Longest Budget…?
First Full Female Finance Minister Mrs. Niramala Sitharaman on February 1st 2020 (Saturday), delivered the longest Union Budget speech in Lok Sabha. The stock market had already shown its disappointment with the budget. Let’s have a view of it from the non-corporate angle.
Para 124 of the budget speech by the Hon’ble Finance Minister “Acknowledging the important role played by the charitable institutions in the society, the income of these institutions is fully exempt from taxation. Further, donation made to these institutions is also allowed as deduction in computing the taxable income of the donor.”
For development sector, on the one-hand, the budget has covered various loopholes but on the other side, it has burdened the non-profit sector with renewal formalities, donation reconciliation requirements and other registration formalities.
We have tried to summarise all the major budget highlights and explain them in lucid manner.
What’s in there for the Donee (Charitable Institute)?
| > Introduction to renewal of registration under section 12AA, 10(23C) and 80G | ||
| Background | Budget 2020 Announcement | Impact |
| As per current law, the registration under section 12AA, approval under section 10(23C) and 80G are given without any expiry period. | Now, it is proposed that these registration and approvals shall be given only for a limited time period of 5 years. | On expiry of every 5 years, the registration/ approval has to be reobtained.
This will keep a check on inactive registrations. |
[Note: The amendment is proposed to be made with effect from 1st June 2020]
Detailed Action Plan for the reader:
> The institutions etc. which are already registered under existing section 12AA, approved under existing provisions of section 10(23C) or section 80G will also be required to obtain fresh registration / approval under new section 12AB (introduced against section 12AA or earlier known as 12A) / amended section 10(23C) / amended section 80G.
> The application for re-obtaining the approval/ registration will have to be given within the period of three (3) months from the date of coming in to force of the amendment.
> On receipt of the application, the PCIT/ CIT will pass an order for registration/ approval for the period of Five (5) years. The order for registration / approval in such cases will be required to be passed within 3 months from the end of the month in which the application will be filed.
> The new approval/ registration will be applicable from the assessment year from which the approval/ registration was originally granted under the existing provisions.
| >Rationalising and digitalising the process of registration for Charitable Institute | ||
| Background | Budget 2019 Announcement | Impact |
| In order to claim the tax exemption, the charity institutions have to be registered with the Income Tax Department. In the past, the process of the registration was completely manual and scattered all over the country. | In order to simplify the compliance for the new and existing charity institutions, it is proposed to make the process of
registration completely electronic under which a Unique Registration Number (URN) shall be issued to all new and existing charity institutions. |
The step will simply the compliance for the new and existing charity institute. It will introduce uniformity in the registration process and promote ease of doing. |
Note: The requirement to obtain Eleven (11) digits Unique Registration Number (URN) shall be made mandatory for all the new and existing charity institutions.
> Provisional registration of Three (3) years for new applicants
| Background | Budget 2019 Announcement | Impact |
| Under the existing provisions, there were no provisions relating to the provisional registration / approval. Either the application is rejected or accepted and full / final registration is granted. | The budget proposes to give the approval u/s 10(23C), 80G and 12AB on provisional basis.
The provisional approval may be granted for the period of 3 years (without any discretion in the hands of the authorities for any period less than 3 years etc.). |
The first-time applicants will not be directly given full/ final registration but will be granted only provisional approval/ registration. Later, full/ final registration/ approval may be granted following the prescribed procedure |
Detailed Action Plan for the reader:
> The application for fresh registration/ approval (towards 12AB, 10(23C) and 80G) is to be made at least one month prior to the commencement of the previous year relevant to the assessment year from which said approval / registration is sought.
> In case of first-time applicants, the PCIT/ CIT is required to give provisional approval/ registration for three (3) years and to send the copy of order to the applicant.
> No requirement for any detailed enquiry etc. is mentioned like in other cases of approval/ registration. The requirement for detailed enquiry has been mentioned only regarding application for full/ final registration/ approval to provisionally registered/ approved entity.
> The provisional registration is to be given from the assessment year from which the registration was sought. The order for registration/ approval in such cases will be required to be passed within a month from the end of the month in which the application will be filed.
[Note: Application pending for approval/ registration, shall be treated as application in accordance with the new provisions, wherever they are being provided for.]
| > Change in due date for filing Income Tax Return for person liable for audit under any law | ||
| Background | Budget 2019 Announcement | Impact |
| Relevant extract of Explanation 2 (a) to Section 139(1):
The current law states where the assessee is— (i) …, or (ii) a person (other than a company) whose accounts are required to be audited under this Act or under any other law for the time being in force; or (iii) …, the 30th day of September of the assessment year; |
It is proposed to be amended by providing 31st October of the assessment year (as against 30th September) as the due date for an assessee referred to in clause (a) of Explanation 2 of sub-section (1) of Section 139 of the Act; | Revised Due date:
Income Tax Return – 31st October Income Tax Audit – 30th September |
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| > Reconciliation process for donations under section 80G/ 80GGA | ||
| Background | Budget 2019 Announcement | Impact |
| At present, there is no reporting obligation by the charitable institute receiving donation. | Deduction under section 80G/ 80GGA to a donor shall be allowed only if a statement is furnished by the donee who shall be required to issue a certificate in respect of donations received to the donor and in the event of failure to do so, fee and penalty shall be levied. | This will help in process through which one-to-one matching between what is received by the charitable institute and what is claimed as deduction by the assessee would be possible. |
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| > Cash restriction introduced in 80GGA | ||
| Background | Budget 2019 Announcement | Impact |
| At present, there is no cash restriction for donation under section 80GGA | The budget proposes that similar to section 80G of the Act, deduction of cash donation under section 80GGA shall be restricted to Rs 2,000/- only. | To discourage fake donations and cash dealings, these limits are generally introduced. |
[Note: The above to two proposals are expected to be made effective with effect from 01st June 2020]
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