Recent Income Tax Amendments for Registered/ Approved Charitable / Educational/ Medical Institutions

Income Tax: Amendments For Registered/ Approved Charitable / Educational/ Medical Institutions, In The Recent Time Dated: 20.04.2021

♦ SECTION 2(15): defines Charitable Purpose significant includes relief of the poor, education, medical relief  and SECTIONS 11, 12, 12A, 12AA,12AB and 13 deal with scheme of tax exemption in respect of income, its application and accumulation of charitable  trusts/ institution subject to  fulfilment of certain conditions. BJP Government has made frequent changes in their period having far reaching effect on duly registered / approved charitable / educational/ medical institutions, note of which have to be taken for the required compliance. These amendments at one place are as under for the needful action:

• RE-REGISTRATION OF CHARITABLE INSTITUTIONS: Such Institutions have to apply to get registration again under new Section 12ABwhich deals with the procedure for fresh registration. Extended time for submitting the application is 30th June 2021. However the institutions will now have to decide whether to claim exemption under Section 10(23C) or Section 11 of the Act. Thus once the registration becomes operative under Section 12AB, the trust or institution will not be entitled to exemption under Section 10(23C)/ 10(46).Now the registration will be valid for a specified period, that is up to 3 years (for provisional registration) or maximum period of 5 years, as the case may be.
• SECTION 80G: Similarly, for exemption of donations u/s 80G, the entities required to make fresh application for registration under this section by the specified date, Extended time for submitting the application is 30th June 2021. Further, the deduction under this section to a donor shall be allowed only if a statement is furnished by the donee in respect of donations received and in the event of failure to do so, fee and penalty shall be levied. Hence, a new reporting obligation has been imposed on the institutions receiving donation. Further, these institutions shall be required to issue a certificate to the donor and the claim for deduction to the donor may be allowed on that basis only. The information in the ASD should generally contain the donor details such as the Name, Address, PAN Number, Aadhar Number and Amount donated. • Donors will get deduction only based on ASD filed by the Trust. It is akin to Form 26AS TDS Credit. Incase there is a delay in filing ASD, a late fee of Rs. 200/- per day shall be applicable u/s. 234G, which is mandatory. Fees to be paid before delivering the ASD or before furnishing the certificate. • A penalty of Rs. 10,000/- is also provided which may go up to Rs. 1,00,000/- u/s. 271K(Applicable from 1^st April, 2021).

♦ FILING OF TAX AUDIT REPORT AND ITR  DUE DATES CHANGED: The Finance Act 2020 provide that audit report shall be furnished by the assessee at least one month prior to the due date of filing of return of income. The due date of filing of return of income for audit cases is provided to be increased from September 30 to October 31 of the Assessment Year. Thus, accordingly, audit reports shall be required to be furnished on or before September 30 of the Assessment Year.[Applicable from Assessment Year 2021-22]

♦ DONATIONS IN CASH ABOVE Rs.2000/-: The Finance Act 2020 has specified that no deduction shall be allowed to the donor under Section 80GGA in respect, of donation exceeding amount of Rs. 2,000/- unless donation is paid in any mode other than cash.

♦ DEDUCTION OF TDS AS PER PROVISIONS OF CHAPTER XVII-B OF THE ACT: applicability of the provisions of sub-clause (ia) of clause (a) of section 40 and sub-sections (3) and (3a) of section 40aFor the purposes of determining the amount of application by the charitable trusts, these  3 provisions of section 40 and section 40A, shall apply as in computing the income chargeable under the head “Profits and gains of business or profession….these 3 provisions are :

• SUB-CLAUSE (IA) OF CLAUSE (A) OF SECTION 40: 30 % disallowance of interest paid to the resident without deduction of TDS;
• SUB-SECTIONS (3) OF SECTION 40A: Disallowance of cash payment exceeding Rs. 10000.00 in a day to a person:
• SUB-SECTIONS (3A) OF SECTION 40A: Where a provision is made in respect to any liability but in the following year its payment made exceeding Rs. 10000.00 in cash in a day, disallowance will be in such subsequent year.

Thus, now trusts will be mandatorily required to deduct TDS as per provisions of Chapter XVII-B of the Act to claim expense as the application of Income.

• CARRY FORWARD OF LOSS: It is provide that charitable trusts shall not be permitted to claim carry forward of loss, will take effect from assessment year 2022-2023.
• Mandatory Requirement of obtaining PAN for the Trustees: Section 139A is amended to this effect.

♦ CORPUS DONATIONS/ VOLUNTARY CONTRIBUTIONS TO BE INVESTED IN THE PRESCRIBED MODES IN SECTION 11(5):

(i) Under the existing provisions of the Income-tax Act, 1961, corpus donations/ voluntary contributions received by trusts/ institutions, with a specific direction that they shall form part of the corpus, are exempt i.e. shall not be included in the total income of the trust or institution. Now it is provided that –For the purposes of determining the amount to be included in the application under this new provision – :

(ii) Application of income(receipts) from the corpus as referred to in Explanation 1, shall not be  treated  as  application  of  income  for  charitable  or religious purposes  unless the amount, or part thereof, is invested or deposited back, into one or more of the forms or modes specified in sub-section (5) of section 11 maintained specifically for such corpus i.e. It shall be restricted to be   allowed from the income of that year and that also to the extent of such investment or deposit of the relevant year, will take effect from assessment year 2022-2023.

♦ SIMILARLY, APPLICATION OF INCOME OUT OF  LOANS AND BORROWINGS: raised by the charitable trusts shall not be considered as an application for charitable or religious purposes till the time the said loan or borrowing is repaid from the income of the previous year, in which case such repayment shall be allowed as an application in the previous year in which it is repaid to the extent of such repayment will take effect from assessment year 2022-2023.

♦ SET OFF OF EXCESS APPLICATION OF PRECEDING PREVIOUS YEAR(S) NOT ALLOWABLE: the calculation of income required to be applied or accumulated during the previous year shall be made without any set off or deduction or allowance of any excess application of any of the year preceding to the previous year;” will take effect from assessment year 2022-2023.

♦ RELIEF TO SMALL INSTITUTIONS: Smaller educational and medical institutions to whom section 10(23c)  sub-clauses (iiiad) and (iiiae) are applicable  given relief, annual receipts limit increased from Rs, 1 Crore to Rs. 5 Crores to be covered for registration process and the applicable conditions will take effect from assessment year 2022-2023.

♦ DONATION TO SIMILAR  EXEMPTED ENTITIES WITHDRAWN: Application of income i.e. payment  to the similar  exempt  entities as prescribed in the fourteenth proviso of sections 11,  shall no more be treated as application.

♦ PROVISIONS  WHERE THE CHARITABLE INSTITUTION CEASES TO EXIST : Levy of tax where the charitable institution ceases to exist or converts into a non-charitable organization[.(Secs.115 TD to 115TF) inserted wef-1.6.2016 will take effect from assessment year 2016-17]  Accreted income of the trust or institution shall be taxable @ Maximum Marginal Rate  on conversion of trust or institution into a form not eligible for registration u/s 12 AA or  on merger with an entity not having similar objects & registration u/s 12AA or  on non-distribution of assets on dissolution to any charitable institution registered u/s 12AA or approved u/s 10(23C) within 12 months from the end of the month of dissolution.

Specified date means the date of Conversion 5 then, in addition to the income-tax chargeable in respect of the total income of such trust or institution, Levy of tax where the charitable institution ceases to exist or converts into a non-charitable organization [Effective from 1st June, 2016] the accreted income of the trust or the institution as on the specified date, shall be liable to pay additional income-tax (herein referred to as tax on accreted income) at the maximum marginal rate….A new Chapter XII-EB is inserted :— Section 115TD. . will take effect from assessment year 2016-17.

• ACCUMULATION OF INCOME U/S 11 NOT ALLOWABLE IN CERTAIN CASES: Form no. 10 and return of income in Form 7, i.e. both shall be filed before the due date of filing of return of Income as specified u/s 139. In case the Form 10 and/ or form 7 are not submitted before this date, then the benefit of accumulation would not be available and such income would be taxable at the applicable rates respectively.

AMENDED PROVISIONS W.E.F. 1-04-2016   further provide that; a) form 10 should contain the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated, which shall in no case exceed five years; b) the money so accumulated or set apart is invested or deposited in the modes specified in sub-section (5) to Section 11 [Effective from 1st April, 2016].

• APPLICATION OF INCOME IN CAPITAL EXPENDITURE: It is clarified that in case 100% capital cost has been claimed as an application (expenditure), no further deduction on allowance of depreciation would be permitted. Amendment in Section 11 and 10(23C) [w.e.f. 01.04.2015.].
• CANCELLATION OF REGISTRATION: Power given to CIT under section 12AA for cancellation of  registration granted earlier in cases of  income is applied to purpose other than charitable  purposes or violation of provisions of any LAWS by the charitable trusts and Institutions. However, it will be hold good till the cancellation of registration w.e.f. 01.09.2019.
• SURVEY U/S 133A: the tax authorities have been given power to conduct surveys under section 133A on trustees and places of activity for charitable purposes.