Finance Bill 2025: Key Amendments Impacting Charitable Trusts
Charitable trusts and institutions have historically faced complex compliance requirements, including frequent renewals, extensive documentation, and stringent reporting standards. These obligations often diverted resources away from their core charitable activities. Over the last few years, the charitable trusts were further subject to higher and complex tax and compliance provision. However, the Finance Bill – 2025 is different from the last few years’ budget. It has proposed few significant amendments benefitting the charitable trusts and institutions in India. These changes aim to streamline compliance, redefine key terms and provide greater clarity in the governance of charitable entities. Let us have an overview of the key amendment & its impact on the charitable organizations.
1. Extended Registration Validity for Smaller Trusts:
Under the Income-tax Act, 1961, charitable trusts and institutions are required to obtain registration under Section 12AB to avail tax exemptions on their income. At present, the validity of this registration is set at five years necessitating periodic renewals and associated compliance efforts.
The Finance Bill 2025 proposes a delightful change. It proposes to extend the registration validity for smaller trusts and institutions from five years to ten years. This extension applies to trusts with a total income (before exemptions under Sections 11 and 12) not exceeding ₹5 crores in each of the two preceding financial years. This change aims to reduce the administrative burden on smaller charitable organizations, allowing them to focus more on their philanthropic activities. By doubling the registration validity period, smaller trusts can now operate with greater certainty and reduced compliance obligations. This amendment is expected to enhance operational efficiency and encourage the growth of charitable activities among smaller organizations. This means less paperwork and more time to focus on charitable endeavors.
2. Treatment of Incomplete Applications at the time of Trust Registration:
At present, submitting an incomplete application for registration or approval is considered a “specified violation” under the Income-tax Act. Such violations had the potential to lead to the cancellation of the trust’s registration, posing significant challenges for the continuity of their operations.
The Finance Bill 2025 clarifies that incomplete applications will no longer be treated as specified violations. This means that if a trust or institution submits an application lacking certain information or documentation, it will not automatically result in the cancellation of their registration. Instead, authorities may provide an opportunity to rectify the deficiencies.
This amendment offers relief to charitable organizations by ensuring that minor administrative oversights do not lead to severe consequences. It promotes a more supportive regulatory environment, encouraging compliance and rectification rather than penalization.
3. Redefinition of ‘Specified Person’:
Under Section 13(3) of the Income-tax Act, certain transactions between a charitable trust and specified persons could lead to the denial of tax exemptions. Previously, individuals contributing an amount of ₹50,000 or more in aggregate were classified as specified persons, which could inadvertently include minor donors and impose unnecessary compliance requirements. The aim was to set in place a focus regulatory scrutiny on significant contributors.
The Finance Bill 2025 revises the definition of a specified person by increasing the contribution threshold. Now, an individual will be considered a specified person if their total contribution exceeds ₹ 1 lakh during the relevant financial year or ₹10 lakhs in aggregate up to the end of the relevant financial year. Additionally, the amendment excludes ‘relative’ and ‘concern in which such a person has substantial interest’ from being categorized as specified persons under Section 13(3). It will reduce the compliance burdens associated with smaller donations. It ensures that only substantial contributors are subject to the specified person provisions, allowing trusts to engage with minor donors without additional regulatory concerns.
Conclusion:
In the last few years, the Government has introduced stringent compliance and penal provisions for charitable trusts, often making charity more difficult than running a business. However, the Finance Bill 2025 marks a welcome shift in this approach. Unlike previous years, no new harsh provisions have been introduced. The amendments proposed in the Finance Bill 2025 reflect a concerted effort to modernize and simplify the regulatory environment for charitable trusts and institutions in India. By extending registration validity, relaxing the definition of specified person & restricting the power of cancellation of trust for minor default, the Government aims to foster a more supportive atmosphere for philanthropic activities. These changes are poised to enhance operational efficiency, reduce administrative burdens, and encourage the growth and effectiveness of charitable organizations across the country.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
