Impact of ‘Budget 2020 Finance Bill’ on Charitable Trust & Institutions

In the Union Budget 2020, the changes in the taxation system of charitable trusts which are enjoying the benefit of exemption from income tax is massive. The objective behind is to control malpractices which are functioning by such trusts.

There are around 10 clauses in the Bill i.e., Clauses 7(1), 9 to 12, 29(A) and 29(B)(ii), 33, 34, 54(b) and 61 have been introduced to effect the changes in sections 10(23C), 11, 12A, 12AA, 12AB, 56, 80G, 80GGA, 115BBDA and 115TD of Income-tax Act, 1961 respectively.

What are the impacts of ‘Budget 2020 Finance Bill’ on Charitable Institutions?

New compliance u/s 80G

Section 80G enables the donors to get deduction from their income for donation to the approved charitable institution/ prescribed fund. Also, tax deduction under section 80G will not be available to donors (individuals or companies) who opt for reduced rate of tax.

All charitable trust or institution registered u/s 80G shall be required to submit a statement of donations received in such form & manner as may be prescribed & the benefit of 80G shall be available to donors on the basis of information relating to donation furnished by the corresponding charitable trust or institution.

Newly Established Trusts & Institutions

All Newly established trusts and institutions applying to income tax for registration for the very first time will be given provisional registration for three years. Once approved, the provisional registration shall be valid for three years from the Assessment Year from which the registration is pursued.

If renewal can be done at least six months prior to the expiry of Validity Period of the provisional registration then it shall be valid for five years.

Either registered u/s 12AA or 10(23C)

In the current scenario, Charitable trusts and institutions are registered under both sections 10(23C) and 12AA. Now onwards,

In the next FY all registered trust & institutions are required to decide whether they prefer to apply for ‘revalidation of registrations’ u/s 10(23C) or 12AA, but not in both.

 Revalidations of Existing registered trust & institutions

All the existing charitable and religious institutions already registered under Section 12A (trusts and institutions registered prior to 1996), Section 12AA (trusts and institutions registered after 1996), Section 10(23C) and Section 80G will be required to re-apply to the income tax authorities to revalidate their existing registrations.

The process will be online and the new online form will particularly focus on whether the charitable activities of the trust or institution are genuine.

Once the online forms are ready there will be a window of three months within which application must be submitted. 

After processing your application, your trust or institution’s registration under section 12AA and 80G may be revalidated by income tax for a period of five years.