Since last 5 years we find that there are certain amendments under sections 11 to 13, pertaining to Charitable Trust. It seems that a day may come, that the administration of all Charitable Trust may be with Government.
One can say that Taxation of Charitable Institutions have been under scanner in recent times and Government has, in last few years, have brought in various amendments in the relevant provisions governing taxation of Charitable Institutions.
The Finance Bill, 2022 proposes to make some further as well as consequential amendments in various provisions of the Act.
- In the entire discussion, trusts and institutions are bifurcated in major two regimes.
( a ) Regime for any fund and institution [trust, university, educational institution, medical institution) referred to in sub clause (iv), (v), (vi) and (via) of clause 10(23C) ( hereinafter referred to as “the first regime” ];
( b ) Regime for the trust registered under section 12AA/12AB [ referred to as ‘ the Second Regime”]
- The Finance Bill proposes to rationalize the provisions of both the regimes by-
1. Ensuing effective monitoring and implementation;
2. Bringing consistency in the provisions; and
3. Providing clarity on taxation.
- Ensuring effective monitoring and implementation:
- Books of Account to be maintained
It is proposed to prescribe the books of account to be maintain in the form and manner as well as at the place, as may be prescribed, in case of trusts of the both the regime in case the total income [without giving effect of the exemption available under section 10(23C) or section 11 and 12] exceeds the maximum amount not chargeable to tax.
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- Penalty for providing unreasonable benefits
To discourage the miss use of the trust property, it is propose to insert new section 271AAE to provide penalty to the trusts of both the regime in specified case, accordingly-
1. Where the trust or institution under any of the both regimes has passed unreasonable benefits to the trustee or any specified persons, it will be penalized with the sum equal to the value of benefits passed, at the first instance of both the violation.
2. The penalty shall be double the amount of such benefits passed, if such violation is noticed again in any subsequent year.
3. The penalty shall be in addition to any other penalty leviable under any other provisions of the Act.
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- It is also proposed to amend the provisions of the Act regarding the violation by the trusts of one or more specified types and the handing of the such violations by the Principal Commissioner or Commissioner.
- “Specified Violations” is proposed to be defined as following in case of second regime trusts-
a. Income of trust is applied for purposes other than the object of the trust.
b. Trust has income from business not incidental to the objects of the trust or separate books of account are not maintained for the business which is incidental to the objects.
c. Trust has applied any part of its income for private religious purposes and not for the benefit for the general public.
d. Trust for charitable purposes and created after commencement of this Act, has applied any part of the income for the benefit or any particular religious community or cast.
e. Activity carried out by the trust is
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- Not genuine; or
- Not carried out in accordance with the conditions of registration
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f. Trust has not complied with the requirement of any other law.
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- Bringing consistency in the provisions:
Provisions related to accumulation of income.
a. In case of second regime of trusts, where the income is not utilized by the trust for the purpose for which it is accumulated or set a part, it is proposed to amend the provision s of section 11(3) to provide that such income shall be deemed to be the income of the previous year being the last previous year of the for which the income is accumulated or set apart.
b. In case of first regime trusts, it is proposed that any accumulated income shall be deemed to be the income of the previous year in which the following event takes place:
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- Income is applied for purposes other than the objects of the trust or the income ceases to remain accumulated / set apart;
- Income ceases to remain invested/deposited in any specified modes;
- Income is not utilized for the purpose for which it was accumulated / set apart within the specified period;
- Income is transferred to any other trust under the first or second regime.
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c. Provisions related to payment to specified persons
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- It is proposed to insert proviso the section 10(23C) so as the provide that where the income or property of a trust under the first regime is applied directly or indirectly for the benefit of any specified person, such part of income or property shall be deemed to be the income of such person for the previous year in which it is so applied.
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d. Providing clarity on taxation:
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- Allowing certain expenditure in case of denial of exemption
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It is proposed to provide that where a trust under the second regime violates the prescribed conditions of section 12A, its income chargeable to tax shall be computed after allowing the expenditure ( other than capital expenditure) incurred in India for the objects of the trust, subject to the fulfillment of the following conditions:
a) The expenditure is not incurred from the balance of corpus fund as at the last date of the year preceding the year for which the income is being computed;
b) The expenditure is not from any loan or borrowing;
c) Depreciation is not claimed on any asset, the acuquision cost of which was claimed as allowable application of income in any year;
d) The expenditure is not in the form of any contribution or donation to any person.
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- It is also proposed to provide that the provisions of section 40(a)(ia), 40A(3) and 40A(3A) as applicable to the determination of business income shall also apply in determining the amount of allowable expenditure.
- Provisions on the same lines are also proposed to be inserted for the trust under the first regime.
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