODOLOGY
This research employs a qualitative research approach that employs a doctrinal legal analysis, and a socio-economic analysis to examine taxation of religious institutions in India… The researcher relies mainly on secondary sources, constitutions, statutory law (Income Tax Act 1961, GST ACT, HR & CE Acts), judgments, articles, departmental reports and policy reports. The researcher takes a comparative approach analysing international examples from the US and UK to establish the benchmark for potential changes in India. The researcher includes case studies of religion institutions like the Tirumala Tirupati Devasthanams, Padmanabhaswamy temple and Shirdi Sai Baba Santhan to highlight issues related to taxation, financial transparency, and institutional management. The content analysis of judicial judgements will be employed as an analytical tool for interpreting the constitutional provisions regarding the extent of constitutional protections, while the literature will be thematically evaluated to identify gaps in policy and enforcement. The undertaking of the research ensures a deeper understanding of the legal, financial and socio-cultural imperatives concerning taxation of religious institutions, and systematically combines doctrinal rigour with practical applications and implications.
SUGGESTIONS
- Creating a uniform framework for the management and taxation of all religious organisations will guarantee equal treatment and allay concerns about prejudice.
- All religious organisations, regardless of size, should be required to keep open and honest records of their revenue, contributions, and expenses. Regular audits by impartial authorities should also be a part of this requirement.
- Donation and Expense Digital Tracking: Use digital platforms for financial reporting and donations to cut down on cash transactions, boost transparency, and make it easier for authorities to keep an eye on things. Clearly Differentiating Religious from Commercial Activities: Establish clear legal standards to distinguish between commercial activities and religious rites or services, making sure that taxable transactions are recognised without disrupting with spiritual practices.
- Gradual Taxation of High-Revenue Institutions: Implement a tiered system in which wealthy institutions with substantial incomes make partial contributions to public welfare programs, while small and medium-sized institutions continue to enjoy complete exemptions.
- Encourage courts and government organisations to establish guidelines for the enforcement and settlement of tax-related disputes, GST applicability, and HR&CE management in order to improve judicial and administrative oversight.
- Raising Awareness and Developing Capacity: To promote voluntary transparency and reduce administrative errors, teach managers of religious institutions accounting, reporting, and legal compliance.
CONCLUSION
In India, taxing institutions of faith embodies a complex and careful interplay of faith, financial accountability, and secular governance. Religious freedom remains a constitutional guarantee, with explicit provision for the regulation of religious institutions and their secular functions. The separation between the spiritual basis – or faith itself – and the non-spiritual aspects of administration and finances is evident in legal interpretation, customizing rule of law to provide for spaces of religious typology while permitting regulation. Statutory exemptions in the Income Tax Act and GST recognize the charitable and social service functions of institutions of faith, while at the same time raising awareness of the lack of transparency, misuse and differential application of state control, particularly as it applies to distributive control under the HR&CE Acts. The example of wealthy temples continuing to operate ambits of quasi commercial functions provide clear examples and purposes of imposition of the respective exemptions to those institutions without creating a breach of equitable revenue distribution. Examples at both a comparative and international level suggest that religious institutions can be held accountable without undermining the autonomy of religion, often through disclosure, compliance disclosure, audits, and regulatory oversight. To that end, I conclude that India has a reasonable constitutional framework, however greater uniformity in regulation, transparency of operation needs to be reconciled with equitable application of administrative control to ensure the legitimate interests of faith, governance, and society are protected. It is vital to ensure these concerns are addressed so the continuing legitimacy of institutions of faith are sustained, directed accountability to religion remains intact, and provisions of secularism, equality in a civil democracy are preserved.
REFERENCES
- Jain, M. P. (2020). Indian Constitutional Law (8th ed.). LexisNexis.
https://www.lexread.lexisnexis.com/product/indian-constitutional-law50183137?utm_source=chatgpt.com
- Hindu Religious and Charitable Endowments Department – Tamil Nadu
- Comptroller and Auditor General of India (CAG) – Religious Institutions Audit Reports
- Karnataka Temple Tax Bill Controversy – India Today (2025)
https://www.indiatoday.in/india/karnataka/story/karnataka-temple-tax-bill-governor-president-assent-row-siddaramaiah-bjp-2729940-2025-05-24
- Nagpur Religious Institutions Owe Rs 1.32 Cr Property Tax Arrears – Times of India (2025)
https://timesofindia.indiatimes.com/city/nagpur/religious-institutions-owe-rs1-32cr-property-tax-arrears-to-civic-body/articleshow/120909974.cms
- Temple Funds for Temples Only – Madras High Court Ruling – Times of India
https://timesofindia.indiatimes.com/city/madurai/temple-funds-for-temples-only-says-hc-quashes-marriage-hall-plan/articleshow/123533067.cms
- The Freedom of Religious Institutions and Human Flourishing in India. MDPI.
https://www.mdpi.com/2077-1444/12/7/550
- Governance and Management of Temples: A Framework. Indian Institute of Management Bangalore.
https://www.iimb.ac.in/sites/default/files/2020-09/WP%20No.%20621.pdf
Submitted By
Ahna Pal
PRN: 22010323065
BA.LLB Division-B
Under Guidance of
Mr. Rishi Mukherjee
