Dear Trustees, Dont forget to renew your registration under Section 12AB: The Silent Compliance That Could Cost Trusts Their Exemption
Charitable and religious trusts are known for serving society, but in the eyes of the Income Tax Department, even the noblest institutions must comply with deadlines and forms. One such compliance, often overlooked, is the renewal of registration under Section 12AB.
While the Finance Act, 2025 tried to bring relief by extending validity for small trusts, the reality is that many trusts are still unaware of the approaching deadline of 30th September 2025. Ignoring this could have serious consequences – including the dreaded Section 115TD exit tax, which can wipe out years of accumulated charitable wealth.
What the Law Says
• Registrations under Section 12AB (and earlier Section 12AA) were generally granted for 5 years, up to AY 2026–27 (i.e., 31 March 2026).
• Under Section 12A(1)(ac)(ii), renewal must be applied for at least 6 months before expiry. This makes 30 September 2025 the key deadline for most trusts.
• Failure to renew means the registration lapses, and the trust loses its tax exemption.
The Finance Act, 2025 Amendment
• A proviso to Section 12AB(1) now extends validity from 5 years to 10 years for small trusts (income not exceeding ₹5 crores, before exemption under Sections 11 & 12).
• This amendment is meant to reduce compliance burden, but confusion remains since existing certificates still show validity only up to AY 2026–27.
Until CBDT clarifies, trusts cannot assume automatic extension. A conservative approach is safest.
Why This Matters: The Shadow of Section 115TD
Section 115TD – also called the exit tax provision – comes into play if a trust’s registration is cancelled, not renewed, or becomes invalid. The law treats this as if the trust has converted into a non-charitable entity and imposes tax on its accreted income (i.e., the entire value of assets minus liabilities).
This is not a routine penalty – it is a crippling levy, often 30% plus surcharge and cess, on the entire net worth of the trust.
Thus, non-renewal of Section 12AB registration is not a mere compliance miss – it can effectively end the trust’s tax-exempt status and drain its resources.
Advisory for Trusts & Institutions
1. Do Not Ignore 30 September 2025
Even if you believe your trust qualifies for the 10-year validity, file Form 10AB before the deadline.
2. Check Your Income Levels
If your income (before exemption) exceeds ₹5 crores, the 10-year relaxation does not apply. Renewal is mandatory.
3. Don’t Forget 80G
The 10-year benefit applies only to Section 12AB. Registrations under Section 80G are still valid only for 5 years and must be renewed by 30 September 2025.
4. Maintain Proper Records
Keep your audited accounts, activity reports, and trustee resolutions ready, as these may be required during renewal.
5. Consult Your Advisor Early
Last-minute filing risks errors, which could also invite cancellation.
A Wake-Up Call
For many trusts, renewal under Section 12AB is “out of sight, out of mind.” But this is one compliance that cannot be taken lightly. The Finance Act, 2025 may have given some relief, but until CBDT issues clarity, the safest course is simple:
File your renewal in Form 10AB by 30 September 2025.
Because losing registration is not just about future exemption – it can trigger Section 115TD exit tax, a risk too big for any charitable institution to bear.
Closing Thought
Charity begins at home, but compliance begins with a deadline. Trusts and institutions must treat 12AB renewal as their top priority in 2025. The message is clear: better to file and stay safe, than to ignore and face Section 115TD.
