Time for Charitable Trust to get New Registration with Income Tax Department
One of the sectors where substantial changes are carried out by the Government is with regard to the taxation of charitable trust, NGO & other institutions which are claiming tax exemptions. Charitable trusts & other institutions were earlier required to get income tax registration or approval u/s 12A, 12AA or u/s 10(23C). Now, this provision for registration and renewal has been changed drastically with effect from 01.04.2021. Let us know about the key changes proposed in this regard to this:
- Registration & Approval: Earlier Regime vs. Proposed Regime
Earlier Regime
Earlier, for tax exemption, charitable trusts were required to get itself registered u/s Section 12AA (U/s 12A for trusts registered prior to 1996) of the Income Tax Act-1961. Further, registration once granted u/s 12A, 12AA or 10(23C) used to be valid unless and otherwise it is cancelled by the authority. Now, for tax exemption, the trust has to get itself registered u/s 12AB.
b) Donors are eligible to get the income tax benefit against its donation u/s 80G only if the charitable Trusts are approved u/s 80G. Approval u/s 80G once granted used to be valid until cancelled by the authority.
c) University, Educational Institution, Hospital or other Medical Institution were eligible for tax exemption u/s 10(23C) only if they were approved by the Income tax authorities. Approval once granted u/s 10(23C) was operative unless & otherwise cancelled by the authority.
New Regime:
a) All the existing Charitable Trusts and other Institutions registered u/s sections 12A, 12AA or 10(23C) will have to apply afresh for registration under the new provisions of sections 10(23C) or 12AB on or before 30/06/2021.
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). In short, now registration will be there for a limited period of 5 years at any one point of time. 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.
c) Where a Trust or Institution has made modification in its objects and such modifications do not conform with the conditions of registration, application has to be done again with the designated authority within 30 days from the date of such modification.
- Concept of “Provisional Registration” for the New Trust:
a) New concept of the “Provisional Registration” is incorporated in the Income Tax Act-1961 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. - 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 30.06.2021.
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. - Income Tax Rules have been amended so as to prescribed various new forms for registration by the trust & institutions. The categories of the trust, applicable forms and the time limits for application & approval is summarized as under:
| S.No. | Applicability to the Trust or Institutions | Applicable Form, Time limit for application | Time limit for CIT / PCIT for approval or Rejection |
| 1 | Trust or Institution having existing registration u/s 12A or 12AA or 10(23C) [Now, Section 12A or 12AA is to be superseded by New Section 12AB] |
Application is to be done in Form No. 10A within 3 months from the 01.04.2021 | It has to be done within 3 months from the end of the month in which the application is received |
| 2 | Trust or institution which have already got registered u/s 12AB and the period of the said registration is due to expire (It may be noted that section 12AB is under new process, effective from 01.04.2021) | Application is to be done in Form No. 10AB at least 6 months prior to expiry | It has to be done within 6 months from the end of the month in which the application was received |
| 3 | Trust or institution has been provisionally registered u/s 2AB | Application is to be done in Form No. 10AB at least 6 months prior to expiry of period of the provisional registration or within 6 months of commencement of its activities, whichever is earlier | It has to be done within 6 months from the end of the month in which the application was received |
| 4 | Where registration of the trust or institution has become inoperative due to the first proviso to sub-section (7) of section 11 (Registration u/s 12A or 12AA shall become inoperative from the date on which the trust or institution is approved u/s 10(23C) | Application is to be done in Form No. 10AB at least 6 months prior to the commencement of the assessment year from which the said registration is sought to be made operative | It has to be done within 6 months from the end of the month in which the application was received |
| 5 | Trust or institution has adopted or undertaken modifications of the objects which do not conform to the conditions of registration | Application is to be done in Form No. 10AB within a period of 30 days from the date of the modification. | It has to be done within 6 months from the end of the month in which the application was received |
| 6 | Any other case (including provisional registration) | Application is to be done in Form No. 10A, at least 1 month prior to the commencement of the previous year relevant to the assessment year from which the said registration is sought and such trust or institution is registered u/S 12AB | It has to be done within 1 month from the end of the month in which the application was received |
[Note: Existing Form 10A has been replaced by new Form 10A]
Though all above changes were made applicable from 1st June, 2020, the pandemic delayed its applicability to 1st April, 2021. 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.
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