Under the Income Tax Act, the registration of trusts or institutions under section 12AB was previously valid for 3 to 5 years. With the latest amendment, trusts or institutions with income below Rs. 5 crore will now benefit from an extended registration period of up to 10 years. Additionally, trusts with incomplete applications for registration will no longer face automatic cancellation, as the amended provisions allow for the completion of applications. Regarding specified persons, income used for the benefit of individuals associated with a trust (such as relatives or those with substantial interest) is typically not exempt under sections 11 and 12. The recent change raises the threshold for “substantial contribution” from Rs. 50,000 to Rs. 1 lakh in the relevant previous year, or over Rs. 10 lakh cumulatively. The relaxation in these provisions does not apply to the trust’s founders, authors, trustees, or managers.
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- FAQs: Rationalization of provisions relating to Charitable Trusts and Institutions – Budget 2025
- Q.1. What are present provisions regarding validity of registration of trust?
- Q.2 What amendment has been caried out in respect of registration of trusts?
- Q.3 Which cases shall benefit from above amendment?
- Q.4 What amendment has been carried out in provisions relating to ‘specified violation’ in the case of trusts or institution?
- Q.5 In the case of trust or institution, what is the current provision in respect specified person under section 13(3) of the Income-tax Act, 1961?
- Q.6 What amendment has been carried out in respect of ‘specified person’ under section 13(3) of the Income-tax Act, 1961?
- Q.7. Whether the relaxation provided to specified person also covers author, founder of trust, trustees, member or manager of the trusts?
FAQs: Rationalization of provisions relating to Charitable Trusts and Institutions – Budget 2025
Q.1. What are present provisions regarding validity of registration of trust?
Ans. Under the current provisions of section 12AB of the Income Tax Act, 1961, registration shall be valid for a period of 5 years or 3 years (where activities of the trust or institution have not commenced).
Q.2 What amendment has been caried out in respect of registration of trusts?
Ans. The period of validity of registration of trust or institution with income below Rs 5 Crore has been increased from 5 years to 10 years in certain cases.
Q.3 Which cases shall benefit from above amendment?
Ans. The amended provisions shall be applicable to certain small trusts or institution whose total income does not exceed Rs. 5 crores in each of the two previous years, preceding the previous year in which application is made.
Q.4 What amendment has been carried out in provisions relating to ‘specified violation’ in the case of trusts or institution?
Ans. Under current provision an ‘incomplete’ application for registration is treated as specified violation. This may result in cancellation of registration and consequently, fair market value of the assets becomes chargeable to tax under the Act.
In order to prevent harsh consequences for default of filing incomplete application, the above amendment has been carried out. The trust or institution shall be able to complete the application and the same shall be considered for the purposes of registration.
Q.5 In the case of trust or institution, what is the current provision in respect specified person under section 13(3) of the Income-tax Act, 1961?
Ans. Current provision provides that if any income of trust or institution is applied for the benefit of a ‘specified person’ (other than founder, author or trustee, member or manager), or his relative or the concern in which he has substantial interest, such income shall not be exempted under section 11 and 12 of the Income Tax Act, 1961.
Q.6 What amendment has been carried out in respect of ‘specified person’ under section 13(3) of the Income-tax Act, 1961?
Ans. Presently ‘specified persons’ also include a person who has contributed an amount of Rs 50,000 in aggregate, i.e upto the end of the previous year, to the trust. The threshold limit for considering a contribution as ‘substantial contribution’ to the trust or institution has been changed from total contribution exceeding fifty thousand rupees up to the end of the relevant previous year to one lakh rupees during the relevant previous year, or exceeding ten lakh rupees in aggregate up to the end of the relevant previous year.
The amendment, as above, shall be applicable to person other than author, founder, trustee, member or manager of the trust.
Further, amendment has been made so as to not consider ‘relative’ and ‘concern in which such person has substantial interest’ as specified person under section 13(3) of the Income-tax Act, 1961.
Ans. It is clarified the relaxation shall not apply to author, founder of trust, trustees, member or manager of the trusts
