Central Government seems to be desirous to overcome all loopholes present in current Tax Laws and one of the most unregulated areas is 'Taxation of Charitable Institutions' which was earlier updated in the year of 1996. Other parts of taxation have been changed significantly in last 6-7 years. It is seems that something is lacking despite these much amendments made in tax laws. Tax Authority still could not ensure effective control and cross-verification, unfortunately due to lack of proper database of Institutions granted with different type of registration and approvals.
Hence, The Central Government has come up with a new section 12AB in Union Budget 2020. It mandates the requirement of re-registration of 12AA and re-approval of existing 80G and 10(23C- Exemption of income earned by any university or educational Institutions) of all existing Charitable / Religious Institutions, with the object of preparation of fresh database, all over India.
Earlier the amended provision was valid up to 31st March 2020 but due to the Pandemic situation, it was finally implemented through "The Income-tax (6th Amendment) Rules, 2021" notified by CBDT vide Notification Dated 26th March, 2021. This new process of re-registration / re-approval has to be ensured between 1st April, 2021 to 30th June, 2021.
MAIN OBJECTIVES OF RE-REGISTRATION PROCESS
- To make the all the registration process electronic.
- To limit the duration of exemption validity
- To ensure continue adherence to the renewal process
- To Facilitate registration of trust on immediate basis
Earlier the registration was granted for unlimited duration, but the same was replaced with new concept of validity.
Amendments made under various sections are as under
|
12A (1) (ac) |
1st proviso to section 80G (5) |
1st proviso to section 10 (23C) |
Situations |
Timeline of filing application |
Validity of registration/ approval |
Disposal of Application |
Enquiry from Dept. |
Type of Registration |
Form to be Filed |
|
Clauses |
|||||||||
|
(i) |
(i) |
(i) |
Re-Registration / Re-approval of existing Registration / Approval |
within three months from the 1st day of April, 2021 |
5 Years |
3 Months* |
No |
Regular |
10A |
|
(ii) |
(ii) |
(ii) |
Regular Registration/Approval is due to expire |
at least six months prior to expiry of the said period (i.e., 5 Years) |
5 Years |
6 Months* |
Yes |
Regular |
10AB |
|
(iii) |
(iii) |
(iii) |
Provisional Registration / Approval is due to expire |
at least six months prior to expiry of period of the provisional registration (i.e. 3 years) or within six months of commencement of its activities, whichever is earlier |
|||||
|
(iv) |
Not Applicable |
Where Registration became inoperative due to the first proviso to section 11(7) 9(Detail discussion is in this article) |
at least six months prior to the commencement of the A.Y. from which the said registration is sought to be made operative |
||||||
|
(v) |
Adopted or undertaken modifications of the objects which do not conform to the conditions of registration |
within a period of thirty days from the date of the said adoption or modification |
|||||||
|
(vi) |
(vi) |
(vi) |
Provisional Registration / Approval |
at least one month prior to the commencement of the previous year relevant to the A.Y. from which the said registration is sought |
3 Year |
1 Month* |
No |
Provisional |
10A |
*from the end of the month in which application was received
Amendment in forms made for different purpose
|
Registration/ Approval |
Old Form |
New Form |
|
12A |
10A (old) |
10A (New) |
|
10(23C) (iv)/(v)/(vi)/(via) |
56 |
|
|
80G |
10G |
|
|
Particulars |
New Form |
Order by department |
|
Fresh application |
Form 10A |
Form No. 10AC |
|
Re-registration /Re-approval |
||
|
Provisional to Regular |
Form 10AB |
Form No. 10AD |
|
Renewal of Regular |
||
|
Inoperative due to proviso to 11(7) |
||
|
Modification of Object |
List of Enclosures (Self Certified)
|
Common Enclosures |
|||
|
Submissions |
Trust |
Society |
Section 8 Company |
|
Instrument for Creation/Establishment |
Trust Deed |
Society Bye Laws |
MOA & AOA |
|
If not Created under any Instrument |
Any other Document Evidencing Creation/Establishment |
||
|
Document evidencing Registration with respective Authority |
Registration Certificate issued by Registrar of Public Trusts |
Registration Certificate issued by Registrar of Societies |
Certificate of Incorporation issued by ROC |
|
If registered under FCRA |
Existing FCRA Registration Certificate |
||
|
Additional Enclosures |
||
|
Submissions |
Fresh registration/approval |
Re-registration/Re-approval |
|
Last 3 Years Financials(Annual Accounts)in all cases |
Required |
Required, only if ITR is not filed for latest AY |
|
Copy of Existing Order |
Order of Rejection of Application for Registration/ Approval, if any. |
Existing Order Granting Registration/Approval |
Amendment under Sec 11(7)
Where Approval under Section 10(23C) and Section 10(46) exist
Section 11(7) of the Act, prior to its amendment by the Finance Act 2020, provided that where a trust or an institution had been granted registration under Section 12AA(1)(b) or had obtained registration at any time under SECTION 12A and the said was in force for any previous year, then the trust would not get exemption under Section 10 except in respect of agricultural income or income under Section 10(23C). Consequent upon insertion of Section 12AB, the said sub section has been w.e.f 01-06-2020 to cover a trust registered under Section 12AB also. Further it has also been amended to include income to notified institutions under Section 10(46) to be claimed as exemption along with Section 10(1) and Section 10(23C) of the Act.
Hitherto Section 11(7), on account of its own language, made it evident that an entity had the option to claim exemption under Section 10(23C)/ 10(46) or SECTION 11. Now, a proviso has been inserted in Section 11(7) – First Proviso – w.e.f. 01-06-2020 to provide that the registration referred to in it (i.e. under Section 12A or 12AA or 12 AB) shall become inoperative from the later of: (i) date on which such trust or institution is approved under Section 10(23C)/ 10(46) or, (ii) the date on which the proviso comes into force, i.e. 01-06-2020.
In other words, the registration shall be inoperative if the approval is obtained under Section 10(23C) or an institution notified under Section 10(46) of the Act.
A second proviso has also been added to the said sub-section w.e.f. 01-06-2020, to provide that the trust or institution, whose registration has become inoperative under the first proviso, may apply to get its registration again operative under Section 12AB. However on doing so, the approval under Section 10(23C) or notification under Section 10(46) to such institution or trust shall cease to have any effect from the date on which the said registration shall become operative and thereafter, it would not be entitled to exemption under the respective clause. Thus once the registration becomes operative under Section 12AB, the trust or institution will not be entitled to exemption under Section 10(23C)/ 10(46).
Section 12A(1)(a) states that Section 11 and Section 12 shall not be apply in relation to income of any trust or institution unless it has been duly registered. Now, if the registration is inoperative, the trust or institution will not be eligible to exemption under Section 11. It can however, continue to claim exemption under Section 10(23C) or Section 10(46) as the case may be.
It is pertinent to note here that the exemption under Section 10(23C) is qua the institution and not the assessee. Hence if an assessee is running several educational institutions and if any of them is wholly or substantially finance by the Government, then the income from such institution is not included while computing the total income although the income from other institutions may not be exempt. Thus a charitable trust could claim exemption qua a particular institution under Section 10(23C) and other institutions under Section 11. However, after the amendment, the institution now will have to decide whether to claim exemption under Section 10(23C) or Section 11 of the Act.
Also, hitherto there was no limit as to how many times a charitable institution could switch from Section 11 to Section 10(23C) and vice versa. Now it appears from a plain reading of the provisos is that the 2 provisos collectively give an opportunity for maximum two voluntary switches – (i) obtain approval/ notification under Section 10(23C)/ 10(46) and make existing registration under Section 12AB inoperative, subsequently, (ii) make the registration under S 12AB and the approval/ notification under Section 10(23C)/ 10(46) ceasing to have any effect. This is also confirmed by the Explanatory Memorandum which provides that, 'the switching may be allowed only once so that switching is not done routinely and also it remains efficient to be administered'
The Explanatory Memorandum states once because – for trusts already registered under Section 12AA and also having approval under Section 10(23C), only one voluntary switch is possible since the first proviso will automatically apply on 01-06-2020.
It is important to note that the registration is only made inoperative and not cancelled and therefore the PCIT/ CIT can cancel the registration vide Section 12AB (4)/(5) of the Act when it is inoperative under First Proviso of Section 11(7) of the Act. In the event of it not being cancelled the trust or institution shall also not be able to exit tax on the accreted income under Section 115TD and shall be liable to pay additional tax (along with the tax on income of the trust or institution) at the maximum marginal rate on the accreted income.
Opting 12AB or 10(23C) - Which one is preferable
Due to the second proviso, Institution has one time option to shift from 10(23C) to 12AB. However, 12AB will be granted from F.Y. 2021-22, as discussed above.
Following criteria should be consider, while for opting 12AB or 10(23C) that which one is preferable?
|
Provision |
Section 10(23C) |
Section 12AB |
|
Option to spend in subsequent year |
No |
Yes |
|
Accumulation for 5 years |
Yes – No form |
Yes-form to be filled |
|
Consequence if accumulation not spent within 5 years |
Loss of Exemption |
Unspent Accumulation Taxable in 6th year |
|
Applicability of s.115TD |
No |
Yes |
|
Exemption for capital gains on reinvestment in capital assets |
No |
Yes |
|
Restriction on benefit to specified persons |
No |
Yes |
|
Restriction on nature of activity |
The Institution cannot involve in any activity other than Medical and Education. |
The Institution can involve in any activity as per the object clause as covered under section 2(15). |
Disclaimer: The entire contents of this document have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a piece of professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information
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