“Understand the complexities in the taxation of Charitable Trusts post-Budget 2023. Navigate through changes in registration, donations, fund applications, and time limits. Stay compliant for tax-exempt status.”
Taxation of Charitable Trusts Becomes More Complicated After Budget 2023
It appears from the drastic changes made in recent years for the Charitable Trusts that they have lost the trust of the Government. Not only the Government, the Hon’ble Supreme Court also seems to have lost faith which is reflected in the recent judgements of Noble and AUD. Much against the expectations of giving some relief after these judgements, the Finance Act, 2023 has added more complications to the law for Charitable Trusts.
Page Contents
- 1.1 Registration of Trusts (wef 01/10/2023)
- 1.2 Donations by one trust to other trusts
- 1.3 Depositing back of Corpus and repayment of Loans
- 1.4 Restriction of 5 years on Loans and Corpus Funds
- 1.5 Trusts not-opting for regular / approval of registration
- 1.6 Reduced time limits of filing for trusts
- Dead-lines of filing for audited trusts
1.1 Registration of Trusts (wef 01/10/2023)
a) Provisional registration, which would be valid for a period of 3 years, can be applied before 1 month of the commencement of the activities of the
b) Now the regular registration can be applied directly (instead of first obtaining provisional registration) any time after the commencement of the activities of the trust, which would be valid for the period of 5 Registration can be applied before the end of the financial year in which activities are commenced.
c) By such changes, the relevance of provisional registration has been lost. Assessees are better placed to apply for regular registration itself, in place of the provisional followed by regular
1.2 Donations by one trust to other trusts
Presently, corpus donations to other trusts are prohibited. From the AY 2024-25 onwards, non-corpus donations to other trust would be eligible for 85% application of the actual amount
donated. Suppose X trust donates Rs. 100/- to Y trust, then Rs. 85/- would be treated for application of the income in the hands of X trust.
1.3 Depositing back of Corpus and repayment of Loans
Corpus Funds:
Wef AY 2022-23, the expenditure out of corpus funds are treated as `Application’ when the funds are deposited back / invested into the modes/forms prescribed under section 11(5). This amendment was aimed to restrict the `Application’ out of corpus donation so that double deduction/benefit is not claimed.
For example, X trust spends Rs. 500000/- in FY 2021-22 out of corpus funds and deposits Rs. 300000/- in FY 2022-23 in the Bank Account, kept separately for corpus funds. The
`Application’ for the purpose of computation of taxable income would be Rs. 300000/- in FY 2022-23. From AY 2024-25 onwards, a restriction has been placed on treating the amount deposited back/invested as `Application’ which was used from the corpus funds before 01/04/2021.
Loan Repayment:
Use out of the borrowed funds / loans are not treated as `Application’ at the time of borrowing. Repayment of borrowed funds/loans are treated as the `Application’ of the year in which repayment is made. From AY 2024-25 onwards, a similar restriction has been placed for the repayment of the loans taken before 01/04/2021 which is repaid subsequently. Such repayment would not be treated as `Application’
1.4 Restriction of 5 years on Loans and Corpus Funds
From AY 2024-25 onwards, amount deposited back/ invested in the Corpus Funds or repayment of the loan within 5 years of their using or borrowing, would be treated as `Application’.
For example X trust takes the loan of Rs. 10 Lacs in April, 2022 and repays Rs. 950000/- by 31/03/2028 and pays balance Rs. 50000/- in April, 2028. Then Rs. 950000/- would be allowed as `Application’ for FY 2027-28 but Rs. 50000/- would not be allowed as `Application’ in FY 2028-29.
1.5 Trusts not-opting for regular / approval of registration
Provisionally registered trusts are required to opt for regular registration before 6 months of the expiry of registration or within 6 months of commencement of the activities, whichever is earlier. Similarly, the existing trusts were re-registered u/s 12AB for the period of 5 years and now they would be required to re-apply for regular registration/approval before 6 months of the expiry of registration.
Section 115TD provides an exist route for those trusts who want to come out of exemption provisions of Section 11 to 13. After paying the tax at the Maximum Marginal Rate (MMR) on accreted income ( Difference between Fair Market value of assets reduced by the liabilities), trusts can come out of exemption provisions.
The provisions of Section 115TD have been amended from AY 2024-25 to provide that in case of failure of the trust to apply for renewal/approval of registration within the specified period, it would be deemed that trust has been converted into a form not eligible for registration or approval in the previous year in which such period expires.
1.6 Reduced time limits of filing for trusts
Form 9A / 10 are required to be filed for deferring the `Application of funds’ for succeeding year or accumulating the funds for 5 years and these can be filed, before the due date of filing the income tax return. From AY 2023-24 onwards, the due date of filing these forms has been changed to `at least 2 months prior to due date of filing income tax return’.
Trusts should now adhere to various time-lines so as to maintain their `Tax-exempt’ status. For the FY 2022-23, the following would be the dead-lines of filing for audited trusts:
Dead-lines of filing for audited trusts
| S. No. | Nature Of Filing | Name of Form | Due Date Of Filing | Consequences of Failure |
| 1. | Statement of Donations received | 10BD | 31st May, 2023 | Late Fees of Rs. 200/- per day and penalty for failure from Rs. 10000/- to Rs. 100000/- |
| 2. | Certificate of Donation | 10BE | -do- | -do- |
| 3. | Filing form for use of funds in succeeding year due to non-receipt/late-receipt of funds in 22-23 | 9A | 31st August 2023 | Loss of exemption |
| 4. | Filing form for accumulation of funds for 5 years | 10 | 31st August 2023 | Loss of exemption |
| 5. | Audit Report | 10B | 30th September 2023 | Loss of exemption |
| 6. | Filing Income Tax Return | ITR-7 | 31st October 2023 | Loss of exemption and late fees/ penalties for non-filing |
Author Bio
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