Income-tax (Eleventh Amendment) Rules- Revised Approval Process for Trusts
Income-tax (Eleventh Amendment) Rules- Revised Approval Process for Trusts
The CBDT vide the Income-tax (Eleventh Amendment) Rules, 2023, has made amendments to Rule 2C, Rule 11AA, and Rule 17A, as well as various forms (Form No. 10A, Form No. 10AB, Form No. 10AC, Form No. 10AD, Form No. 10B, and Form No. 10BB) related to Charitable Trusts and NGO. These changes will be effective from October 1, 2023, as per Notification No. 45/2023 in GSR 457(E) dated 23.06.2023. This article will examine the Income-tax (Eleventh Amendment) Rules in detail.
Synopsis of Income-tax (Eleventh Amendment) Rules
The Income-tax (Eleventh Amendment) Rules bring essential changes to the approval process for trusts.
- The amendments provide relief and clarity to newly established funds or trusts, making obtaining approval easier.
- Under the new rules, funds or trusts that have already started their activities can directly apply for regular approval without needing to reapply immediately.
- Additionally, previously established funds or trusts that have yet to seek income tax exemption can now apply for approval directly.
- These amendments also specify the effective date of provisional approval for applications made during a specific period.
- Overall, the amendments aim to streamline the process and align with the provisions introduced by the Finance Act of 2023.
Incorporating Finance Act 2023 Amendments for Charitable Trusts and Institutions
Income-tax (Eleventh Amendment) Rules are aimed at incorporating the changes introduced by the Finance Act 2023 regarding charitable and religious trusts or institutions registered under Sections 10(23C), 80G, and 12A of the Income-tax Act, 1961.
The Finance Act 2023 has modified provisions of Section 10(23C), Section 12A, and Section 80G to enable trusts, funds, or institutions to directly seek final registration and approval without provisional registration/approval if they have already commenced their activities.
Income-tax (Eleventh Amendment) Rules – Amendments in Rule 2C, Rule 11AA, and Rule 17A
Revisions have been made to Rule 2C, 11AA, and Rule 17A of Income Tax Rules, whereby specific words have been substituted and added within the Income tax rules.
Amendment in Rule 2C – Application for obtaining approval of a fund, trust, institution
An amendment has been made to Rule 2C, which specifies the requirement to apply for obtaining approval of a fund, trust, institution, university, hospital, or other medical institution under various clauses of the first proviso to clause (23C) of Section 10 of the Income Tax Act.
Amendment in Rule 2C(1)(i) – Newly Established Fund or Trust Not Commenced Activities
The Income-tax (Eleventh Amendment) Rules have brought about a significant change to Rule 2C(1)(i). This amendment addresses explicitly the scenario of a newly established fund or trust that has yet to commence its activities at the time of applying.
Under the amended rule, such funds or trusts are now required to apply for approval by submitting Form No. 10A. Upon submission; provisional approval will be granted to these entities. This provision aims to provide a streamlined process for newly established funds or trusts that have yet to initiate their activities, ensuring they receive the necessary approval to commence their operations.
Amendment in Rule 2C(1)(ii) – Newly Established Fund or Trust Commenced Activities
An amendment has been introduced to Rule 2C(1)(ii) in line with the changes made in the Income-tax (Eleventh Amendment) of 2023. This amendment specifically relates to a newly established fund or trust that has already commenced its activities at the time of applying.
Under the revised rule, such funds or trusts must apply for approval by utilizing Form No. 10AB. Once the application is verified, these entities will be granted regular approval for five years. The amendment aims to streamline the approval process for newly established funds or trusts that have initiated their activities, ensuring they receive the appropriate approval for an extended duration.
Rule 2C(7) – Effective Date of Provisional Approval
Under Rule 2C(7), a provision is outlined regarding the effective date of provisional approval for applications made under clause (iv) of the first proviso to clause (23C) of section 10. This provision pertains explicitly to applications submitted during the previous year, commencing on April 1, 2021.
According to the rule, the provisional approval will take effect from the assessment year commencing on April 1, 2022, corresponding to the AY 2022-23.
Amendment in Rule 11AA – Simplified Approval Process for Newly Established Trusts
Income-tax (Eleventh Amendment) Rules have significantly changed Rule 11AA, explicitly addressing the approval process for newly established trusts, funds, and institutions under section 80G. The following details elaborate on the amendments:
- Differentiation of Trusts/Funds: The amendment introduces a distinction between trusts/funds that have already commenced their activities and those that haven’t:
- Not yet commenced activities: Trusts/funds in this category must apply for approval using Form 10A. Upon submission, provisional approval will be granted to them. This provision streamlines the process for newly established trusts/funds that have yet to initiate their activities, ensuring they receive the necessary approval to begin their operations.
- Already commenced activities: For trusts/funds that have started their activities, they must apply for approval using Form 10AB. Once the application is verified, regular approval for five years will be granted. This amendment simplifies the approval process for newly established trusts/funds that have already commenced their activities, allowing them to obtain the appropriate approval for an extended duration.
Amendment in Rule 11AA(7): The amendment also brings changes to Rule 11AA(7), which specifies the effective date of provisional approval for applications made under clause (iv) of the first proviso to subsection (5) of section 80G. Under the amended rule, the provisional license will be effective from the assessment year relevant to the previous year in which the application is made.
Amendment in Rule 17A – Simplified Registration Process for Charitable or Religious Trusts
Income-tax (Eleventh Amendment) Rules introduce changes to Rule 17A, which focuses on the application process for registration of charitable or religious trusts and institutions under section 12A of the Income Tax Act. The following details elaborate on the amendments:
- Differentiation of Trusts/Institutions: The amendment divides newly established trusts and institutions into two categories based on their activity status:
- Not yet commenced activities: Trusts/institutions falling under this category must apply for registration using Form No. 10A. Upon submission, provisional registration will be granted. This provision eliminates the requirement for such newly established entities to immediately reapply for regular approval after obtaining provisional registration, relieving undue hardships.
- Already commenced activities: Trusts/institutions that have started their activities must apply for registration using Form No. 10AB. Once the application is verified, five-year regular registration will be granted. This amendment simplifies the registration process for newly established trusts/institutions that have already commenced their activities, allowing them to apply for regular registration directly.
Changes in Forms and Reports for Charitable or Religious Trusts
Several changes have been introduced to various forms and reports related to charitable or religious trusts vide the Income-tax (Eleventh Amendment) Rules. Here’s a simplified summary of the amendments:
Form No. 10A:
- No changes in the particulars of Form No. 10A.
- Changes are made in the verification/declaration section.
- Applicants must declare that the institution, trust, or fund has not commenced activities before the application date.
- After applying, the applicant must also declare their willingness to communicate any alterations in the trust/society/nonprofit company’s terms or rules governing the institution.
- Codes for furnishing applications under different sections have been modified to incorporate changes.
Form No. 10AB:
- No changes in the particulars of Form No. 10AB.
- Changes made in the verification/declaration section.
- Applicants must declare that the institution, trust, or fund has commenced activities, specifying the commencement date.
- After applying, the applicant must also declare their willingness to communicate any alterations in the trust/society/nonprofit company’s terms or rules governing the institution.
- Codes for furnishing applications under different sections have been modified, and new regulations have been added to reflect changes.
Form No. 10AC and Form No. 10AD:
- Similar changes have been made to both forms, incorporating the “nature of activities” of the trust or institution (charitable or religious).
- The forms now include options for specifying whether the trust or institution is charitable, religious, or a combination of both.
Changes in Trust Tax Audit Report – Form No. 10B and Form No. 10BB:
- Form No. 10B and Form No. 10BB, related to tax audit reports by trusts or institutions, have been amended.
- Previously, separate forms were prescribed for trusts/institutions registered under section 12AB and those approved under section 10(23C).
- Effective April 1, 2023, a common tax audit report form (Form No. 10B) is applicable based on specific conditions for registered trusts/institutions under section 12AB and approved trusts/institutions under section 10(23C).
- Similar changes have been made to Form No. 10BB based on conditions related to income, foreign contributions, and income applications outside India.
- Any tax audit report filed on or after April 1, 2023, should use the new prescribed forms.
Changes in Schedule 269ST of Form No. 10B:
- Changes have been made to Schedule 269ST, rectifying an error related to the nature of transactions covered under Section 269T and Section 269ST.
- The revised schedule requires reporting the name, PAN, and address of the payer from whom cash exceeding Rs. 2 lahks is received, along with the amount of payment received.
- These changes are effective from October 1, 2023, although they were intended to be effective from April 1, 2023.
Changes in Row No. 10 of the Annexure to Form No. 10BB:
- Row No. 10 of Form No. 10BB has been amended, correcting a reference to the wrong sub-clause.
- The requirement to report the filing of an application for regular registration when a provisionally registered trust commences activities has been rectified.
- The reference to sub-clause (iv) has been substituted with sub-clause (iii) in Row 10(iii) of Form No. 10BB.
- These changes are effective from October 1, 2023, although they were intended to be effective from April 1, 2023.
The official notification about Income-tax (Eleventh Amendment) Rules 2023 is attached here for reference:
Income-tax (Eleventh Amendment) Rules 2023