The Finance Bill, 2025, proposes amendments to Section 12AB of the Income-tax Act to rationalize rules concerning the cancellation of registration for trusts and institutions. Currently, under sub-section (4) of Section 12AB, a “specified violation,” including incomplete or inaccurate applications under Section 12A(1)(ac), can lead to registration cancellation and tax liabilities on accreted income. The amendment aims to exclude incomplete applications from being treated as “specified violations.” Additionally, the bill introduces a provision under Section 12AB(1) extending the registration period for trusts or institutions with total income not exceeding ₹5 crores (before applying exemptions under Sections 11 and 12) from five years to ten years, for applications made under specific sub-clauses. These changes seek to provide clarity and reduce undue penalties on minor procedural lapses, effective from April 1, 2025.
Budget 2025: Rationalisation of ‘specified violation’ for cancellation of registration of trusts or institutions
Sub-section (4) of the section 12AB inter alia provides that where registration or provisional registration of a trust or an institution has been granted and subsequently, the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year, the Principal Commissioner or Commissioner shall, pass an order in writing, cancelling the registration of such trust or institution if he is satisfied that one or more specified violations have taken place.
2. Explanation to sub-section (4) of the said section provides that “specified violation” inter alia means the cases where the application referred to in clause (ac) of sub-section (1) of section 12A is not complete or it contains false or incorrect information.
3. It is noted that even minor default, where the application referred to in clause (ac) of sub-section (1) of section 12A is not complete, may lead to cancellation of registration of trust or institution, and such trust or institution becomes liable to tax on accreted income as per provisions of Chapter XII-EB of the Act.
4. It is, therefore, proposed to amend the Explanation to sub-section (4) of section 12AB so as to provide that the situations where the application for registration of trust or institution is not complete, shall not be treated as specified violation for the purpose of the said sub-section.
5. These amendments will take effect from the 1st day of April, 2025.
[Clause 7]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 7 of the Bill seeks to amend section 12AB of the Income-tax Act relating to procedure for fresh registration.
Sub-section (1) of the said section, inter alia, provides for the procedure for registration or cancellation of registration of trust or institution by the Principal Commissioner or Commissioner, on receipt of an application made under clause (ac) of sub-section (1) of section 12A.
It is proposed to insert a proviso to the said sub-section to provide that where an application is made under sub-clause (i) to (v) of the said clause, and the total income of such trust or institution, without giving effect to the provisions of sections 11 and 12, does not exceed rupees five crores during each of the two previous year, preceding to the previous year in which such application is made, the provisions of this sub-section shall have effect as if for the words “five years”, the words “ten years” had been substituted.
Sub-section (4) of the said section, inter alia, provides that where registration or provisional registration of a trust or an institution has been granted and subsequently, the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year, the Principal Commissioner or Commissioner shall, inter alia,—
(i) call for such documents or information from the trust or institution, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence or otherwise of any specified violation;
(ii) pass an order in writing, cancelling the registration of such trust or institution, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years, if he is satisfied that one or more specified violations have taken place;
Explanation to sub-section (4) of the said section provides that “specified violation”, inter alia, means the application referred to in clause (ac) of sub-section (1) of section 12A is not complete or it contains false or incorrect information.
It is further proposed to amend the Explanation to the said sub-section so as to omit the words “is not complete or it” so that the incomplete application referred to in clause (ac) of sub-section (1) of section 12A, is not treated as a specified violation.
These amendments will take effect from 1st April, 2025.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
7. Amendment of section 12AB.
In section 12AB of the Income-tax Act,
(a) in sub-section (1), the following proviso shall be inserted, namely:––
‘Provided that where an application is made under sub-clauses (i) to (v) of the said clause, and the total income of such trust or institution, without giving effect to the provisions of sections 11 and 12, does not exceed rupees five crores during each of the two previous years, preceding the previous year in which such application is made, the provisions of this sub-section shall have effect as if for the words “five years”, the words “ten years” had been substituted.’;
(b) in sub-section (4), in the Explanation, in clause (g), the words “is not complete or it” shall be omitted.
