Charitable Trust Provisions

CHARITABLE TRUSTS PROVISIONS W.E.F 1ST APRIL 2020

Procedural Amendments related to Charitable Trusts which will be effective from 1st April 2020.

  • April 8, 2020

CHARITABLE TRUSTS (AS PER NEW FINANCE ACT, 2020)

At present, a charitable trust or institution is required to obtain registration under section 12A at the time of its inception and once such registration is granted, the same is valid till registration is withdrawn or cancelled under section 12AA(3) or section 12AA(4) of the Income Tax Act. 

The Finance Act 2020 has brought in amendments in respect of all charitable trusts or institutions claiming exemption under section 10(23C) or under section 11 of the Income Tax Act. As per the amended Act, the provisions of section 12AA shall not be applicable on or after 1st June 2020. A new clause (ac) has been inserted in section 12A applicable w.e.f.  1st June 2020.

NEW PROVISIONS APPLICABLE TO EXISTING CHARITABLE TRUSTS:

  1. All existing trusts or institutions already registered under section 12A or section 12AA are mandatorily required to obtain re-registration within a period of 3 months starting from 1st June 2020 i.e. up to 30th August 2020 and obtain registration under section 12AB.
  2. Existing trusts already registered under section 12A or section 12AA, on an application being made under section 12AB, shall be granted registration by the Principal Commissioner or the Commissioner within a  period of three months from the end of the month in which an application is received.
  3. The validity of such registration shall be 5 years.
  4. In case existing trusts already registered under section 12A or section 12AA, do not apply for registration, their registration shall stand cancelled on the expiry of three months i.e. 31st August 2020.
  5. Such trust shall not be eligible to claim an exemption on its income under section 11 of the Income Tax Act, 1961.
  6. Further, such trusts shall be required to pay tax on the aggregate fair market value of the total assets exceeding total liability of the trust or institution as on 31st August 2020 in view of the provisions of section 115TD of the Income Tax Act, 1961. The tax payable on such value shall be at the maximum marginal rate.

PROVISIONS APPLICABLE TO NEW CHARITABLE TRUSTS:

  1. As per Finance Act 2020, new trust or institution can apply for provisional registration at least 1 month prior to the commencement of the previous year relevant to the assessment year for which registration is sought.
  2. On making an application, an order shall be made granting provisional registration for a period of 3 years from the assessment year for which registration is sought.
  3. The order shall be passed by the commissioner within a period on one month from the end of the month in which an application is received.
  4. For regular registration, the trust shall apply for registration at least six months prior to the expiry of the provisional registration or within six months of commencement of its activities, whichever is earlier.
  5. On an application being made for re-registration, the  Commissioner shall call for required information and document, etc before passing an order for registration. After being satisfied with the objects of trust or institution, Commissioner shall pass an order granting registration under section 12AB of the Income Tax Act, 1961 for a period of 5 years or refusal, if not satisfied with the genuineness of the activities of the trust.

RENEWAL OF REGISTRATION

  1. Trusts or institution registered under section 12AB shall be required to apply for re-registration at least 6 months prior to the expiry of the period of registration i.e. 5 years.
  2. Commissioner shall call for information or documents and make an enquiry to satisfy himself about the genuineness of activities of the trust or institution. After being satisfied with the objects of trust or institution, Commissioner shall pass an order granting registration under section 12AB of the Income Tax Act, 1961 for a period of 5 years or refusal, if not satisfied with the genuineness of the activities of the trust.

APPROVAL UNDER SECTION 10(23C) AND/OR SECTION 80G ALSO TO BE OBTAINED

The Finance Act 2020, has brought in amendments related to section 10(23C) and section 80G also (for renewal or new certificate/registration) -provisions applicable are same as for registration under section 12AB for existing and new trusts, as mentioned above.

CHARITABLETRUST OR INSTITUTION TO FILE ANNUAL STATEMENT OF DONATION

  1. The Finance Act, 2020 has inserted clause (viii) and (ix) in section 80G(5). Under these new clauses, trust or institution approved under section 80G shall file a statement of donation received and issue certificate to donor.
  2. Deduction to the donor under section 80G is available only on the basis of and to the extent of the statement filed by the donee.
  3. In case of delay in filing such the statement, the late fee is payable at the rate of Rs 200 per day as per newly inserted section 234G of the Income Tax Act, 1961.
  4. Further, the penalty shall be levied under section 271K, which shall not be less than Rs 10,000/- and which may extend up to Rs 1 lakh in case such statement is not filed.

PSGA can help you with registration of trust under newly inserted Section 12AB and obtain approval under Section 80G.

Contact us for any related query and appointment.

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