Big Changes in Charitable Trust and Exempt Institution Taxation

Union Budget- 2020: New Compliances for the Charitable Trust & Institutions

One of the sectors where substantial changes are proposed by the Finance Bill, 2020 is with regard to recognition of charitable trust, NGO & other institutions claiming tax exemptions. For tax exemption, charitable trusts & other institutions are required to get income tax registration or approval u/s 12AA or u/s 10(23C). This provision for registration and renewal is all set to make a drastic change with effect from 01.06.2020. Let us know about the key changes proposed in this regard to this:

Proposed changes effective from 1st June 2020:

i. All existing registrations, approvals, etc. granted to exempt entities under Sections 10(23C), 12AA, and 80G, or notifications under Section 35 of the Act would become inoperative from 1st June 2020.

ii. Exempt entities which were already approved, registered or notified under Section 10(23C), or 12AA or 35 shall have to apply afresh within 3 months (i.e. by 31.08.2020) for approval or registration etc. On their doing so the approvals etc. shall be made valid for five years from 1st April 2020.

iii. Entities already approved under Section 80G of the Act shall also have to apply for fresh approvals, whereupon the approval granted to them shall be made valid for five years.

iv. All pending applications under the current provisions of Sections 10(23C), 12AA, 35 and 80G shall be deemed to have been made under the new provisions and shall be processed according to the new procedure.

v. Henceforth entities making a fresh application for registration/ approval under Sections 10 (23C), 12AB, or 80G of the Act shall have to apply within one month prior to the commencement of the year from which such registration/ approval etc. is sought. Such entities will be first granted provisional approval for three years based on information in their application without detailed enquiry.

vi. Exempt entities granted provisional approval will then have to make application of regular registration at least six months prior to the expiry of the provisional registration or within six months of the start of their activities, whichever is earlier.

vii. In the case of applications for grant of regular registration/ approvals etc. under Sections 10(23C), 12AB and 80G the Commissioner will have power to call for documents and make necessary inquiries to satisfy himself about – (a) the genuineness of activities of the applicant trust or institution or university or hospital or institution etc.; and (b) compliance by it with such requirements of any other law in force as are relevant for achieving the objectives of the applicant.

On being satisfied with the objects of the applicant entity, the genuineness of its activities, and its compliance with the requirements of the other laws applicable to it the Commissioner may grant approval to it for five years.

If the Commissioner is not so satisfied, he may reject the application and cancel its approval after giving a reasonable opportunity of being heard. An appeal will lie to Tribunal against orders rejecting grant of registration or cancelling the registration.

viii. Applications for renewal of regular registrations/ approvals will have to be filed six months prior to the expiry of existing registration/ approval.

ix. In case subsequent to grant of registrations/ approvals it is found that the activities of the exempt entity are not being carried out in accordance with the provisions of the Act or that it has not complied with requirements of any other applicable law, the Commissioner may cancel the registration after giving a reasonable opportunity of being heard.

x. All exempt entities registered under Section 35 or 80G of the Act will have to file periodic ‘statement of donations’ received by them giving prescribed particulars of the donors, electronically.
xi. Deductions under Sections 80G and 80GGA of the Act to donors to the exempt entities will be granted only on the basis of such ‘statement of donations’ filed by them. In case of delays in filing of these statements, the exempt entity will be liable to pay a fee of Rs 250/- per day of delay. The default will be further punishable by penalty varying between Rs 10,000/- to Rs. 100,000/-