Budget 2025: 10-Year Registration for Small Trusts

Budget 2025: Charity Compliance Eased? Decoding the 10-Year Registration for Smaller Trusts

Summary: The Finance Bill 2025 introduces amendments to simplify compliance for smaller charitable institutions. Key among these is the proposal to extend the validity of registration under Section 12AB from five years to ten years for trusts with a total income not exceeding ₹5 crores (before exemptions) in the two preceding years. However, this benefit is restricted to certain trusts renewing their registration, excluding new trusts applying after commencing activities. Additionally, the amendment does not extend to Section 80G approvals for donor tax deductions, which still require renewal every five years. Despite the longer registration period, smaller trusts continue to face compliance challenges, including maintaining detailed records, audits, and complex procedural formalities. Many small charities remain ineligible for the ten-year benefit due to their direct application after commencing activities, limiting the practical impact of the proposed changes. The amendment is effective from April 1, 2025, but lacks clarity on whether it applies to pending applications. While the extended tenure aims to ease compliance, it does not address the broader challenges faced by small charitable institutions, making its impact more symbolic than substantive.

Introduction

The Finance Bill 2025 has proposed major amendments to the taxation of charitable institutions, focusing on simplifying compliance requirements and rationalizing the provisions for registration and renewal.

Notably, it proposes relief for smaller trusts by increasing the registration validity period from five years to ten years for institutions with total income, prior to giving effect for exemptions under Sections 11 and 12, not exceeding Rs. 5 crores in the two preceding years.

Current Registration Framework

Under the existing provisions of Section 12AB, charitable trusts and institutions must apply for renewal of its registration u/s 12A every five years. Similarly, new trusts that have not commenced activities can apply for provisional registration for three years. Upon commencing activities, those charitable institutions must apply for conversion of provisional registration into regular registration at least six months before expiry.

This uniform renewal system applies to all trusts, irrespective of its size, meaning smaller trusts with limited income face the same compliance burden similar to large charitable organizations.

Proposed Amendment: 10-Year Registration for Small Charitable Institutions

The Finance Bill 2025 proposes to extend the validity of registration from five years to ten years for charitable trusts and institutions that meet specific income criteria.

Under the proposed change, if a trust’s total income, before claiming exemptions under Sections 11 and 12, does not exceed Rs. 5 crores in each of the two years preceding the application, it will be eligible for a ten-year registration instead of the existing five-year validity.

This amendment aims to reduce the compliance burden on smaller charities by eliminating the need for frequent re-registration. However, this benefit is not extended to all trusts—first-time applicants who apply after commencing activities will still receive only a five-year registration.

Who is Eligible for the 10-Year Registration?

a) Trusts or institutions applying for renewal or re-registration under sub-clauses (i) to (v) of Section 12A(1)(ac), and;

b) Trusts whose total income before giving effect to exemptions under Sections 11 and 12 should not exceed Rs. 5 crores in each of the two previous years before application.

Who is Not Eligible?

a) New trusts applying for first-time registration after commencing activities (covered under sub-clause (vi) of Section 12A(1)(ac)) will continue to get only a five-year registration instead of ten years, or;

b) Trusts that cross the Rs. 5 crore income threshold in the preceding two years.

Effective Date of the Amendment

The amendment takes effect from April 1, 2025. However, it is unclear whether:

1. The ten-year benefit applies only to applications made after April 1, 2025, or

2. It also applies to registration issued on or after this date, including pending applications.

Since applications are made under Section 12A, but registration is granted under Section 12AB, pending applications for five-year registration could potentially be granted ten-year period, if approved after April 1, 2025.

Section 80G Approvals Also Extended to Ten Years?

Currently, Section 80G approvals for donors’ tax deductions are granted for five years, requiring renewal to be made separately from Section 12AB registration. Since no corresponding amendment has been made to Section 80G, small charities will still need to renew this approval every five years, maintaining compliance burdens.

Concerns with the Proposed 10-Year Registration Rule

While the extension of registration validity to ten years aims to reduce compliance for smaller charities, its practical impact is limited due to the following reasons:

a) Most Smaller Charities Are Excluded

Majority of charitable organisations do not apply for provisional registration before commencing activities. Instead, they directly apply for registration under Section 12A(1)(ac)(vi) after starting their operations, which is not eligible for the ten-year benefit.

As a result, many small charities will continue to receive only a five-year registration, reducing the intended compliance relief.

b) No Relief for Section 80G Approvals

The amendment does not extend the validity of Section 80G approvals, which are required for donors to claim tax deductions. This means that despite the longer tenure for Section 12AB registration, charities must still renew their 80G approval every five years.

c) No Ease of Compliance

The amendment only increases the registration tenure—it does not simplify the registration process or reduce documentation requirements. Charitable institutions must still undergo scrutiny, furnish detailed records, and comply with all procedural formalities for registration.

Maintaining books of accounts, audits, and filing ITR-7 continue to be mandatory. Smaller charities, which often lack dedicated financial resources, will still struggle with complex regulatory requirements. compliance burden remains unchanged, making the ten-year extension more symbolic than materially beneficial. Only if further clarifications or additional amendments are introduced to address these gaps, these changes can truly provide meaningful relief to charitable institutions.