Introduction:
It is mandatory for every charitable trust to obtain registration under Section 12AB of the Income Tax Act in order to claim exemptions under Sections 11 and 12. If your trust was registered under Section 12AB For the AY 2022–23, the registration remains valid until the AY 2026–27. Therefore, it is essential to reapply for registration under Section 12A(1)(ac)(ii) before 1st September 2025, that is at least six months prior to the expiry of the current registration period.
This article aims to provide clarity on the implications of non-renewal or cancellation of registration under Section 12AB, along with the consequences of failing to apply for re-registration under Section 12A(1)(ac)(ii). We will also explore the remedies available to trusts in such situations, and discuss the assessment procedures applicable to trusts that are not registered under Section 12A or 12AB of the Income Tax Act.
Cancellation of Provisional /Permanent Registration and Appeal
Once a trust is provisionally registered under Section 12A(1)(ac)(vi)(A), it is mandatory to apply for permanent registration either within six months from the commencement of its activities or at least six months before the expiry of the provisional registration period—whichever is earlier.
Failure to comply with this requirement will result in the cancellation of the provisional registration by the Income Tax Department. Moreover, if the trust has claimed any exemption under Sections 11 or 12 during the period of provisional registration, it will not be eligible to apply for Fresh/New registration under any provision of the Act after such cancellation.
Unlike the Goods and Services Tax (GST) regime, the Income Tax Act does not permit fresh registration following the cancellation of an earlier registration if the trust has already availed deductions under Sections 11 or 12 and has filed Form ITR-7 in any of the previous years.
In such cases, the provisions of Section 115TD (exit tax) may also be triggered, as the trust would be considered to have accreted income due to the cancellation of its registration while having availed tax benefits.
To avoid the consequences of exit tax under Section 115TD and to retain eligibility for exemptions under Sections 11 and 12, filing an appeal against the cancellation becomes the only available remedy for the trust.
The same principle applies in the case of permanent registration as well. If your trust’s registration is cancelled—whether due to non-compliance, such as failure to respond or delay in responding to notices issued by the Hon’ble Commissioner in proceedings of renewal of registration—then the trust becomes ineligible to apply for Fresh/New registration under Sections 12A or 12AB, provided it has already claimed exemptions under Sections 11 and 12 in any of the previous years.
In such circumstances, filing an appeal against the cancellation remains the only remedy available to the trust.
Practical Challenges and Hardships Faced by Small Trusts
However, the existing procedure is quite lengthy and complex, often leading to undue hardship, especially for small charitable trusts. Delays in responding to notices issued by the Income Tax Department have become increasingly common, and in many cases, registrations are cancelled solely due to procedural lapses—not due to any misconduct or non-genuine activity.
Post-cancellation, many trusts lack access to expert guidance on the appropriate course of action, leaving them vulnerable to serious consequences, including tax liability under Section 115TD (exit tax). This happens despite the fact that such trusts may be genuinely operational and continuing their charitable activities in good faith.
As a result, these procedural complexities and difficulties in interpreting the law are causing genuine trusts to lose out on tax benefits that they would otherwise be entitled to, solely due to technical or procedural non-compliance.
Reapplication after Cancellation of Provisional Registration
Furthermore, if the trust has filed ITR-5 and has not claimed any exemption under Sections 11 and 12, despite having obtained provisional registration, then it remains eligible to apply for fresh/new registration after cancellation of provisional registration, under Section 12A(1)(ac)(vi)(B)—i.e., after the commencement of its activities.
In such cases, the provisions of Section 115TD (commonly referred to as the “exit tax”) will not apply, as the trust has not availed any benefits under Sections 11 or 12. Consequently, there is no accreted income reflected in the financial statements, and therefore, no tax liability arises under the exit tax provisions due to cancellation of registration where exemptions were not claimed.
Failure to Apply for Renewal-Registration (Every 5 Years/10 Years from AY 2025-26 for small Trust)
If a trust is already registered but fails to apply for re-registration within the prescribed timeline—i.e., at least six months before the expiry of the existing registration—it will become ineligible to claim tax exemptions under Sections 11 and 12 for subsequent financial years. Additionally, the trust may become liable to pay tax under Section 115TD on its accreted income, even if the trust continues to carry out genuine charitable activities.
Condonation of Delay in Filing Re-Registration Application
However, the delay in filing the re-registration (Renewal of Existing Registration) application may be condoned by the Hon’ble Principal Commissioner or Commissioner provided there is a reasonable cause for such delay. As per the proviso to Section 12A(1)(ac):
“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.”
This provision offers relief to trusts that fail to meet the prescribed timeline due to genuine and justifiable reasons.
Dual Assessment Framework and Compliance Burden on Trusts:
Under the current legal framework, the assessment of a trust follows a dual-track approach. The first aspect involves the evaluation of the genuineness of the trust’s activities, which forms the basis for granting or renewing registration. The second aspect pertains to the assessment of the application of income towards charitable purposes, which includes self-assessment, statutory audit, and, where applicable, regular scrutiny assessments by the Income Tax Department.
This structure effectively means that the law first determines whether the trust is genuinely engaged in charitable activities, and, upon satisfaction, grants registration. Subsequently, it verifies whether the income derived from trust property has been appropriately applied towards the trust’s stated charitable objects.
However, this layered assessment mechanism results in significant procedural complexity and compliance burden for trusts. Trusts are often required to furnish the same proofs of income application at multiple stages—first to auditors during statutory audits, then to the Department during assessments, and again during the registration or re-registration process.
Thus, although the law separately mandates registration, audit, and assessment of income application, in practice, this leads to repetitive compliance for the same financial year and with the same authority, solely to establish the genuineness of the trust’s activities. This redundancy imposes a heavy compliance load, particularly on smaller trusts with limited administrative capacity.
Assessment of Unregistered Trusts:
In the case of unregistered trusts, voluntary contributions are treated as income under Section 2(24)(iia) of the Income-tax Act. The relevant extract of Section 2(24) defines income as including:
(iia): Voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes.
These voluntary contributions are taxable under the head “Income from Other Sources.” after allowing deduction for expenses incurred for earning such income. However, if the trust is also engaged in other activities that generate income—such as membership fees, monthly charges for availing benefits of old age homes, or nominal health check-up fees—then it is permissible for the assessee to furnish a complete Profit and Loss Account and disclose income from these sources. In such cases, ITR-5 can be used for filing the return.
Providing detailed particulars of the Profit and Loss Account and Balance Sheet in ITR-5 also facilitates easier assessment by the tax authorities, helping them understand the nature of income, application of funds, and activities undertaken by the trust.
It is a common misconception that unregistered charitable trusts are taxed at the Maximum Marginal Rate (MMR) under Section 167B. However, this is not accurate.
The CBDT Circular No. 320 dated 11-01-1982 clearly clarifies:
“………
2. A question has been raise whether the provisions of section 167A of the Income-tax Act which provide for charging of tax at the maximum marginal rate on the total income of an association of persons where the individual shares of members in the income of such association are indeterminate or unknown would also apply to income receivable by trustees on behalf of provident funds, superannuation funds, gratuity funds, pension funds, etc., created bona fide by persons carrying on business or profession exclusively for the benefit of the persons employed in such business. The Board have been advised that cases where income received by the trustees on behalf of a recognised provident fund, approved superannuation fund and approved gratuity fund is governed by section 10(25) of the Income-tax Act, the question of their being charged to tax does not arise. So far as cases where income is receivable by the trustees, on behalf of an unrecognized provident fund or an unapproved superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession are concerned, they will continue to be charged to tax in the manner prescribed by section 164(1)(iv) of the Income-tax Act, as hitherto.
Similarly, in the cases of registered societies, trade and professional associations, social and sports clubs, charitable or religious trusts, etc., where the members or trustees are not entitled to any share in the income of the association of persons, the provisions of new section 167A will not be attracted and, accordingly, tax will be payable in such cases at the rate ordinarily applicable to the total income of an association of persons and not at the maximum marginal rate.”
This principle equally applies to Section 167B, as the intent and interpretation remain consistent.
Trustees of a charitable trust are not beneficiaries of the trust; rather, the public at large benefits from the trust’s activities. Hence, applying MMR under Section 167B is inappropriate in such cases.
1.This has also been upheld by the Hon’ble Income Tax Appellate Tribunal (ITAT), Pune Benches “SMC” in the case of:
National Association of Interlocking Surgeons vs. ITO, Exemption Ward-1(2), Pune
“We again find no reason for application of section 167B of the Act, prescribing the maximum marginal rate in the instant case, which is one of a charitable trust. Section 167B, as a reading of the provision would show, is only where the shares of the beneficiaries of the trust are not known. The assessee, registered as a charitable trust, is a public body and, accordingly, there is no question of it’s beneficiaries being individual members, whose shares have therefore to be defined. The application thereof in the instant case is wholly misconceived. The matter in fact stands clarified by the Board per it’s Circular No. 320, dated 11/01/1982, also binding on the Revenue. The tax rate accordingly is to be computed as per the normal rates as applicable to Association of Persons. The same, in our view, is again an apparent mistake and, where contested, outside the ambit of s. 143(1)((a) in the first instance, so that it could not have been effected there-under.””
Further section 167B is not applicable in case of Societies registered under Societies Act 1860, so if your trust registered under societies act along with Bombay Public Trusts Act then section 167B will not be applicable to you and there will be no Maximum Marginal Rate of tax in your case.
This has been reiterated by the Hon’ble ITAT:
“11. The assessee is a society registered under Societies Act, 1860 as evidenced from the registration certificate. The facts are similar in this ITA Nos.2816, 2817 and 2560/PUN/2024 National Association of Interlocking Surgeons case, therefore, following the decision of coordinate bench and section 167B of the Act, we hold that the income of the assessee is to be taxed at normal rates but not at maximum marginal rate, accordingly, we set aside the order of the Ld. CIT(A) and allow the appeal of the assessee on this ground.”
2. ITAT, Delhi in case of Vidya Vihar Shiksha Samiti vs ACIT (7641 ITR Delhi 2019)
The assessee is a registered society with charitable objects and is running two recognized educational schools and in respect of income derived therefrom (aggregate receipts Rs. 1,46,73,932/-) filed its return of income in Form ITR-7 u/s 139(4A) of the Act, declaring total income of Rs. 2,40,752/- without claiming any exemption u/s ll/12/10(23C)(iiiad)/10(23C)(vi) of the Act, as the society is neither registered u/s 12A nor approved u/s 10 (23C) (vi) of the Act. In the intimation u/s 143(1) dated 10.03.2016 CPC charged maximum marginal rate without allowing the basic exemption limit.
Held that assessee is entitled to claim expenditure against gross receipts and also entitled to claim basic exemption limit and tax rate applicable was normal tax rates (as applicable to an individual assessee) instead of Maximum Marginal rate.
3. Further even though Unregistered trusts ineligible to claim exemptions/deductions under section 11 and 12 but they still can claim deduction for their revenue expenditures from the income derived from the trust property
“In Annadaneshwara Charitable Trust v. Income-tax Officer [2023] 156 taxmann.com 270 (Bangalore – Trib.) it was held that in the absence of the registration under the relevant sections, there cannot be any application of income. However, the gross receipts cannot be taxed in the hands of the assessee trust. The income earned by the assessee and expenditure relatable to the earning of such income is to be allowed as a deduction. The AO was directed to examine the financials of the assessee and allow the expenditure which have been incurred for earning the income of the assessee. Since in the absence of registration under section 12AA of the Act, there is no question of any application of income.”
Therefore it is clear from the above that Unregistered trusts can file ITR-5, claim legitimate business/revenue expenses and depreciation, and are taxable at normal AOP tax rates, not MMR.
They are also eligible to opt for the new default tax regime under Section 115BAC, enjoying higher basic exemption limits with reduced compliance requirements.
Therefore, small-scale charitable trusts, especially those operating independently without significant reliance on donations, may consider not registering under Sections 11 and 12 and instead benefit from lower compliance and greater tax flexibility under the new regime.
Benefit of Section 10(23)(iiiad) and 10(23)(iiiae):
If your trust has the following objectives and its aggregate annual receipts do not exceed five crore rupees, you may claim exemption under these provisions of the Income Tax Act even without obtaining registration under the Act.
(iiiad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of the person from such university or universities or educational institution or educational institutions do not exceed five crore rupees; or
(iiiae) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, if the aggregate annual receipts of the person from such hospital or hospitals or institution or institutions do not exceed five crore rupees.
Therefore if your trust has above objectives then no need to register under section 12AB or under first proviso to section 10(23).
Extension of Trust Registration Validity from 5 Years to 10 Years:
If the total income of the 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, then validity of period of approval of 12AB Registration has been enhanced from 5 Years to 10 Years.
It will reduce the compliance burden and enhance smooth functioning of small trust.
However, this extended validity applies only to trusts that are either renewing their registration after the initial five-year period or transitioning from provisional registration to regular (permanent) registration. It does not apply to trusts registering for the first time under Section 12AB—the validity period for first-time registration remains unchanged.
Conclusion:
The legal and regulatory framework governing the taxation and assessment of charitable and religious trusts has become increasingly complex, with multiple layers of compliance, strict deadlines, and evolving procedural requirements. In this landscape, it is essential for trustees and administrators to have a clear understanding of the implications of non-renewal or cancellation of registration, especially in light of non-compliance with statutory notices or procedural lapses.
Equally important is staying informed about the latest amendments, such as the extension of registration validity from 5 years to 10 years in specific cases, and the applicability of tax provisions to unregistered trusts. Understanding these provisions enables trusts to make well-informed decisions—whether choosing to operate with or without registration—while ensuring compliance, minimizing tax exposure, and maintaining operational continuity.
In summary, timely action, awareness of regulatory developments, and proper tax planning are critical for the sustainable and compliant functioning of charitable institutions in today’s dynamic regulatory environment.
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