Amendments for Trusts and Institutions in Budget 2020

Answers addressing new compliances of the Trust

The Union Budget 2020 proposed substantial amendments for the trust and institution, this article attempts to address the major questions on the budget proposal…

Q: Do I need to take fresh registration even though my trust is already being registered with Sec 12AA?

Yes, All the existing charitable and religious institutions already registered under Section 12A (trusts and institutions registered prior to 1996), Section 12AA (trusts and institutions registered after 1996), Section 10(23C) and Section 80G will be required to re-apply to the income tax authorities to revalidate their existing registrations u/s 12AB.

Moreover, as of now registration once granted u/s 12AA continues unless and otherwise cancelled by the authority. But in proposed regime after processing the application, trust or institution’s registration is given for the limited period of 5 years. On expiry of the aforesaid period the approval may be re-obtained.

Q: What about the application already pending with the commissioner?

All applications pending under Section 12AA,10(23C), and 80G before the Commissioner or Principle Commissioner and for application for which no order has been passed, shall deemed to be applications pending under Section 12AB.

Moreover, entities making fresh application for registration 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 registrationis sought. Such entities will be first granted a provisional approval for 3 years based on information in their application without detailed enquiry.

Q: What is the provisional registration?

As stated above, newly established trusts and institutions applying to income tax for registration for the very first time will be given provisional registration for 3 years. Once granted, the provisional registration shall be valid for three years from the Assessment Year from which the registration is sought.

Thereafter, application to be made for registration within 6 Months from the commencement of activities or 6 months prior to the expiry of provisional registration, whichever is earlier which will be valid for 5 years.

Q: From when the approval is need to be taken to claim the exemption?

Under the existing provisions, the application for registration u/s. 12AA or 10(23C) can be made at any time during the financial year from which the exemption is required. The registration is granted will be applicable to the income of the whole financial year 2018-19 even if the application made on the last day of the financial year i.e., on 31st March, 2019.

Now, under the proposed provisions, the fresh applicants (first time applicants) will have to make application for registration at least 1 month prior to the commencement of the financial year from which exemption is required. 

Q: What is the time limit to obtain registration under new provision? 
Q: What if trust or institution has undertaken any modification in object which do not confirms to the condition of registration?

In such case trust or institution has to apply for registration within 30 Days from the adoption of said modification in the objects.

Q: Can trust or institution opt for both 12AA or 10(23C) after these amendments?

Currently, several hospitals, schools and colleges are registered simultaneously under section 10(23C) and 12AA. Often, if exemption is denied under 10(23C), the institution seeks cover under the backup registration under 12AA.

Charitable trusts and intuitions currently registered under both 10(23C) and 12AA will now be required to decide whether they prefer to apply for revalidation or renewal of either the registration u/s 10(23C) or 12AA, not both. Therefore, one can continue either 12AA or 10(23C)

Q: Is there any change in Section 80G?

The trusts institution etc. shall file an application before the Commissioner or Principle Commissioner within the prescribed time limits to sought registration under Section 80G. Procedure and time limit is same as the procedure for registration under Section 12AB.

Q: Any additional compliance to be made?

Every charitable trust or institution registered u/s 80G shall be required to submit a statement of donations received in such form & manner as may be prescribed & the benefit of 80G shall be available to donors on the basis of information relating to donation furnished by the corresponding charitable trust or institution only. 
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/-

Hope this article be the ANSWER of your Question: “What are the major changes proposed in Budget 2020 for trust and institution”