The Finance Act 2020 and 2021 has brought in some dynamic changes in respect of the exempted Trusts, Societies, NGOs, Charitable Trusts, Section 8 Companies including educational, medical and/or religious institutions complying with the certain rules of registration under the Income Tax Act, 1961 (the Act). The registrations were perpetuity in nature, and their registrations could be invoked in the only certain scenario. The registrations under the former legislation were a cumbersome process without any time limit. The registration under section 12AA of the Act will be redundant from 1st April 2021 and the new section 12 AB has replaced the old section 12 A for registration purposes. This new incorporated section 12AB of the Act will have a new regime of the registration process by prescribing the time frame for processing the application and a limited validity of such exemption for five years only. The objective to digitize the process of registration with a fixed timeline is to curb the malpractices that have been noticed in the functioning of some of such institutions in the judicial and official scrutiny of the granted lifelong exemptions. The intention of the legislature is clear to provide the tax benefit only to those which carry on genuine charitable activities. Even the existing charitable institutions are required to apply for fresh registration under the new provisions of Sec 12AB of Income Tax Act. 

CAG Audit Report 20 of 2013

The Ministry may consider providing suitable data base of registered trusts/institutions to AOs to have co-ordination between Approving Authorities and AOs.

The Finance Minister in her Budget Speech while presenting the Union Budget 2020 on 01.02.2020 has announced the following measures undertaken under the Income Tax Act for the Charitable Institutions-

“Acknowledging the important role played by the charitable institutions in the society, the income of these institutions is fully exempt from taxation. Further, donation made to these institutions is also allowed as deduction in computing the taxable income of the donor. Currently, a taxpayer is required to fill the complete details of the donee in the income tax return for availing deduction.

In order to ease the process of claiming deduction for donation, it is proposed to pre-fill the donee’s information in taxpayer’s return on the basis of information of donations furnished by the donee. This would result in hassle-free claim of deduction for the donation made by the taxpayer.

Further, in order to claim the tax exemption, the charity institutions have to be registered with the Income Tax Department. In the past, the process of the registration was completely manual and scattered all over the country.

In order to simplify the compliance for the new and existing charity institutions, I propose to make the process of registration completely electronic under which a unique registration number (URN) shall be issued to all new and existing charity institutions. Further, to facilitate the registration of the new charity institution which is yet to start their charitable activities, I propose to allow them provisional registration for three years.”  

Explanatory Memorandum 

Rationalising the process of registration of trusts, institutions, funds, university, hospital etc and approval in the case of association, university, college, institution or company etc. 

The present process of registration of trusts, institutions, funds, university, hospital etc u/s12AA or under sub-clauses (iv), (v), (vi) or (via) of clause (23C)of s.10, and approval of association ,university, college, institution or company etc need improvement with advent of technology and keeping in mind the practical issue of difficulty in obtaining registration /approval /notification before actually starting the activities.

It is also felt that the approval /registration /notification for exemption should also be for a limited period, say for a period not exceeding 5 years at one time, which would act as check to ensure that the conditions of approval /registration /notification are adhered to for want of continuance of exemption. This would in fact also be a reason for having a non-adversarial regime and not conducting roving inquiry in the affairs of the exempt entities on day to day basis, in general, as in any case they would be revisiting the concerned authorities for new registration before expiry of the period of exemption.

This new process needs to be provided for both existing and new exempt entities.

The new registration procedure prescribed under section 12AB was supposed to be rolled out from 01.06.2020 and end by 31st August 2020, which was deferred and extended to 01.10.2020 and end by 31st December 2020 but considering the pandemic situation, it has been extended to 01.04.2021 and hence now all existing trust have to re-register themselves under section 12AB from 01.04.2021. Both the renewal of registration u/s 12A or section 12AA, as well as renewal of approval under section 80G, is being deferred. The legislative amendments were introduced by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 which has further extended the new registration and other procedure under section 12AB and other sections to 01.04.2021. These amendments were carried out in all the related provisions which were introduced by the Finance Act, 2020. Hence, the new provisions related to charitable trusts and other institutions shall now apply from the financial year 2021-22.

For this purpose, the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 has to amend the related provisions in a two-way manner. Firstly, the amendments in this Act have withdrawn all the amendments made by the Finance Act, 2020 in the Income Tax Act, 1961. Since the provisions of Finance Act, 2020 was notified on March 22, 2020, it becomes necessary to roll back the amendments so far introduced in the Income Tax Act. This has brought all the relevant provisions to the pre-amended position. Secondly, the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 has amended the Income Tax Act to introduce all these amendments from April 1, 2021.

The Government notified the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 on 29 September 2020 after receiving the President of India’s assent. The Act seeks to enact legislative amendments in direct and indirect tax laws which were introduced by the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 as a COVID-19 pandemic relief measure. It also legislates subsequent relaxations provided vide the Ordinance and Notification/Press Releases.

Then the Central Board of Direct Taxes makes the rules further to amend the Income-tax Rules, 1962called the Income-tax (6th Amendment) Rules, 2021 came into force on the 1st day of April, 2021.The Government also notified G.S.R. 212(E).—In exercise of its powers conferred by clauses (i), (ii), (iii) and (iv) of first proviso to clause (23C) of section 10, ninth proviso to clause (23C) of section 10, sub-clauses (i) (ii), (iii), (iv), (v) and (vi) of clause (ac) of sub-section (1) of section 12A, sub-section (3) of section 12AB, first and fifth proviso to sub-section (1) of section 35, sub-section (1A) of section 35 , clauses (i), (ii), (iii) and (iv) of first proviso to sub-section (5) of section 80G, third proviso to sub-section (5) of section 80G and clauses (viii) and (ix) of sub-section (5) of section 80G, read with section 295 of the Income-tax Act, 1961 (43 of 1961),

Thus, the highlights for the new regime are as follows:

  • The Government is aiming to create a national register of all charitable entities, and eliminate the defunct and inactive ones through these amendments. Until now the process of the registration was completely manual and scattered all over the country. The newly created national register aims to better regulate the registration procedure, thereby streamlining spending in the philanthropy and CSR space. The amendments seem to be in accordance with the proposed CSR draft rules (rule no.4), dated 13th March 2020 which aim at higher adherence and compliance by the eligible partners for CSR activities.
  • The entire scheme of registration procedure u/s 12AB will be online though not faceless.
  • All trusts currently registered u/s12A /12AA to make an application for registration to Pr CIT/CIT (Exemptions) within 3 months from 1st April 2021 (between 1st April 2021 to 30th June 2021)
  • Registration to be granted u/s12AB for a period of 5 years by PrCIT with in a period of 6 months from end of month in which the application is made. Hence, the new registration procedure under section 12AB is not a permanent like earlier but for a limited period.
  • To apply for renewal of s.12AB registration at least 6 months before end of 5 years registration.
  • In case of renewal u/s 12AB Principal CIT to call for documents and make enquiries to be satisfied about the Genuineness of activities of the trust and for Compliance of requirements of any other law as are material for the purposes of achievement of its objects. After satisfaction about objects of the trust, genuineness of activities and compliance with requirements of other laws, Principal CIT to grant registration for period of 5 years within 6 months from end of month in which application made. If Principal CIT is not satisfied, application is to be rejected, and registration to be cancelled after affording opportunity of being heard.
  • In the case of new trust ,new trusts applying for registration u/s 12AB to apply for registration one month prior to commencement of previous year relevant to assessment year from which registration sought
  • All trusts whose application u/s 12AA pending as on1.4.2021 where no order passed, deemed to be applications made as above
  • Provisional Registration to be granted u/s12AB for a period of 3 years from assessment year from which registration sought by Principal CIT with in a period of 1 month from the end of the month in which the application is made
  • Trust Modifying Objects not Conforming to Conditions of Registration Application to be made for registration within 30 days from date of adoption or modification of objects and Same procedure as cases of renewal of registration
  • The procedure relating to approval/ registration/ notification of certain entities referred to in sections 10(23C), 12AA, 35 and 80G of the Act have been rationalized
  • Similarly, amendments made vide the Finance Act, 2020, in sections 35 and 80G of the Act for intimation, filing statements before the income-tax authorities and furnishing certificates to donors, etc., with effect from 1st April 2021.
  • Consequently, references of section 12AB in section 115TD, section 115BBDA and section 56 have been omitted and are introduced from 1st April 2021. The Finance Act, 2020 amended Section 56(2)(x) w.e.f. 01.06.2020 to provide that the amount received by an individual or a HUF from any trust or institution registered under section 12AB of the Act shall not be deemed as ‘Income from other sources’. This provision is effected from 1st April 2021. Finance Act, 2020 amended section 115BBDA to exclude any trust or institution registered under section 12AB from the list of the specified assessees being subjected to the tax at 10% on dividend income exceeding Rs. 10 lakh in aggregate.
  • There is no provision to condone the delay for shifting to the new registration regime
  • There is no concept of or any provisions related to the surrender of registration in the Income Tax Act. One cannot go out of charity at his own wish since; earlier full exemption was claimed on the income. However, there are exit provisions related to the cancellation of registration.
  • The Finance Act, 2021 has also made significant changes in the provisions governing such institutions to eliminate the possibility of unintended double deduction / double-counting while calculating application or accumulation of funds.
  • Now, due to the amendment, Corpus contributions received after 1 April 2021 are to be mandatorily invested in specified manner by such qualifying organisations. This is a pre-requisite to avail tax exemption in respect of Corpus contributions.
  • Now, it has been specifically clarified that excess of expenditure over income, if any, cannot be carried forward. The intention is that minimum 85% application should be met on a year-on-year basis out of current year’s contributions for claiming tax exemption. To further solidify this position, set-off or deduction of excess application of earlier year(s) for meeting the minimum 85% application threshold in the subsequent year(s) has been specifically prohibited.
  • Educational or medical institutions are entitled to avail tax exemption under Section Effective 1 April 2021, this limit stands revised upwards to Rs. 5 Crores.
  • Reregistration for confirming the modification of object clause.
  • No duel benefit. Registration to be made operative if it becomes in-operative due to approval under section 10(23C)/10(46).
  • The new regime w.e.f from 1st April 2021 will have major effect on the following.

– Already registered Charitable/Religious Trust, Society, Company, Institution , fund under Section 12A/12AA need to be re-registered under section 12 AB.

-Already approved Educational and Medical Charitable/Religious Trust, Society, Company, Institution, fund under Section 10 (23) are required to get reapproval.

-Provisional registrations and the conversion of provisional registration in to a normal registration.

-The new Charitable/Religious Trust, Society, Company, Institution, fund will require getting their registration under Section 12AB. Option and registration gone.

-Renewal of Registration granted under section 12AB

  • The six forms such as FORM NO. 3CF (rules 5C, 5D, 5E and 5F) – Application for registration or approval FORM NO. 10AB (rule 2C or 11AA or 17A) Application for registration or approval FORM NO. 10AC (See rule 2C or 11AA or 17A) Order for registration or provisional registration or approval or provisional approval FORM NO. 10AD(See rule2C or 11AA or 17A) Order for registration or approval or rejection or cancellation FORM No. 10BD (rule 18AB) [e-Form] Statement of particulars to be filed by reporting person under clause (viii) of sub-section (5) of section 80G and clause (i) to sub-section (1A) of section 35 of the Income-tax Act, 1961 FORM NO. 10BE (rule 18AB) Certificate of donation under clause (ix) of sub-section (5) of section 80G and under clause (ii) to sub-section (1A) of section 35 of the Income-tax Act, 1961 have been notified on 26th March, 2021.
  • Due date for filing of return for Trusts liable for audit u/s 12A(1)(b) extended to 31st October. (Earlier it was 30th September)

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Author was Member of ICAI- Regional Research Committee 2013-14 and ICAI- Committee For Direct Taxes 2011-12 and can be reached at email [email protected] or on phone Phone: 0 1 2 1-2 6 6 1 9 4 6. Cell: 9 8 3 7 5 1 5 4 3 2 having office at 1 1 5, Chappel Street, Meerut Cantt, UP, INDIA) View Full Profile

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