Changes in Charitable Trusts & Institutes effective from 1st June 2020: Union Budget 2020

Under the existing Income Tax Law, charitable trusts and specified institutions are exempted from income tax in respect of income derived from property held for charitable, religious purposes. The exemption registration is valid for an indefinite period without any requirement of renewal unless canceled by the authority in case of any default.

To streamline the application, registration process and ensure that the conditions of approval or registration are followed by such charitable trusts and specified institutions, the Union Budget 2020 proposed the changes such as (a) electronic registration of charitable trusts and specified institutions instead of manual documentation; (b) new application for an approval of registration shall be provisionally approved for three years based on the application without detailed enquiry; and (c) approval, registration or notification for an exemption shall be for a limited period of five years at one time.

Current Scenario

The charitable trusts & specified institutions involved in the activities such as charitable or religious purposes and registered under Sections 12A or 12AA of the Income Tax Act, 1961 are exempted under income is tax to an extent such income is utilized for the specified purpose.

Any person donating any amount to such charitable trusts & specified institutions are eligible to receive a specified deduction against their taxable income under Section 80G of the Income Tax Act 1961.  The charitable trusts & specified institutions do not require to make any separate reporting to match the donation which claimed by donor.

The educational institutions, universities, hospitals, other medical institutions are eligible for 100% income tax exemption Section 10(23C) of the Income Tax Act 1961.  The specified companies may claim the deduction vary from 125 percent to 200 percent in respect of scientific expenditure under Section 35 of the Income Tax Act 1961.

Changes effective from 1st June 2020

The Union Budget 2020 proposed the following changes with effect from 1st June’ 2020:

  1. The entities which are approved, registered or notified under Section 10(23C), Section 12AA, Section 35 or Section 80G of the Income Tax Act’ 1961 would become inoperative from 1st June 2020.
  2. The entities which are approved, registered or notified under Section 10(23C), Section 12AA, Section 35 or Section 80G of the Income Tax Act’ 1961 are required to make an application within the period of three months i.e., 31st August’ 2020 for an approval or registration regarding it being approved. Such approval or registration or notified shall be valid for a period of five years calculating from 1st April’ 2020.
  3. The entities making fresh application for approval under Section 10(23C), Section 12AA, or Section 80G of the Income Tax Act’ 1961 require to apply within one month before commencement of the year. Such entities shall be provisionally approved for the period of three years without any detailed enquiry from the Income Tax Department even in the cases where activities not yet started. Such entities are required to apply again for approval or registration which is valid from the date of such provisional registration. The application of regular registration required to be made at least six months prior to expiry of provisional registration or within six months of start of activities, whichever is earlier.
  4. The commissioner in charge may seek documents and necessary information to satisfy the genuineness of activities or compliance which are material to achieve the objects of entities. In case after registration, it is found that activities of the entity are not being carried out under the provisions of the Income Tax Act 1961, the commissioner may cancel the registration after giving a reasonable opportunity of being heard.
  5. The applications for renewal of regular registrations required to be filed within the period of six months before expiry of existing registration.
  6. Every charitable trusts & specified institutions registered under the Section 80G of the Income Tax Act shall be required to file a statement of donations in the prescribed manner & deduction shall be available to donors based on information relating to donation furnished by such charitable trusts & specified institutions. The entities shall be liable to pay a penalty of INR 250 per day of delay in reporting to file a statement.
  7. The deduction of cash donation under Section 80GGA of the Income Tax Act 1961 shall be restricted to INR 2,000 (earlier INR 10,000).

Conclusion

  1. The entities which are already approved or registered require to make a new application within three months i.e., 31st August’ 2020. The application shall be valid for the period of five year from 1st April’ 2020.
  2. The entities making the fresh application require to apply within 30 days from the commence of the year. The provisional registration for the period of three year shall be granted by the income Tax Department. The application of regular registration required to be made at least six months prior to expiry of provisional registration or within six months of start of activities, whichever is earlier.
  3. The entities registered under the Section 80G of the Income Tax Act shall be required to file a statement of donations annually.
  4. The applications for renewal of regular registrations required to be filed within the period of six months prior to expiry of existing registration.

In case of any clarification or queries regarding any of these pronouncements or other related issues, write to us at office@indialawoffices.com.

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