Re-validation of existing Tax Exemption Certificate under new Section 12AB of Income Tax Act, 1961 w.e.f. April 1, 2021

Re-validation of existing Tax Exemption Certificate under new Section 12AB of Income Tax Act, 1961 w.e.f. April 1, 2021

The Central Board of Direct Taxes, by Notification No. 19/2021-Income Tax Dated- 26th March, 2021, amended the Income Tax Rules, 1962 called as Income-tax (6^th Amendment) Rules, 2021, pertaining to procedure for registration of fund/ trust/charitable institutions etc. The Amended Rules and Forms will be applicable from 1st April, 2021 and all charitable trusts and institutions already registered u/s 12A or 12AA or 10(23C) and having 80G certificate must apply for reapproval/revalidation of their registration before 30th June, 2021.

The Finance Minister of India had presented the Union Budget 2020 wherein it was proposed to make substantial amendments for granting exemptions to the Charitable / Religious Trusts, Institutions etc. Under the new tax regime, it was proposed to amend Section 10(23C), Section 11, Section 12A, Section 12AA and Section 80G of the Income Tax Act, 1961 (“IT Act”) and proposed to insert a new Section 12AB. All these amendments are proposed to be made w.e.f. June 01, 2020. The said budget proposes to digitize the process of registration for Charitable Trusts. Even the existing charitable institutions are required to apply for fresh registration under the new provisions of Section 12AB of IT Act. All the existing Charitable Trust or Institutions registered under the following sections Section 12A, Section 12AA, Section 10(23C) and Section 80G need to be registered under the new Section 12AB to claim exemption u/s 10 or 11, as the case may be.

In this regard, it is pertinent to note that existing procedure for registration under Section 12AA of IT Act has been omitted w.e.f. June 01, 2020 due to insertion of sub-section (5) in Section 12AA –“(5) Nothing contained in this section shall apply on or after the 1^st day of June, 2020” and a new Section 12AB (Procedure for fresh registration) was come into effect from 1^st June, 2020. With the proposed amendments, new Section 12AB (Procedure for fresh registration) was to come into effect from 1 June 2020 and the Trusts or Institutions was required to apply for registration and approval under new Section 12AB within 3 months from1 June 2020, i.e., by 31 August 2020. Similarly, Charitable Trusts and Exempt Institutions which are availing exemption benefit under Section 80G of IT Act was also required to apply for fresh registration under Section 12AB by 31^st August, 2020.

Subsequently, in view of the unprecedented humanitarian and economic crisis due to COVID-19 pandemic and the resultant nationwide lockdown, the CBDT had decided to defer the implementation of the new procedure for approval/ registration/notification of certain entities to 1st October 2020. Accordingly, the entities approved/ registered/ notified under Section 10(23C), 12AA, 35 and 80G of IT Act would be required to file intimation within three months from 1st October 2020, i.e, by 31st December 2020. Further, the amended procedure for approval/ registration/ notification of new entities was also deferred till 1^st October 2020. This was stated by the CBDT in a press release dated 09.05.2020. However, no legislative amendments were carried out till then.

Later on, the legislative amendments were introduced by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 which has further extended the new registration and other procedure under Section 12AB of IT Act and other Sections to April 1, 2021. These amendments were carried out in all the related provisions which were introduced by the Finance Act, 2020. Hence, the new provisions related to charitable trusts and other institutions shall now apply from the financial year 2021-22. Now, the new registration procedure prescribed under Section 12AB for Charitable Trusts and other related provisions as introduced by the Union Budget, 2020 has been deferred and extended to April 1, 2021 by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. Both the renewal of registration u/s 12A or section 12AA, as well as renewal of approval under section 80G, is being deferred.

Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 was notified on 29^th September, 2020 after receiving the President of India’s assent. It is very interesting to note that all the amendments made by the Finance Act, 2020 in IT Act have been withdrawn first and re-introduced all these amendments from April 1, 2021. Accordingly, Trusts or Institutions is required to apply for registration and approval under new Section 12AB of IT Act within 3 months from1 April 2021, i.e., by 30^th June 2021.

Further, in exercise of the powers conferred by clauses (i), (ii), (iii) and (iv) of first proviso to clause (23C) of section 10, ninth proviso to clause (23C) of section 10, sub-clauses (i) (ii), (iii), (iv), (v) and (vi) of clause (ac) of sub-section (1) of section 12A, sub-section (3) of section 12AB, first and fifth proviso to sub-section (1) of section 35, sub-section (1A) of section 35 , clauses (i), (ii), (iii) and (iv) of first proviso to sub-section (5) of section 80G, third proviso to sub-section (5) of section 80G and clauses (viii) and (ix) of sub-section (5) of section 80G, read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes, by Notification No. 19/2021-Income Tax Dated- 26th March, 2021, amended the Income Tax Rules, 1962 called as Income-tax (6^th Amendment) Rules, 2021, pertaining to procedure for registration of fund/ trust/charitable institutions etc.

Remark: The new registration procedure prescribed under Section 12AB of IT Act was supposed to be rolled out from 1^st June, 2020 and end by 31st August 2020, which was deferred and extended to 1^st October, 2020 and end by 31st December 2020 but considering the current pandemic situation, it has been extended to 1^st April, 2021 and hence now all existing Trust and Intuitions have to re-register themselves under Section 12AB of IT Act from 01.04.2021.

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.