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.
