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Trust Taxation- Amendments

Venkat Raj 
on 14 January 2021

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Finance act 2020 has brought in a sea of changes in the taxation aspects of taxation particularly as regarding trust registered under 12AA and educational institution under 10 (23C). The year 2020 was affected by a massive pandemic called COVID 19 which stuck the globe. It led to lockdown, travel restriction, destruction of education, business getting affected. However many new schools of thought have emerged such as virtual meetings, Online education, videoconferencing, online seminars. This year also saw how Non-profit organisation like trust society section 8 company all for charitable religious purpose play a vital role in this pandemic period. In fact, their role has been the need of the hour.

Amendment

All trust (irrespective of the gross receipts) registered under 12 AA were claiming 15% exemption and accumulating amount for a period of 5 years by filing form 10 in a manner as may be prescribed. This mainly includes hospitals, religious places, CPE study circle and organisations which conduct professional programmes. Likewise, all educational institutions namely schools colleges registered under 10(23C) were doing the same as mentioned above. This even includes three regulators namely ICAI, ICSI, ICMA. The government even saw many trusts are 50 years old and henceforth do not have an original copy but claim exemption. Therefore Finance act 2020 had reinvented the entire process. All trust educational institutions registered under 12AA or 10(23C) (irrespective of the gross receipts) are required to get itself registered in a fresh form in the form and manner as may be prescribed by getting itself registered under 12AB. This was supposed to be completed before 31st august 2020. Considering pandemic the government has passed taxation ordinance act 2020 (mainly covid related ) that the same can be complied before 31st March 2021. This will bring relief to assesses as well as chartered accountants who render service to such entities.

Therefore all details such as the latest 3 audited financials, trust registration, FCRA (foreign contribution details), 80G eligibility, details of trustees, and all details have to be filed. The same will be approved by the commissioner of income tax in time and manner as may be prescribed. By not doing this a reasonable opportunity will be given and cancellation will take place.

Trust Taxation- Amendments

Crucial concept

The term charitable activities as defined under the act has a term called advancement of object of general public utility. Under this term, 20% can only be commercial activities receipt. Beyond that, if exceed it will be taxed. But if we analyse all sports organisation are registered as a society, section 8 company have neither 12 AA registration nor 10(23C). Owning to mutuality concept their income is exempt. But this has been under huge dispute but the tax authorities do not accept. Huge cases are pending particularly in ITAT, High court, Supreme court. Here it creates two different school of thoughts namely in Delhi high court it has been held that interest on fixed deposit of club get exempted due to doctrine of mutuality however in Bangalore high court the same is overruled. This creates complexity and therefore all these class of organisation can opt for Vivad se vishwas scheme where only disputed amount is to be settled. However, at least in this finance act 2021 which is about to be released should give a clear clarification which should be embedded in the act. this can be something similar to Vodafone case which led to amending section 9 which brought business connection now enhanced to significant economic presence.

80G

This perhaps is the most significant component of deduction. the deals with deduction as regarding donation given to trust eligible for 100 % or 50%. No deduction can be allowed if above Rs2000 is made by cash. All trusts are required to file a statement as regarding in donation received at the year end. The same is applicable for the organisation under section 35 of income tax which is required to file. Unless the same has complied with the assessee will not get a deduction.

A new section 234 G has been invoked. it states whereby a statement of donation or entities under section 35 does not file statement a fee of Rs 200 is payable every day till failure continues.

 

FCRA

Foreign contribution regulation act 2010 is an essential component of the trust society section 8 company. As all organisation have to renew by form 12AB unless the same has complied FCRA registration will get impacted.

The trust role was inevitable in the time of pandemic and will be an integral part of the economic system. More NPO (non-profit organisation) will constitute a significant part of the economy.

 

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