Budget 2020 impact on charitable trust/Institutions

Changes in Section 11 & 12 of the IT Act,1961

It is stated that where the trust is already registered under Section 12AA, then the registration referred therein shall become inoperative from the date on which the trust or institution is approved under Section 10(23C) or Section 10(46) or on the date on which this proviso shall come into effect i.e. 01.06.2020 whichever is earlier.

A new Clause to Section 12A(1)(ac) has been introduced with condition that the trust or institution is registered under the proposed Section 12AB on an application made by the person in receipt of the income in prescribed form and manner to the Principal Commissioner or Commissioner  for registration of the trust or institution; where the trust or institution is registered under section 12A or under section 12AA, within three months from the date on which this clause has come into force; where the trust or institution has 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 said adoption or modification.

These amendments will take effect from 1st June, 2020.

It is further proposed to consequentially amend Section 12AA(1)(b) of the said section so as to provide that such trust or institution should get the accounts audited by the accountant as defined in Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB (i.e. one month prior to the due date for filing of return under sub-section (1) of section 139) and furnish the report of such audit by that date. This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-2021 and subsequent assessment years.

A new section 12AB in the income tax Act relating to procedure for fresh registration.

Section 12AB(1) provides that the Principal Commissioner or Commissioner, on receipt of an application made under the proposed clause (ac) of sub-section (1) of section 12A, shall send a copy of order passed in writing, to the trust or institution, where the application is under sub-clause (i) of the said clause, registering the trust or institution for a period of five years; where the application is under sub-clause (ii), the sub-clause (iii), sub-clause (iv) or sub-clause (v) of said clause,-

(i) call for such documents or information from the trust or institution or making such inquiries as he thinks necessary in order to satisfy himself about,-

(A) the genuineness of activities of the trust or institution; and

(B) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its object; and

(ii) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, under item (A), and compliance of the requirements under item (B), of sub-clause (i),––

(A) registering the trust or institution for a period of five years;

(B) if he is not so satisfied, pass an order in writing rejecting such application and also cancelling the registration of such trust or institution after affording a reasonable opportunity of being heard;

(C) where the application is under subclause (vi) of the said clause, provisionally registering the trust or institution for a period of three years from the assessment year from which the registration is sought.

Section 12AB(3) of the section provides that the order under Section 12 AB(1)(a),Section 12 AB(1)(b)(ii),Section 12AB(1)(c) shall be passed, in such form and manner as may be prescribed, before the expiry of the period of three months, six months and one month respectively, calculated from the end of the month in which the application was received.

Section 80 G(5)

Clause (vi) of said sub-section provides one of the conditions to be that in relation to donations made after the 31st day of March, 1992, the institution or fund is for the time being approved by the Commissioner in accordance with the rules made in this behalf.

To amend Section 80 G(5) so as to provide additional conditions as :

1. the institution or fund prepares such statement for such period as may be prescribed and deliver or cause to be delivered to the prescribed income-tax authority or the person authorised by such authority such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed and it may also deliver to the said prescribed authority a correction statement for rectification of any mistake or to add, delete or update the information furnished in the statement delivered under this sub-section in such form and verified in such manner as may be provided by rules; and

2. the institution or fund furnishes to the donor, a certificate specifying the amount of donation in such manner, containing such particulars and within such time from the date of receipt of donation, as may be provided by rules.

It is also proposed to insert a proviso to said sub-section (5) so as to provide that the institution or fund referred to in clause (vi) thereof shall make an application in the prescribed form and manner to the Principal Commissioner or Commissioner, for grant of approval, -

(a) where the institution or fund is approved under clause (vi)(as it stood before its amendment by the Finance Act, 2020), within three months from the date on which this proviso has come into force;

(b) where the institution or fund is approved and the period of such approval is about to expire, at least six months prior to expiry of said period;

(c) where the institution or fund has been provisionally approved, at least six months prior to expiry of period of the provisional approval or within six months of commencement of its activities, whichever is earlier;

(d)in any other case, at least one month prior to commencement of the previous year relevant to the assessment year from which said registration is sought.

It is also proposed to insert another proviso to sub-section (5) so as to provide that the Principal Commissioner or Commissioner, on receipt of an application made under the proposed first proviso, shall send a copy of order passed in writing,

(a) where the application is under clause (i) of the said proviso, granting it approval for a period of five years;

(b) where the application is under clause (ii) or clause (iii) of the said proviso,––

I. call for such documents or information from it or make such inquiries as he thinks necessary in order to satisfy himself about, -

(A) the genuineness of activities of such institution or fund; and

(B) the fulfilment of all the conditions laid down in clauses (i) to (v) of sub-section (5);and

II. after satisfying himself about the genuineness of activities under item (A), and the fulfilment of all the conditions under item (B), of sub-clause (a),-

(A)granting it approval for a period of five years;

(B) if he is not so satisfied, pass an order in writing rejecting such application and also cancelling its approval after affording it a reasonable opportunity of being heard;

III. where the application is under clause (iv) of said proviso, granting it approval provisionally for a period of three years from the assessment year from which the registration is sought.

It is also proposed to insert another proviso to sub-section (5) so as to provide that the order under clause (i), sub-clause (b) of clause (ii) and clause (iii) of proposed first proviso shall be passed, in such form and manner as may be prescribed, before expiry of period of three months, six months and one month respectively, calculated from the end of the month in which the application was received.

It is also proposed to insert another proviso to sub-section (5) so as to provide that the approval granted under the proposed second proviso shall apply to an institution or fund, where the application is made under,-

(a) clause (i) of the proposed first proviso, from the assessment year from which approval was earlier granted to such institution or fund;

It is also proposed to insert new Explanation 2A to declare that assessee ’s claim for a deduction in respect of any donation made to an institution or fund to which subsection (5) applies, in the return of income for any assessment year filed by him, shall be allowed on the basis of information relating to said donation furnished by the institution or fund to the income-tax authority or the person

Authorized by such authority, subject to verification in accordance with the risk management strategy formulated by the Board from time to time.