Union Budget- 2020: New Compliances for the Charitable Trust & Institutions
One of the sectors where substantial changes are proposed by the Finance Bill, 2020 is with regard to recognition of charitable trust, NGO & other institutions claiming tax exemptions. For tax exemption, charitable trusts & other institutions are required to get income tax registration or approval u/s 12AA or u/s 10(23C). This provision for registration and renewal is all set to make a drastic change with effect from 01.06.2020. Let us know about the key changes proposed in this regard to this:
- Registration & Approval: Present Regime vs. Proposed Regime
a) Presently, the procedure for registration of Charitable Trusts for tax exemption is provided u/s Section 12AA (U/s 12A for trusts registered prior to 1996). Now, it is proposed to be governed by new section 12AB.
b) As of now, registration once granted u/s 12AA continues to be valid unless and otherwise it is cancelled by the authority.
c) Further, the Charitable Trusts are eligible for approval u/s 80G which enables its donors to get tax benefit on donation done by them. Approval u/s 80G is also valid until cancelled by the authority.
d) University, Educational Institution, Hospital or other Medical Institution can claim tax exemption u/s 10(23C) if they are approved by the authority. At present, approval once granted u/s 10(23C) is operative unless & otherwise cancelled by the authority.
a) All the existing Charitable Trusts and other Institutions registered u/s sections 10(23C), 12AA or 12A will have to apply afresh for registration under the new provisions of sections 10(23C) or 12AB on or before 31/08/2020.
b) Fresh registration will be granted for a period of 5 years only. As against registration or approval which is currently granted for perpetuity (until revoked by tax authority), it is now proposed to grant the registration for a limited period of 5 years at one point of time. c) In short, all the Trusts/Institutions which are claiming exemption u/s 10(23C) or 11 will be required to renew the registration & approval every 5 years.
d) Where a Trust or Institution has made modification in its objects and such modifications do not confirm with the conditions of registration, application has to be done again with the designated authority within 30 days from the date of such modification.
2. Concept of “Provisional Registration” for the New Trust:
a) New concept of the “Provisional Registration” is proposed for new charitable institutions, which are not already registered or which have not started any activities.
b) Such provisional registration would be valid for 3 years.
c) Such trust which are provisionally registered are required to apply for regular 5 years registration within 6 months of commencement of its activities or at least 6 months prior to expiry of 3 years.
d) It appears that such provisional registration will be granted with minimum documents & inquiry.
In short, new trust (or first timer) will not be directly given full & final registration but will be granted only provisional approval or registration. Later on, such trust may be granted regular registration after verification of its activities.
- Simultaneous Registration u/s 12AB 10(23C) Not Permissible:
Currently, there are several hospitals, schools and colleges are registered simultaneously u/s 10(23C) as well u/s 12AA. If exemption is denied u/s 10(23C) then such trust could have taken the benefit of alternative backup of section 12AA. Now, all such charitable trusts and intuitions which are currently registered u/s 10(23C) as well u/s 12AA will have to make a choice of anyone section. Simultaneous registration under both the section 10(23C) & 12AA is not allowed.
- New reporting obligation on receipt of donation.
Every such trust which is registered u/s 80G shall be required to file a statement of donations received in the prescribed manner. Deduction for donations u/s 80G to the donors shall be available only if the aforesaid statement / return is furnished by the charitable institution. Non submission of the return & statement will attracts late fee and fine.
- Due Date Of Filing Of Income Tax Return Extended to 31st October:
The due date for filing of the Income Tax Return for such institutions have also been extended to 31st October from 30th September.
- Time schedule under the new Regime:
a) All the Charitable trusts who are already registered under the existing provisions are required to apply for registration / approval On or before 31.08.2020
b) New charitable trusts applying for provisional registration under new scheme has to make an application at least 1 month prior to the commencement of the previous year relevant to the assessment year from which provisional registration is sought [Under existing regime, an application can be made in the year from which exemption is sought] c) For trust which has been provisionally registered as referred above in the new regime has to make an application within 6 months of commencement of its activities or at least 6 months prior to expiry of 3 years period, whichever is earlier.
d) Where trust has been granted registration for 5 years under the new regime and the said registration is nearer to expiry then again fresh application is required to be done at least 6 months prior to expiry of 5 years registration period.
e) Where the trust has changed or undertaken modifications of the objects clause then an application is required to be done within a period of 30 days from the date of the said modification
Undoubtedly, the new regime will ensure better accountability & transparency for trust of large magnitude. But for trust of small size, it will be an additional complex & tedious compliance burden. Most of the Trustees of the smaller charitable Trusts are rendering honorary service & such cumbersome compliance would make the noble task difficult. It would have been better if small trusts, say of total turnover up to Rs. 25 Lakh, are relieved from the new compliance burden. Apart from Ease of living and ease of business, the focus of the law maker should have been on “Ease of Charity” as well.