“Stay vigilant, trustees of charitable trusts! Navigate through Income Tax Act amendments, budget impacts, and compliance nuances affecting your trust’s operations. Essential insights for smooth trust management.”
We know that since last 6 to 7 years, Income Tax Act-1961, introducing harsh provisions, which become headache for the trustees as well as auditors of the Charitable and Religious trusts, to conduct the activities of the trust smoothly.
Budget 2017-18:
- If one trust give corpus donation to other trust, donor trust will not get deduction of that donation, before this it was allowable.
- If objects of the trust is to be amended, trust will have to inform Principal Chief Commissioner of Income Tax (Exemption), within 30 days.
- If trust is not able to file its return of income within due date, trust will not get exemption of Section 11 of the Act, i.e. no deduction of any expenditure is available.
- Political Party Trust cannot accept donation in cash, for more than Rs.2,000/
Budget 2018-19:
- When any trust make payment to any person, on which Tax is to be deducted, if trust has not make tax deduction or forget to deduct tax, trust has to pay tax @ 30% on that amount. If trust make payment of Rs. 1,00,000 for expenditure on which tax is to be deducted, and trust forget to deduct tax, trust is liable to pay tax @ 30% i.e. Rs. 30,000.
- If the tax has been deducted and for get to deposit in government treasury, before submitting return of income, trust will not get deduction of the amount and is liable pay tax @ 30%
- If the trust has make payment in cash to a person more than Rs. 10,000 in a day, trust will not get deduction of that amount.
Budget 2019-20:
- From 1st September, 2019 on words, Principal Chief Commissioner of Income Tax can asked for any document from trustee, if he is not satisfy with the documents which are lying with him.
- Power for cancellation of Trust registration at any time by Principal Chief Commissioner of Income Tax has been given, if trust has not follow the provisions of any other Acts.
Budget 2020-21:
Since 1972, when section 11, 12 and 13 were added to the Income Tax Act, 1961, once registration was granted to the trust was for the life time. In this budget a new provision was introduced that from 1st June, 2020 all the trusts which are registered under Income Tax Act, have to make an application for re registration along with all the documents like, Trust Deed or Constitution of Trust, last three years audit report, copy of registration certificate issued u/s 12A or 12AA of the Act, copy of registration with charity commissioner or any authority, details of all the trustees, like PAN, Adhar Card, Resident address, mobile no, email id etc. all the documents must be in English language.
This details are to be submitted before 30th September, 2020, which was extended up to 31st March, 2021, there after 30th September 2021 and lastly 31st March, 2022.
Budget 2021-22:
Amendment in Section 10(23C)
Under this section 10(23C) of the Income Tax Act, 1961, educational and medical trusts are covered and get 100% exemption of their income since last 40 years. Other charitable trusts, NGOs are following under section 11 and 12 of the Income Tax Act, 1961. Under section 10(23C), schools, colleges, universities, hospitals were working smoothly without any disturbance and all the income of these institutions were tax free.
From assessment year 2022-23, there were no difference with intuitions following u/s 10(23C) and section 11 and 12. The institutions which are enjoying deductions under both the sections i.e. 10(23C) and 11 and 12 have to select only one section for exemption that is either 10(23C) or 11 & 12.
Under Section 10(23C), mostly following institutions were covered, Educational and Medical whose annual receipts were below Rs. 5 crors were fully exempt. If the gross receipts are more than Rs. 5 crors they may take the permission of Chief Commissioner of Income Tax, for exemption.
Treatment of Corpus Donations:
Under the existing provisions of the Income Tax Act, 1961, corpus donations received by trusts, institutions, funds etc. are exempt.
These entities are not allowed to accumulate more than 15% of their income or in specified cases, accumulated for specific purpose up to 5 years.
Voluntary contributions made within a specified direction that it shall form part of Corpus are required to invested or deposited one or more of the forms or modes specified in section 11(5) of the Act.
Application for charitable or religious purposes from the corpus as refered to in clause (d) of this subsection, shall not be treated as application of income for charitable or religious purposes.
Treatment of Expenditure incurred out of Borrowed Funds:
There are instances, wherein the charitable institutions have been found to be claiming amount incurred out of the borrowed funds as application of income and also based on judicial precedents, repayment of loans also has been claimed as an application in few cases.
In order to put an end to such controversy and to bring in clarity in the law, the following amendment were proposed.
Applications from loans and borrowings shall not be considered as application for charitable or religious purposes. However when loans and borrowing is repaid from the income of previous year, such repayment shall be allowed as application in previous year in which it is repaid to the extent of such repayment.
Treatment of unabsorbed deficit/excess application of earlier years:
The deficit arising out of excess expenditure over income during the earlier year, can be set off against the surplus of income relating to subsequent year in computing taxable income of the later A.Y.
Raising of prescribed limit for exemption to certain entities under section 10(23C):
Section 10(23C) (iiiad) and (iiiae) provides for exemption for the income received by any person on behalf of university or educational institution/ hospital or institution as the case may be, the exemption is available to referred entities if their annual receipt does not exceed the prescribed amount of Rs.1Cr. the said limit was increase to Rs. 5 Cr.
Budget 2022-23:
- Books of Accounts to be maintained:
It was proposed to prescribe the books of account to be maintained in the form and manner as well as the place, as may be prescribed.
- Penalty for providing unreasonable benefits:
To discourage the misuse of the property of the trust, it is proposed to insert new section 271AAE to provide penalty to the trust.
(1) Where the trust or institution has passed unreasonable benefits to trustee or any specified persons, it will be penalized with the sum equal to the value of the benefits passed, at the first instance of such a 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 provisions of the Act.
- If the trust has any business income, books of account for that is to be kept separately.
Budget 2023-24:
- Treatment of donation to other trusts:
The income of the trust is exempt subject to the fulfilment of certain conditions, some of such conditions are as under:
(1) At least 85% of the income of trust should be applied during the year for the purposes of the trust.
(2) Trusts are allowed to either apply mandatory 85% of their income either themselves or by making a donation to the trust with similar objects.
(3) If donated to other trust, donation should not be towards corpus to ensure that the donations are applied by the done trust.
Thus, every trust is allowed to accumulate 15% of its income each year.
In order to plug loophole and possible misuse of this provision, it is proposed that only 85% of the eligible donations made by a trust to another trust shall be treated as application.
- All the trusts have to get their accounts audited and send audit report in Form No 10B/10BB before 30th September of every year. If audit is not submitted within time, trust will not get deduction of section 11 and 12.
- Form No 10B, is to be submitted by a trust whose gross receipts are more than Rs. 5 Cr. Or received any donation from outside India or spend any amount outside India.
- Form No 10BB, is to be submitted by a trust whose gross receipts are more than Rs. 2,50,000 but less then Rs. 5 Cr.
It seems that now a days it become very difficult for the trustees of any charitable or religious trust to provide services for trust. They should be much care full about the activities and accounting of the trust.
Author Bio
very nice analysis of amendments in the assessments of trust casessince past 5 years