Budget 2020 - Changes to Charitable Trust and Institution

The Finance Bill 2020 has come up with some of the major changes which tend to affect the

Charitable Trusts and Institutions registered under Section 10(23C) of the Income Tax Act. The present article tries to explain all the major amendments. It should be noted here that currently, Section 12AA of the Income Tax Act covers the registration procedure, however, with effect from 1st June 2020, the said provisions would be redundant. Section 12AB is newly inserted into the Income Tax Act, which would take care of the registration procedure effective from 1st June 2020.

Amendments Affecting Existing Charitable Trust and Institution

The existing Charitable Trust and Institutions are required to make a fresh application within a period of three months (i.e. within 31st August 2020).
Such an application is to be made to the Principal Commissioner of the Income Tax or the Commissioner of Income Tax.
On receipt of an application, the Principal Commissioner of the Income Tax or the Commissioner of Income Tax may call for such other required information or documents.
The Principal Commissioner of the Income Tax or the Commissioner of Income Tax is mandatory to dispose of the application within a period of three months from the end of the month in which the application is received.
In case, the Principal Commissioner of the Income Tax or the Commissioner of Income Tax grants registration, the same would be valid for the period of five years.

Amendments Affecting New Trusts

Entirely new Section 12AB, with the concept of provisional registration, has been inserted which deals with the procedure to be followed for fresh registration. The procedure is explained hereunder:

The applicant is required to make an application to the Principal Commissioner of Income Tax or the Commissioner of Income Tax.
The applicant is required to make such application at least one month prior to the commencement of the previous year in which the registration is sought.
The provisional registration can be granted immediately without detailed enquiry.
The order granting provisional registration is valid for earlier of the following:
- Six months from the date of commencement of the activity of the Charitable Trust; or
- For a period of three years.
After provisional registration, the Charitable trusts are required to make an application again to the Principal Commissioner of Income Tax or the Commissioner of Income Tax for regularizing the registration. Such an application can be made only after the Charitable trusts fulfils any one of the conditions mentioned therein.
On receipt of an application, the Principal Commissioner of Income Tax or the Commissioner of Income Tax is required to examine the necessary activities carried on by the Charitable trust and information and documents as furnished.
If satisfied, the Principal Commissioner of Income Tax or the Commissioner of Income Tax shall grant the approval to the Charitable Trust which shall be valid for a period of five years.

Reporting Requirement by the Charitable Trusts on Receipt of Donations

All the charitable trust and institutions registered under Section 80G would now be required to submit a statement of donations received in prescribed form and manner.
The deduction underSection 80G shall be available to the donor only on the basis of the information as furnished by the charitable trust.
Further, the charitable trust, receiving the donation, is required to generate a certificate on the basis of which the donor can claim deduction under Chapter VI-A.

Other Important Points

Currently, the Charitable Trusts are allowed to simultaneously registered under both Section 10(23C) and Section The benefit of simultaneous registration is that in case the Charitable Trust is not allowed exemption under Section 10(23C) they seek cover under Section 12AA.

- However, now such an option would not be available, and the Charitable Trust would have to decide to continue registration under Section 10(23C) or Section 12AA.

Alteration of object clause

The Charitable Trust is required to make an application within a period of 30 days from the date on which it altered the object clause.
Such application is to be made before the Principal Commissioner of the Income Tax or the Commissioner of Income Tax.
The Principal Commissioner of the Income Tax or the Commissioner of Income Tax would validate the object clause along with the other documents and if satisfy, pass an order granting registration.
It is mandatory for the Principal Commissioner of the Income Tax or the Commissioner of Income Tax to pass an order within a period of six months from the end of the month in which the application is made.
- The order granting registration would be valid for a period of five years.

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Frequently Asked Questions

Common questions about Income Tax Changes for Charitable Trusts in 2020.

The Finance Bill 2020 has introduced significant changes affecting charitable trusts and institutions registered under Section 10(23C) of the Income Tax Act. The existing trusts and institutions are required to apply for fresh registration within three months, i.e., by August 31, 2020. Additionally, a new Section 12AB has been inserted, which introduces the concept of provisional registration for new trusts and institutions.

Existing charitable trusts and institutions are required to make a fresh application within three months (by August 31, 2020) to the Principal Commissioner of Income Tax or the Commissioner of Income Tax. The application will be disposed of within three months from the end of the month in which it is received. If granted, the registration will be valid for five years.

For new trusts, the applicant must apply to the Principal Commissioner of Income Tax or the Commissioner of Income Tax at least one month before the commencement of the previous year in which registration is sought. Provisional registration can be granted immediately without a detailed inquiry and is valid for the earlier of six months from the commencement of activities or three years. After provisional registration, the trust must apply again for regularizing the registration.

All charitable trusts and institutions registered under Section 80G must now submit a statement of donations received in the prescribed form and manner. The deduction under Section 80G for donors will be available based on the information furnished by the charitable trust. The trust must also generate a certificate for donors to claim deduction under Chapter VI-A.

No, the option of simultaneous registration under both Section 10(23C) and Section 12AA will no longer be available. The charitable trust must decide to continue registration under either Section 10(23C) or Section 12AA.

If a charitable trust alters its object clause, it must make an application within 30 days to the Principal Commissioner of Income Tax or the Commissioner of Income Tax. The authority will validate the object clause and other documents and pass an order granting registration within six months from the end of the month in which the application is made. The registration will be valid for five years.

The registration granted to existing and new charitable trusts and institutions under the new provisions will be valid for a period of five years.

The article does not explicitly mention the consequences if an existing charitable trust fails to apply for fresh registration within the specified timeline of three months (by August 31, 2020). However, it is advisable to comply with the new requirements to avoid any potential legal or tax implications.

The article does not provide specific guidance on this scenario. However, it is likely that the charitable trust may need to apply for regular registration instead of provisional registration if it has already commenced its activities before applying for registration.

The article focuses on the changes to the registration process and reporting requirements for charitable trusts and institutions. It does not mention any changes to the tax exemption criteria under Section 10(23C) of the Income Tax Act or other related provisions.