Trust as per Section 3 of The Indian Trusts Act is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner or declared and accepted by him, for the benefit of another, or of another and the owner”
In short, the trust constitutes a legal relationship & not a separate juridical entity. If such trust is of charitable nature i.e. Public Charitable Trust (PCT), the income derived from the property of the trust is exempt from income-tax under the purview of section 11 of the Act. However, for being eligible to claim the exemption, a trust must get itself registered under section 12AA of the Act.
Also, certain clauses under section 10(23C) provides exemption various institutions as specified therein.
However, this budget has dynamically changed the scenario pertaining to the registration of such trust or institutions under the Income-tax Act.
Before discussing further, it is pertinent to mention that the said amendments, as per Finance Act, 2020 were applicable from 1st June, 2020. However, due to unprecedented situation caused due to the Covid-19, the applicability of the aforementioned provisions have been deferred to 1st October, 2020.
The first change which is very important is change in the registration process for charitable trust to avail the benefit of section 11 of the Act. Section 12A of the Act which states the conditions for applicability of section 11 and 12 has been amended to include clause (ac), which, notwithstanding anything contained in clauses (a) to (ab) states that the a trust or an institution have to make application with the Principal Commissioner or Commissioner for registration of the trust as per table beneath:
|Sr. No.||Category of the trust||Time Limit for applying for registration|
|1||Trust already registered u/s 12A or section 12AA||Within three months from 01st October 2020|
|2||Trust registered under section 12AB and the said period id about to expire||At least six months prior to the expiry of the said period.|
|3||Trust provisionally registered under section 12AB||At least six months prior to the expiry of the said period or within 6 months of commencements of activities
whichever is earlier
|4||Registration becomes inoperative due to interplay of first proviso i.e. when such trust of institution is approved under section 10(23C) or notified under clause 10(46).||At least 6 months prior to the commencement of the assessment year from which the said registration is sought to be operative|
|5||On modification of the objects of the trust which do not conform to the conditions of the registration.||Within a period of 30 days from the date of the said adoption or modification of the objects.|
|6||In any other case||At least one month prior to the commencement of the previous year|
Section 12A has also been amended to clarify the obvious that when the institution already registered is granted registration under section 12A or 12AA, and now is granted registration as per section 12AB, the provisions of section 11 and 12 shall continue to so apply from the date of earlier registration.
Also, when the trust or institution is provisionally registered under section 12AB and thereafter granted a definite registration, provision of section 11 and 12 shall continue to apply from the date of such provisional registration.
It is also reasonable that section 12AA has be amended to insert a sun-set clause to the effect that this section shall cease to operate from 1st June, 2020 after which section 12AB shall be governing the registration process.
However, it is pertinent to mention that the earlier leverage of one-time registration under section 12AA has been done away with and now the trust or institution has to, after every 5 years apply for registration under section 12AB. The process of registration is tabulated as beneath
|Sr. No.||Category of the trust||Procedure for registration||Time Limit for passing order|
|1||Trust already registered u/s 12A or section 12AA||Trust shall be registered for for a period of 5 years.||before 3 months from the end of the month in which application is made|
|2||Trust registered under section 12AB and the said period id about to expire||When the application is received under sub-calluses (ii) to (v), then,
The PCIT or CIT has to call for documents and information as he may deem fit to verify the geniuses of the activities of the trust & compliance with any other law & pass an order registering the trust for a period of 5 years or rejecting such application if not so satisfied or canceling the registration.
|before 6 months from the end of the month in which application is made|
|3||Trust provisionally registered under section 12AB|
|4||Registration becomes inoperative due to interplay of first proviso i.e. when such trust of institution is approved under section 10(23C) or notified under clause 10(46).|
|5||On modification of the objects of the trust which do not conform to the conditions of the registration.|
|6||In any other case||Pass an order for registering the trust provisionally for the period of three years from the Assessment Year from which the registration is sought.||before 1 month from the end of the month in which application is made|
Similar amendments have been brought in section 10(23C) w.r.t. institutions as referred in clause (iv), (v), (vi) or (via) such as institutions for charitable or for public religious and charitable purposes, educational institutions existing solely for educational purposes and not for profit, hospitals which are not for profit respectively except 4 or 5 in the table above as the same is not applicable to the institutions referred to in section 10(23C).
Apart from the amendments in the registration process there is a pertinent amendment to section 10(23C) which excludes income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of institutions referred to in sub-clause (iv),(v),(vi) or (via) of section 10(23C).
However, now no trust can treat such voluntary contribution made with a specific direction that they shall form part of the corpus to any institution as referred in the above paragraph as application of income. Amendment to similar effect has been made to section 11 of the Act.
Now coming to the last leg of it is necessary to appreciate that donations made under section 80G to such institutions or trust shall now be reported to the Income-tax Authority by such trust or institution.
However, registration process under section 80G has also been amended with similar effect as that of section 12AB & section 10(23C) except point 4 or 5 in the table above as the same is not applicable to the registration under section 80G.