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Amendments of Charitable and Religious Trusts in Finance Bill 2020

The following Amendments have been proposed by the Finance Bill , 2020 towards Rationalisation of Provisions relating to Charitable and Religious Trusts. [ Applicable from 1st  June , 2020]

Charitable or religious trusts are constituted to promote the welfare of public, hence, the Income-tax Act provides exemption to any income derived from property held under trusts for charitable or religious purposes, provided the income of such trusts is not misused or diverted to non-charitable objects.

Sections 11, 12 and 13 are special provisions governing taxation of charitable or religious institutions. Section 11 of the Act provides for grant of exemption in respect of income derived from property held under trust for charitable or religious purposes to the extent to which such income is applied or accumulated during the previous year for such purposes in accordance with the provisions contained in sections 11, 12, 12A, 12AA and 13 of the Act.

The following amendments have been proposed by the Finance Bill, 2020 in these sections.

1.    Amendments towards Extended Benefit of Exemption under Section 10(46) even if registered under Section 12AA i.e. Charitable and Religious Trusts from Assessment Year 2021-22

Entities which have been granted registration under section 12AA shall not be entitled to any exemption under any provision of section 10 [other than relating to exemption of agricultural income under Section 10(1) and income exempt under section 10(23C)]. The Finance Bill, 2020 proposes to extend the benefit of section 10(46) to such entities. It has been proposed that exemption under section 10(46) shall be allowed to an entity even if it is registered under section 12AA subject to the condition that the registration under Section 12AA shall become inoperative from the date on which the entity is approved under Section 10(23C)/(46) or 01-06-2020, whichever is later. If the entity wishes to make its registration under Section 12AA/12AB operative in the future, it will have to file a fresh application and then its approval under clause (23C) or (46) of the section 10 shall cease to have any effect from the date on which the registration becomes operative.

However, it has not been clarified that whether the above restrictions on switching between the exemption regimes will also apply in case of entities registered under Section 12AA and claiming exemptions under various sub-clauses of Section 10(23C) where the exemption is direct without any necessity of format approval such as Sub-clause (iiiab) or (lilad) of Section
10(23C).

2.    Amendment of new Section 12AB dealing with New Scheme for Fresh Registration of Charitable and Religious Trust in Finance Bill 2020 [Applicable from Assessment Year 2021-22]

Section 12A prescribes the conditions for applicability of sections 11 and 12 and Section 12AA deals with the procedure for registration of trust. Every application for registration shall be made in Form 10A along with the prescribed list of documents.
The Finance Bill 2020 proposes to insert a New Section 12AB dealing with the procedure for fresh registration. Hence, the current procedure for registration prescribed under section 12AA shall be applicable only up to 31st May 2020.

A summary of new provisions related to registration of charitable and religious trusts proposed in the Finance Bill 2020.

S.
No.

Type of Entity

Timeline to make
Application for Registration

Applicability of exemption
u/s 11. & 12

Validity of
Registration

Time limit to grant
registration

1.

Trust registered under Section 12A or 12AA be- fore relevant provisions of Finance Bill, 2020 comes into force

Within 3 months from the date on which this clause has come into force i.e. by 31.08.2020

From the assessment year from which such trust or institution was earlier granted registration

Registration shall be granted for a period of 5 years.

Within 3 months from the end of the month in which the application is received.

2

Trust registered under the proposed section 12AB and the period of the said registration is due to expire.

At least 6 months prior to expiry of the said registration period

From the assessment year immediately following the financial year in which such application is made.

Registration shall be granted for a period of 5 years after satisfying about the conditions of the section.

Within 6 months from the end of the month in which the application is received.

3.

Trust provisionally registered under
section I2AB

Atleast6months prior to expiry of period of the provisional registration or within 6 months of commencement of its activities, which- ever is earlier

From the first of the assessment years for which it was provisionally registered

Registration shall be granted for a period of 5 years after satisfying about the conditions of the section.

Within 6 months from the end of the month in which the application is received.

4.

Registration has become inoperative due to approval under
S. 10(23C)/ (46).

Atleast6months prior to the commencement of the assessment year from which the said registration is sought to be made operative.

From the assessment year immediately following the financial year in which such application is made

Registration shall be granted for a period of 5 years after satisfying about the conditions of the section.

Within 6 months from the end of the month in which the application is received.

5.

Trust has adopted or undertaken modifications of the objects which do not conform to the conditions of registration

Within a period of 30 days from the date of the said adoption or modification

From the assessment year immediately following the financial year in which such application is made

Registration shall be granted for a period of 5 years after satisfying about the conditions of the section.

Within 6 months from the end of the month in which the application is received.

6.

In any other case

At least one month prior to the commencement of the previous year relevant to the assessment year from which the said registration is sought.

From the assessment year immediately following the financial year in which such application is made.

Provisional
registration shall be
granted for
a period of
3 years from
the assessment year
from which
the registration is sought.

Within 1 month from the end of the month in which the application is received.

All applications, pending before the Principal Commissioner or Commissioner in respect of which no order has been passed under clause (b) of sub-section (1) of section 12AA before the date on which this section comes into force, shall be deemed to be an application made in the last clause of the above table on that date in accordance with section 12AB.

Section 10(23C) exempts income received by any person on behalf of university, or other educational institutions or any hospital. Similar provisions have been inserted in case of trust or institution or university or other educational institution or hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of Section 10(23C) and claiming exemptions and registered/ seeking registration under the respective sub-clauses.

3.    Amendment to Furnish Audit Report in case of Charitable and Religious Trust on or before September 30 in Finance Bill 2020 [Applicable from Assessment Year 2021-22]

If total income of the trust before exemption under Sections 11 and 12 exceeds the maximum amount not chargeable to tax, the accounts of the trust for that year should be audited by a Chartered Accountant. The audit report shall be furnished in Form 10B along with the return of Income.

The Finance Bill 2020 proposes 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 proposed 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.

4.    Amendment of Section 12AB towards the Concept of Perpetual Registration Withdrawn in case of Charitable and Religious Trust in Finance Bill 2020 [Applicable from Assessment Year 2021-22]

As per the existing provisions of act, the registration under section 12A is one-time registration. Once the registration is granted to the trust, it will hold good till the cancellation of registration. There is no provision which requires any renewal of registration. However, the newly proposed section 12AB prescribes that registration granted to trust shall be valid for a period not exceeding five previous years at one time and for a period of three years in case of provisional registration.

5.    Amendment towards ‘Grant of Provisional Registration in case of Charitable and Religious Trust’ in Finance Bill 2020 [Applicable from Assessment Year 2021-22]

The charitable entities are granted registration on the basis of documents or information furnished before the CIT(Exemptions). The registration is granted once the commissioner is satisfied about the genuineness of the activities of such institution.

The Finance Bill 2020 proposes that such trusts or institutions shall be provisionally approved or registered for 3 years on the basis of application without detailed enquiry even in the cases where activities of the entity are yet to begin and then it has to apply again for approval or registration which, if granted, shall be valid from the date of such provisional registration. The application of registration subsequent to provisional registration should be at least 6 months prior to expiry of provisional registration or within six months of start of activities, whichever is earlier

6.    Consequential Amendment in Section 56, 115TD and 253 in case of Charitable and Religious Trust in Finance Bill 2020

After introduction of new Section 12AB in place of Section 12AA, all consequential amendments have been proposed in Sections 56, 115TD and 253 to bring the entities registered under section 12AB under their ambit.

 
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