Registration of Charitable & Religious Trust for Income Tax Exemption - FAQs
Ans. “Charitable purpose” under Income Tax act is includes, (a) relief of the poor (b) education, (c) medical relief, (d) preservation of the environment (including watersheds, forests and wildlife), (e) preservation of monuments or places or objects of artistic or historic interest, and (f) advancement of any other object of general public utility (as distinguished from benefit of individuals or narrowly defined interest groups).
However From 01.04.2009 onwards, “advancement of any other object of general public utility” does not include carrying on of business activity of any kind, regardless of the manner in which income earned from such business activity is intended to be utilized (Except in cases where receipts from such business activity do not exceed Rs. 10 lakhs, which stands increased to Rs.25 lakhs w.e.f. 01.04.2012).
FAQ.2 Are NGOs and other charitable and non-profit organizations can claim tax exemption under income tax act in India? Are donors who contribute to such organizations also entitled to any tax deduction ?Ans. Yes, such exemption is available under income tax act to, (i) public charitable trusts or other legal obligations, (ii) university or other educational institutions, (iii) hospital or other institutions for treatment of persons, (iv) research associations, (v) a company formed under Section 25 of the Companies Act. Grant of exemption in each case is, however, subject to fulfillment of a set of specified conditions and rules.
FAQ.3 Whether All existing Trusts registered under the Act have to compulsorily apply for fresh registration u/s 12 AB of the Act before 30th June 2021. If any registered Trust fails to apply before the said date (or applies beyond the said date) for fresh registration u/s 12 AB of the Act, what will be the consequences ?Ans. Clause (a) of the Proviso to Section 12A (2) of income tax act clearly specify that if the existing Trusts / Institutions registered under Section 12A or 12 AA of the Act, apply for fresh registration u/s 12 AB of the Act before 30th June 2021, then provisions of Section 11 and 12 shall apply to Trust/ Institution from the assessment year from which they were granted their earlier registration.
Section 12A (2) further clarifies that if the said time line of 1 st April to 30th June 2021 is not followed, the provisions of Section 11 and 12 shall apply to Trust/ Institution from the 1 st day of the financial year in which such application is made.
So therefore if a trust apply for fresh registration u/s 12 AB within time, will register the Trust from the date on which it was originally registered u/s 12 A or Sec 12 AA. If the application for registration u/s 12 AB is made late that is after 30/06/2021, the registration u/s 12 AB will be granted for F Y 2021/22 and onwards.
FAQ.4 Whether a Trust will be liable to pay income tax on its Gross Receipts if the application for fresh registration is not made within a period from 1 April to 30th June 2021 for A Y 2022/23 ?Ans. The fresh registration of trust under provisions of section 12AB of the Finance Act 2020, were effective from 1 st June 2020 for A Y 2021/22. However, those provisions were omitted by Taxation and Other Laws (Relaxation and Amendment of certain Provisions) Act 2020 and were postponed till 1 st April 2021.
Now time given for application for fresh registration under section 12 AB is up to 30/06/2021. If the Trust fails to apply by the said date or applies beyond the said date within the F Y 2021/22, then it’s income for A Y 2022/23 will be exempt under section 12A (2) of the Act.
If the Trust fails to apply within F Y 2021/22, it will not comply with the basic conditions of Section 11 and 12 of the Act and the deduction will not be allowed for Application of Income u/s 11 of the Act. in such cas the Gross Receipts of trust will be taxable for A. Y. 2022/23.
FAQ.5 Whether Central Board of Direct Taxes (CBDT) has powers for condonation of delay for late application for fresh registration under section 12AB of the Act ?Ans. Answer is Yes. CBDT has powers under section 119(2) (b) of the income tax Act for condonation of delay for late application for fresh registration under section 12AB of the Act.
FAQ.6 Whether Commissioner of Income Tax has powers for condonation of delay for late application for fresh registration under section 12AB of the Act ?Ans. Answer is No. Because Commissioner of Income Tax does not have powers for condonation of delay for late application for fresh registration under section 12 AB of the Act.
FAQ.7 Whether Trust/ Institution will have to pay tax under section 115TD on accreted income if the application for fresh registration is not made ?Ans. The accreted income for the purposes of section 115TD(1) means the amount by which the aggregate fair market value of the total assets of the trust or the institution, as on the specified date, exceeds the total liability of such trust or institution computed in accordance with the method of valuation as may be prescribed. This additional income tax is over and above the regular income tax the Trust may have to pay on its annual income.
As per Section 115 TD Subsection (3) specify that “ as per section 115 TD [1(a)], Trust or Institution shall be deemed to have been converted into any form not eligible for registration under section 12 AA or 12 AB of the Act if the registration granted to it under section 12 AA or 12 AB is cancelled.
The said tax on accreted income is payable only in the following situations:-
(A) The Trust has merged with an entity other than Trust having similar objects and registered under section12 AA or 12 AB of the Act.
(B) The Trust is converted into a form which is not eligible for grant of registration under section 12 AA or 12 AB of the Act.
(C) The Trust fails to transfer all assets to other Trust/ Institution having similar objects and registered under section 12 AA or 12 AB or registered under section 10(23C) of the Act within 12 months from the end of the month in which the dissolution takes place.
(i) Non compliance of the provisions of Section 12 AB of the Act within the stipulated time limit is only administrative lapse on part of the Trust which is not falling in any of the above subsections of Section 115 TD of the act. Therefore, the Trust may not be called upon to pay tax under section 115 TD of the Act.
(ii) In a case where the Trust does not apply at all for fresh registration u/s 12AB of the Act within FY 2021/22, the registration u/s 12 AA of the Act already granted to it, may become inoperative. CIT may, after giving the reasonable opportunity of being heard, cancel its registration under section 12 AA.
FAQ.8 When shall apply for registration of trust under section 12 AB of the income tax Act if Trust is already registered on 12th of July 2021 with Charity Commissioner under any state Trust Act. ?
Ans. According to Section 12A (1) (ac) sub clause (vi) , a trust shall apply for registration at least one month prior to the commencement for the previous year relevant to the assessment year from which the said registration is sought. In the above case, previous year is F Y 2021-22. Relevant assessment year is A Y 2022-23.Trust can apply for fresh provisional registration u/s 12 AB up to 28th February 2022. So that it can get the said registration for previous year from 01-04-2022 to 31-03-2023.
FAQ.9 Whether a Trust or Institution which does not have registration u/s 12A and 80G of the Act can apply for provisional 12AB and provisional 80G registration simultaneously ?.Ans. Answer is Yes. A Trust which does not have registration u/s 12A and 80G of the Act can apply for provisional 12AB and provisional 80G registration. This situation will consider in Section 80G(5)(vi) and the clause iv of the first proviso to the said section. However, since Section 80G (5) specify that the registrations to Charitable Trusts established in India whose income is not liable to be included in total income under section 11 and 12 or clause 23 AA or 23 C of section 10, the first registration granted would be provisional registration under section 12AB of the Act.
FAQ.10 If a Trust already has a registration u/s 12AA, when can it apply for registration u/s 80G? Before getting registered u/s 12AB or after getting the same ?Ans. If the Trust already has registration u/s 12AA, then it can apply for registration u/s 80G under clause iv of the first proviso to section 80G(5). However, it will have to apply for fresh registration u/s 12AB first for the reason stated in the preceding paragraph.
FAQ.11 What is the procedure for registration of a trust ?Ans. The procedure for registration by CIT is follows:
1. Application to be made by the trust or institution in Form 10A along with following documents-
(a) Original/certified copy of trust deed/instrument (if created without an instrument, original or certified copy of documents evidencing creation of the trust/institution),
(b) Where the trust or institution has been in existence during any year or years prior to the financial year in which the application for registration is made, self certified copies of the annual accounts of the trust or institution relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up.
(c) Self-certified copy of registration with Registrar of Companies or Registrar of Firms and Societies or Registrar of Public Trusts, as the case may be
(d) Self-certified copy of the documents evidencing adoption or modification of the objects, if any
(f) Self-certified copy of existing order granting registration under section 12A or section 12AA, as the case may be
(g) Self-certified copy of order of rejection of application for grant of registration under section 12A or section 12AA, as the case may be, if any
2. Form No. 10A shall be furnished electronically,—
(i) under digital signature, if the return of income is required to be furnished under digital signature;
(ii) through electronic verification code in a case not covered under clause (i).
3. The CIT to pass order in writing for granting or refusing registration (). Such order to be passed within six months from the end of the month in which the application was received. if CIT refuses to registration of trust then an opportunity of being heard will be give to the trust/institution.