Changes for NGO/ Society/Trust in Budget 2023

APPLICATION OF CORPUS

A fund Will Be Treated As A Corpus Only If Followed By A Specific Written Direction Of The Donor. In The Absence Of A Written Direction Of The Donor, A Contribution Or Grant Cannot Be Transferred. Still, The Corpus Fund Is A Closed Fund With No Strings Or Restriction For Future Application Attached For All Practical Purposes.

Earlier Provision:- If a charitable organisation decides to use its corpus or borrow by way of a loan, that amount would be considered as application of income only in the year the amount is put back into the corpus fund or the loan is repaid.

Proposed Amendment in Budget 2023 :-It is proposed that application out of corpus or a loan before April 1, 2021 shall not to be allowed as application for charitable or religious purposes even when such amount is put back into corpus or the loan is repaid. This is in order to avoid double tax deduction.

Also, if the trust or institution invests or deposits back the amount in to corpusor repays the loan within 5 years of application from the corpus or loan, then such investment/depositing back in to corpus or repayment of loan will be allowed as application for charitable or religious purposes and where the application from corpus or loan did not satisfy the conditions as stated above, the repayment of loan or investment/depositing back in to corpus of such amount will not be treated as application hence it will be taxable.

DATE OF FILING FORM 9A & 10

In case of Form 9

(i) The Amount Has To Be Utilised In The FY In Which It Will Be Received Or Subsequent FY.

(ii) In Case Where The Same Could Not Be Applied For Any Other Reason Then Amount Has To Be Applied In The Subsequent FY.

In case of Form 10

The Amount Can Be Utilised In Any Of The Subsequent 5 Years For The Purpose For Which It Was Accumulated.

In every FY a tax exempt charitable organisation is required to spend at least eighty five per cent of its total income. In case income is received late in the financial year the trust can exercise option under section 11(1) to use the income in the immediately following financial year by filing Form 9A or accumulate the unspent income u/s 11(2) for up to five years by filing Form 10.

Earlier Provision:- Both Form 9A and Form 10 could earlier by filed by 31st October and these forms could be filed along with return of income.

Proposed Amendment in Budget 2023:-It is proposed that the due date of filing of Form 9A/10A to two months prior to the due date of filing of return, now Form 9A or Form10 must be filed by 31st August.

But now it has to be filed at least two months prior to the due date of filing of ITR. In the event of failure of compliance of the same exemption of income from tax shall not be available.

REGISTRATION FOR TAX EXEMPTION

Section 12A registration applies to organisations working not for profit like NGOs, charitable trusts, religious organisations etc. Once duly registered under 12A, these organisations are eligible to avail of tax exemptions on their surplus income. Section 12A is related to trusts or social welfare institutions registered before 1996, Section 12AA deals with those incorporated after 1996. While in section 10(23C), that institution should exist solely for educational or medical purposes, to avail the benefits.

Earlier Provision:- Organisations enjoying tax exemption u/s 10(23C) or 12A / 12AA were required to re-validate their registration for tax exemption as also for tax deduction u/s 80G.

Newly established organisations could apply for provisional tax exemption and tax deduction for a period of three years.

Proposed Amendment in Budget 2023:–

It has been proposed that Trust or Institutions shall be allowed to make application for provisional approval including provisional approval for Sec 80G before the commencement of the activities. Trust or Institutions in which the activities have already been commenced shall make application for regular approval including the approval for Sec 80G. If the PCIT or ICT is satisfied about the objects the registration shall be granted for 5 Years.

It is also proposed that if any trust or institutions fails to make an application for re-registration within the period specified, it shall be deemed to have been converted into any form not eligible for registration in the previous year in which such period expires.

It is proposed to clarify that the exemption u/s 11, 12 and 10(23C) will be available only if the return of income is furnished within the time limit specified under section 139(1) or 139(4) of the Act with effect from 1st April 2023, thereby it is clarified that the exemption is not allowed if the updated return u/s 139(8A) is filed.

Inter Charity Donations—potential Setback For Grant Making Organisations

Inter charity donations i.e. one tax exempt charitable trust or institution donating to another tax exempt charitable trust or institution continues to be allowed but with various restrictions.

Earlier Provision:- One charitable organisation could donate to another charitable organisation but not from its ‘accumulated income’ as one of the key conditions for tax exemption given to charitable organisations is applying or spending at least 85% of the total income every financial year. If the organisation is unable to spend this minimum amount it has the option to accumulate the same for up to five years. However, this accumulated amount must be spent by the organisation on its own activities and cannot be donated to another charitable organisation. the Finance Act disallowed charitable organisations from giving donation to another charitable organisation, whether from its accumulated or current year’s income towards the corpus of another charitable organisation.

Later by the Finance Act it disallowed charitable organisations from giving donation to another charitable organisation, whether from its accumulated or current year’s income towards the corpus of another charitable organisation.

Proposed Amendment in Budget 2023:-It is proposed that in addition to the above restrictions, if one charitable organisation donates to another charitable organisation only 85% of such donations given will be considered as application of income for the donor charitable organisation.