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Depositing back of corpus and repayment of loans and borrowings

Under the existing provisions of the Act, corpus donations received by trusts and institutions under sub clause (iv)/(v)/(via) of clause (23C) of section 10 of the Act and under section 12AA/12AB of the Act are exempt as follows:

  • Explanation1 to the 3rd proviso to 10(23C) of the Act and Clause (d) of section 11(1) of the Act provides that income of any the funds/trust/institution/any university/other educational institutions/hospital or medical institutions shall not include income in the form of voluntary contributions made with a specific direction that they shall form part of corpus subject to the condition that such voluntary contributions are deposited or invested in modes specified in Section 11(5) of the Act maintained specifically for such corpus.
  • Application out of such corpus shall not be considered as application for charitable or religious purpose. However, when it is invested in one more of the forms specified in section 11(5) of the Act or deposited back, from the income of the previous year, such amount shall be allowed as application in the previous year in which it is deposited back to the corpus to the extent of such deposit or investment.
  • Application from loans and borrowings shall not be considered as application for charitable or religious purpose. However, when loan or borrowing is repaid from the income of the previous year, such repayment shall be allowed as application in the previous year in which it is repaid to the extent of such repayment.

Charitable Trust & Institutions

Further, it was noted that conditions that are required to be satisfied in the case of application for charitable or religious purposes must also be satisfied while making the application from the corpus or loan or borrowings.

The conditions are as follows:

  • Such application shall not be in the form of corpus donation to another trust.
  • TDS, if applicable shall be deducted on such application.
  • Payments or aggregate of payments made to a person in a day exceeds Rs 10,000/- in other than specified modes is not allowed.
  • Carry forward and set off of excess of application over income is not allowed.
  • Application is allowed in the year which it is actually paid.
  • Application should not directly or indirectly benefit any person referred to in Section 13(1) of the Act and the income of the trust or institution should not endure any benefit to such person.
  • Application should be in India except with the approval of the Board in accordance with the provisions of clause (c) of Section 11(1) of the Act.

The Budget 2023 has proposed the following amendments:

  • to provide that the provisions of first proviso shall apply on if there was no violation of the conditions specified in 12th, 13th,21st proviso and explanation 1,2 and 3 of Clause 23C of section 10 of the Act and Clause 1 of explanation 4 of section 11(1) of the Act at the time the application was made from such corpus.
  • to provide that the amount invested or deposited back shall not be treated as application for charitable or religious purposes unless such investment or deposit is made within a period of five years from the end of previous year in which such application was made from the corpus.
  • To provide that amount repaid shall not be treated as application for charitable or religious purposes unless such repayment is made within a period of five years from the end of previous year in which such application was made from the loan or borrowing.
  • To provide that nothing contained in the first proviso shall apply where the application from the corpus is made on or before 31st march 2021.
  • To provide that nothing contained in the first proviso shall apply where the application from any loan or borrowing is made on or before 31st march 2021.

These amendments will take effect from 1st April 2023.

To summarize, to ensure proper implementation of both the exemptions, it is proposed to provide that application out of corpus, or loans or borrowings before 01-04-2021 should not be allowed as application for charitable or religious purpose when such amount is deposited back into the corpus or when the loan or borrowing is repaid. The deposit back into corpus or repayment of loan or borrowing shall be allowed as application only if such deposit or repayment is made within five years from the end of the previous year in which such application is made.  If the application from corpus or loans or borrowings does not satisfy the conditions stated above, the repayment of loans/borrowings or depositing back into the corpus of such amount will not be treated as application.

Treatment of donation to other trusts

In order to ensure intended application towards charitable or religious purpose it is proposed that only 85% of the eligible donations made by a trust or institution to another trust or institution shall be treated as application with effect from 1st April 2024.

Omission of provisions related to roll back of exemption

After the amendment of Section 12 A of the Act, now the trust and institutions are required to apply for provisional registration before the commencement of activities and therefore there is requirement of roll back provisions. Hence it is proposed to omit the following provisos with effect from 1st April 2023:

2nd proviso to Section 12A(2) of the Act which provides that the provisions of Sec 11 and 12 apply in respect of any income derived from the property held under trust for any assessment year preceding the aforesaid assessment year for which the proceedings are pending before the AO as on the date of such registration if the objects of such trust or institution remain the same for such preceding AY.

3rd proviso to Section 12A(2) of the Act provides that no action shall be taken by the AO u/s 147 only for non-registration of such trust or institution such AY.

4th proviso to Section 12A(2) of the Act provides that 2nd and 3rd proviso shall not apply in case trust or institutions which was refused registration or the registration granted to it was cancelled at any time u/s 12AA or 12AB of the Act.

Allow of Final registration for the trusts or institutions where activities have already commenced.

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.

This amendment is applicable from 1st October 2023.

Taxing of accreted income

It is proposed to amend the Section 115TD of the Act to provide 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 further proposed to provide that the date of conversion shall also mean the last date for making an application for registration and the principal officer or the trustee shall also be liable to pay tax on the accreted income within 14 days from the end of the previous year. The amendment will take effect from 1st April 2023.

Time limit to furnish Form 9A/10

It is proposed to amend the due date for furnishing the Form9A/10 to at least two months prior to the due date specified u/s 139(1) with effect from AY 2023-24.

Specified Violation

It is proposed to provide that the specified violation also include the case where the application for 10(23C), 12 or 80G is not complete or contains false information. In such case the application can be cancelled by the PCIT/CIT with effect from 1st April 2023.

Exemption allowed where return is furnished within time frame

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.

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