Charitable trust/institutions- No more never ending exemption benefits

Presently, the charitable trusts/Institution are enjoying the perpetual benefit of zero taxation on income earned out of property held by such trust/Institution. Interestingly, once the registration under section 10(23C)/12AA/35/80G/ is notified/granted, will remain in force till the CG/Commissioner of Income tax basis the documents called for, find that the same should be rescinded/withdrawn. Also Read: Charitable Trusts to Re-register to avail Tax Exemptions

In order to ensure that the conditions of approval or registration or notification are adhered to for want of continuance of exemption, there is need to put a restriction on the validity period of approval or registration or notification. The Government through Finance Act 2020 has brought a non-adversarial regime by providing a periodical renewal process of exemption certificate granted under respective sections. It will save the exemption availing trust/institutions from roving inquiries by the concerned/prescribed authorities in the affairs of the exempt entities on day to day basis and also provide a periodic review process to the concerned authorities to ensure that the entity availing exemption is genuinely involved in the activities, applied for and abide by the laws applicable to it.

In order to implement the new regime, the Finance Act 2020 has inserted/deleted/brought amendments to following sections, which shall come into force w.e.f. 01 June 2020:

• 10(23C) with respect to clause (iv), (v), (vi), (vii),
• 11,
• 12A,
• 12AB (inserted),
• 12AA (deleted),
• 35 with respect to clause (ii), (iia) and (iii) of sub-section 1
• 80G
• 80GGA
• 234G (inserted)
• 271K (inserted)

Though the amendment was made in multiple sections containing the provisions concerning charitable trust/institution/research association, etc., viewing as a bird’s eye, it seeks to ease registration for new applicants; define validity period of registration leading to compulsory periodic renewal; filing of statements by such trust/institution; issuance of certificate to donor. Government attempted to make entire process online, prescribed forms are yet to be released.

Post Finance Act 2020 amendment era for Charitable trust/institutions

1. Re-register/Fresh/Renewal application for seeking exemption under section 10(23C)[Clause-(ii), (iia) and (iii)], 11 and 80G

Note-1:  First prescribed authority (i.e., Commissioner of Income tax) shall call for documents to ensure the genuineness of transactions and compliance with other applicable laws and accordingly decide, whether approval/registration needs to be extended or not.

Note-2: Similar language written in erstwhile sections where registration become effective from the year in which  such application was made/filed.

Note-3: Any pending application (as on 01 June 2020) shall be construed as application filed under Case-D and dealt with accordingly.

2. Section 10(23C), 10(46) and 12AA/12AB are mutually exclusive

A proviso is inserted to section 11 seeking to provide that registration under section 12AA/12AB shall become inoperative where such trust/institution got approved/notified under section 10(23C)/10(46). Further, it provides that where such trust wishes to avail/remain under section 12AA/12AB, it need to file an application with the prescribed authority atleast 6 months prior to the commencement of AY from which such registration is sought to be made operative.

3. Section 35: Expenditure on Scientific Research

A proviso is inserted in section 35, which provides that all the notifications issued by the Central Government under clause (ii), (iia) and (iii) shall be deemed to have been withdrawn unless such research association/institution make an intimation (in form as may be prescribed) to the prescribed authority within 3 months of coming into force of this amendment (i.e., upto 31 August 2020). Post intimation, the notification shall remain valid for 5 years beginning from AY 2021-22.

4. Statement and Certificate (as prescribed) to be filed and furnished respectively

Post amendment in section 80G, 35 and 80GGA, trust/research association, etc. notified/registered under section 35 and 80G shall be required to prepare and file a statement (which may be further rectified) as may be prescribed with the prescribed authority and furnishes a certificate specifying the amount of donation to the donor. Any donor making a claim of deduction in respect of such donation, shall be allowed on the basis of information relating to said donation furnished by the trust/institution to prescribed authority. Delay in filing of such statement or issue of certificate, shall attract fees of INR 200 per day and penalty ranging from INR 10,000 to INR 100,000 on such trust/institution.

Remarks:

It appears that Government tried to provide a hassle free process for registration and renewal (by making it online), side by side fulfilling their objective of ensuring the genuineness of such trusts. They may be trying to create a database as well, as certain of such trusts are running for long time. In case of calling of documents, prescribed authority shall provide opportunity of being heard. Hopefully, this new regime will be welcomed and will not put any burden/hardship on exemption availing trust/institution, except a little increase in compliances.

(The author has tried to cover the amendments brought in by the Finance Act 2020 concerning charitable trust/institutions/research association, etc. and is a practicing Chartered Accountant based in Delhi and can be reached at nak.agg102@gmail.com)

Disclaimer: The contents of this document are solely for informational purpose as assimilated basis the reading of the Finance Act 2020. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, certain mistakes and omissions may creep in. The author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied without written permission of the author.