The Finance Bill 2024 proposes rationalising provisions for charitable trusts and institutions under the Income-tax Act. It introduces the merger of the existing first regime, encompassing sub-clauses (iv), (v), (vi), and (via) of clause (23C) of section 10, with the second regime defined in sections 11 to 13. The aim is to align procedures and conditions across both regimes, ensuring similar benefits under a simplified framework. Effective October 1, 2024, applications for approval under the first regime will no longer be accepted. Pending applications will continue under existing provisions. Approved entities will retain exemption benefits until expiration, after which they can transition to the second regime by applying for registration under amended section 12A. Additionally, certain investment modes protected under the first regime will be safeguarded in the second regime through amendments in section 13. These reforms are designed to reduce administrative burden and facilitate smoother compliance for charitable trusts and institutions, promoting clarity and efficiency in tax administration.
Budget 2024: Rationalisation of the provisions of Charitable Trusts and Institutions
I. Merger of trusts under first regime with second regime
The Act puts in place two main regimes for trusts or funds or institutions to claim exemption. The first is contained in the provisions of sub-clause(s) (iv), (v), (vi) or (via) of clause (23C) of section 10. The second is contained in the provisions of sections 11 to 13 of the Act. The provisions of the respective regimes lay down the procedure for filing application for approval/ registration, the conditions subject to which such approval/ registration shall be granted or can be withdrawn etc.
2. As both the regimes intend to grant similar benefit, the procedure and conditions across the two regimes have been aligned, over the last few years, vide successive Finance Acts.
3. In order to take forward the process of simplification of procedures and to reduce administrative burden, it is proposed that the first regime be sunset and trusts, funds or institutions be transited to the second regime in a gradual manner.
4. It is, therefore, proposed that:
- Applications seeking approval or provisional approval under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10, and filed on or after 1st October, 2024, shall not be considered.
- Applications filed under these sub-clauses before 1st October, 2024, and which are pending would be processed and considered under the extant provisions of the first regime itself.
- Approved trusts, funds or institutions would continue to get the benefit of exemption, as per the provisions of sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10, till the validity of the said approval.
- They would be eligible to apply for registration, subsequently, under the second regime. Amendments have accordingly been proposed in section 12A.
- Certain eligible modes of investment, under the first regime ( those specified in clause (b) of third proviso to clause (23C) of section 10) shall be protected in the second regime, by way of amendment in section 13.
5. These amendments will take effect from the 1st day of October, 2024.
[Clauses 4, 6 & 9]
Proposed Amendment to section 10(23C) of Income Tax Act, 1961 vide Finance Bill, 2024
In clause (23C) of section 10 of the Income-tax Act, with effect from the 1st day of October, 2024,––
(i) in the first proviso, after the words “makes an application”, the words, figures and letters “before the 1st day of October, 2024,” shall be inserted;
(ii) in the second proviso, after the words “first proviso”, the words, figures and letters “before the 1st day of October, 2024,” shall be inserted;
(iii) after the twenty-third proviso, the following proviso shall be inserted, namely:––
“Provided also that no approval under the second proviso shall be granted in relation to any application made on or after the 1st day of October, 2024.”;
Proposed Amendment to section 12A of Income Tax Act, 1961 vide Finance Bill, 2024
In section 12A of the Income-tax Act, in sub-section (1), in clause (ac) with effect from the 1st day of October, 2024,––
(a) in sub-clause (ii),––
(i) after the words, figures and letters “under section 12AB”, the words, brackets, figures and letters “or approved under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10” shall be inserted;
(ii) after the words “the period of the said registration”, the words “or approval as the case may be,” shall be inserted;
(b) in sub-clause (iii),––
(i) after the words, figures and letters “under section 12AB”, the words, brackets, figures and letters “or provisionally approved under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10” shall be inserted;
(ii) after the words “period of the provisional registration”, the words “or provisional approval as the case may be,” shall be inserted;
(c) after sub-clause (vi), the following proviso shall be inserted, namely:―
“Provided that where the application is filed beyond the time allowed in sub-clauses (i) to (vi), the Principal Commissioner or Commissioner may, if he considers that there is a reasonable cause for delay in filing the application, condone such delay and such application shall be deemed to have been filed within time.”.
Proposed Amendment to section 13 of Income Tax Act, 1961 vide Finance Bill, 2024
In section 13 of the Income-tax Act, in sub-section (1), in clause (d), in the proviso, after clause (iii), the following clause shall be inserted with effect from the 1st day of October, 2024, namely:––
“(iv) any asset referred to in sub-clauses (i), (ia) and (ii) of clause (b) of the third proviso to clause (23C) of section 10 or any accretion to the shares, forming part of the corpus mentioned in the said sub-clause (i) and (ia) and voluntary contributions referred to in sub-clause (iv) of clause (b) of the said proviso.”.
Extract of Clause 4 of Finance Bill 2024
Clause 4 of the Bill seeks to amend section 10 of the Income-tax Act relating to incomes not included in total income.
Clause (23C) of said section provides exemption to the income of certain entities.
Sub-clauses (iv), (v), (vi) and (via) of clause (23C) of the said section provide exemption to the income received by any person on behalf of any fund or trust or institution or university or other educational institutions or hospital or other institutions which may be approved or provisionally approved by the Principal Commissioner or Commissioner.
First proviso to clause (23C), inter alia, provides that exemption to the fund or trust or institution or university or other educational institution or hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), under the respective sub-clauses, shall not be available to it unless such fund or trust or institution or university or other educational institution or hospital or other medical institution makes an application in the prescribed form and manner to the Principal Commissioner or Commissioner, for grant of approval within the time as provided under the said proviso and the said fund or trust or institution or university or other educational institution or hospital or other medical institution is approved under the second proviso.
Second proviso to clause (23C) of the said section, provides for the procedure for granting approval to by the Principal Commissioner or Commissioner, on receipt of an application made under the first proviso.
It is also proposed to amend the first and second provisos to clause (23C) of the said section to restrict their applicability to the applications made before the 1st October, 2024.
It is also proposed to insert a new proviso to clause (23C) of the said section so as to provide that no approval under second proviso shall be granted in relation to any application made on or after the 1st October, 2024.
These amendments will take effect from 1st October, 2024.
Extract of Clause 6 of Finance Bill 2024
Clause 6 of the Bill seeks to amend section 12A of the Income-tax Act relating to conditions for applicability of sections 11 and 12.
Sub-section (1) of the said section provides the conditions for applicability of sections 11 and 12 in respect of income of any trust or institution.
Clause (ac) of the said sub-section provides that the provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless, inter alia, such trust or institution has made an application in the prescribed form and manner to the Principal Commissioner or Commissioner, for registration of the trust or institution within the time period specified under the said clause and such trust or institution is registered under section 12AB.
Sub-clause (ii) of clause (ac) of sub-section (1) of the said section provides that where the trust or institution is registered under section 12AB and the period of the said registration is due to expire, such trust or institution shall make an application for registration at least six months prior to expiry of the said period.
Sub-clause (iii) of clause (ac) of sub-section (1) of the said section provides that where the trust or institution has been provisionally registered under section 12AB, such trust or institution shall make an application for registration at least six months prior to expiry of period of the provisional registration or within six months of commencement of its activities, whichever is earlier.
It is proposed to amend said sub-clauses (ii) and (iii) of clause (ac) of the said sub-section to allow trust or institution approved or provisionally approved as the case may be, under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 to apply under the said sub-clauses with similar conditions.
It is further proposed to insert proviso to clause (ac) of sub-section (1) of the said section to provide that where the application is filed beyond the time allowed in sub-clauses (i) to (vi), the Principal Commissioner or Commissioner may, if he considers that there is a reasonable cause for delay in filing the application, condone such delay and such application shall be deemed to have been filed within time.
These amendments will take effect from 1st October, 2024.
Extract of Clause 9 of Finance Bill 2024
Clause 9 of the Bill seeks to amend section 13 of the Income-tax Act relating to section 11 not to apply in certain cases.
Clause (d) of sub-section (1) of the said section provides that, in the case of a trust for charitable or religious purposes or a charitable or religious institution, nothing contained in section 11 or section 12 shall operate so as to exclude any income, from the total income of the previous year of such trust or institution, if for any period during the previous year, any funds of the trust or institution are, inter alia, invested or deposited otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11.
It is proposed to insert clause (iv) in the first proviso to clause (d) of sub-section (1) of the said section to exclude any asset referred to in sub-clauses (i), (ia) and (ii) of clause (b) of the third proviso to clause (23C) of section 10 or any accretion to the shares, forming part of the corpus mentioned in the said sub-clauses (i) and (ia) and voluntary contributions referred to in sub-clause (iv) of clause (b) of the said proviso.
This amendment will take effect from 1st October, 2024.
