Certain harsh proposals of Finance Bill, 2023 Pertaining to Charitable and Religious Institutions and Trusts

Learn about the harsh proposals of Finance Bill-2023 for Charitable & Religious Institutions & Trusts. Understand the impact & practical challenges.

Certain harsh proposals of Finance Bill-2023 Pertaining to Charitable & Religious Institutions & Trusts

Since the Budget 2023 proposed in Parliament, everybody are of the view that day by day Government is providing harsh and tough provisions for the Charitable and Religious Institutions and trusts. We look back, since last five years there are drastic amendments in sections of Charitable Institutions and Religious Trusts.

If we look back, we find that the charitable institutions, religious trusts, NGOs come forward to support the Government financially or otherwise, during any kind of natural calamity like flood, earthquake etc. Recently work done by Government and charitable institutions and religious trusts has been recognized and acknowledged by entire world community and the same is credited unequivocally at the time of unparalleled disruption caused by COVID – 19.

It is surprised that Government has always been supportive and appreciative of such charitable institutions and religious trusts, why such harsh and drastic amendments are made for institutes and trusts?

• At present, i.e. up to 31^st March, 2023 there is no restriction on application of donations received by way of inter-charity donations to other trusts having similar object [Section 11(1)(a)] and the same is considered at par with direct utilization of donations received

Proposal in Budget – 2023:

From assessment year 2024-25 onwards, inter trust donations as application of contribution only up to 85% of such eligible donations made by institutions or trusts to other institutions or trusts, having the similar objects. The relevant clause being inserted vide Budget 2023 is reproduced below:

After clause (ii), the following clause shall be inserted with effect from the 1^st day of April, 2024, namely:-

(iii) any amount credited or paid out of the income of any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub clause (via), other than the amount referred to in the twelfth proviso, to any other fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause(iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), or trust or institution registered under section 12AB, as the case may be, shall be treated as application for charitable or religious purposes only to the extent of eighty-five percent, of such amount credited or paid.

One should draw the attention of Government that voluntary donations are received by one charitable institution or religious trust from general public for specific purpose. The recipient trust utilized part of donation for the specified purpose for which it has received and balance amount of donation given to other trusts having similar objects since such done trust would have necessary infrastructure to utilize such donations received.

Take an example, one religious trust / charitable institution receives voluntary donation with purpose in the nature of compassion to animals. It is quite possible that such religious trust / charitable institution does not have Panjrapole, and thereby, such donations are further granted to other charitable trust, who maintain Panjarapole, in accordance with donor’s specific intention.

In such scenario, only 85% of donation granted to other trusts running Panjrapole would only be treated as application of voluntary contributions, whereas 100% are actually spent for donor’s specific purpose as well as utilized by recipient trust actually running Panjarapole.

In other words, on account of proposed amendment, religious trusts as well as charitable institutions would be required to pay income tax on 15% of such donation granted to other trusts or institutions running the Panjrapole even 100% of such donations given are actually spent for donor’s specific purpose as well as utilized by recipient trust actually in operation Panjarapole.

This proposal may be amended.

• From 1^st April, 2022, corpus donation received shall be allowed as application of income in the year, in which it is invested and deposited back in modes specified u/s11(5).

Proposal in Budget 2023:

The Budget 2023 has proposed to insert following provisos in clause (ii) of Section 11.

Provided further that the provision of the first proviso shall apply only if there was no violation of the conditions specified-

(a) in clause (c) of this sub section;

(b) in Explanations 2, 3, and 5 of this sub section;

(c) in the Explanation to this section; and

(d) in clause (c) of sub section (1) of section 13.

At the time the application was made from the corpus:

Provided also that the amount invested or deposited back shall not be treated as application for charitable or religious purposes under the first proviso unless such investment or deposit is made within a period of five years from the end of the previous year in which such application was made from the corpus:

Provided also that nothing contained in the first proviso shall apply where application from the corpus is made on or before 31^st day of March 2021:”

Impact of such Proposed Amendment:

As per the proposal of Budget 2023, the amount invested or deposited back to corpus shall not be treated as application for charitable or religious purpose unless such investment or deposit is made within period of five years from the end of the previous year, in which such application was made from corpus fund.

Similarly, repayment of loans and borrowings repaid shall not be treated as application for charitable or religious purpose unless such repayment of loan and borrowing is made within period of five years from the end of the previous year, during which such application was made out of loans and borrowings.

The utilization of corpus / loans or borrowings by charitable or religious trust on or before 31.03.2021 will not be considered as application for charitable or religious purpose if the amount is subsequently deposited back in to the corpus or loan is repaid.

Period of five years for depositing back the corpus or repayment of loans/ borrowings is too short period as the amount disbursed from corpus or amount given as loan or borrowing is often for larger period depending on the subject matter for which it has been granted.

The proposed amendment take in to sweep even the donations made from corpus or loans given up to 31.03.2021. Thereby, effectively reducing the period from 5 to 3 years for application made before 31.03.2021, which makes it highly impractical.

• Amendment in due date for submission of Form 9A and From 10 w.e.f. 01.04.2023

At present due date for submission of Form No 9A and Form No 10 (accumulation) is one month before the due date for filing return of income, i.e. 30^th September.

Proposal in Budget 2023:

It has proposed to prepone the due date for submission of Form No 9A and Form No 10 (accumulation) to be two months before the due date for filling return of income, i.e. 31^st August.

The proposed amendment seems to be impractical that how an auditor can find the amount of accumulation before the completion of audit.

The due date for completion of audit under all other Act, i.e. Bombay Public Charitable Trust Act, 1956 Companies Act, 2013. Hence it is practically difficult to arrive at the amount of accumulation one month prior to due date of completion of audit.