Taxmann's Budget Marathon | Charitable Trusts | Views by Dr Manoj Fogla & Suresh Kejriwal

Impact on Charitable & Religious Trusts –Budget 2023

Content Coverage:

1.Treatment of application out of Corpus and Loans & Borrowings

2.Restriction on application by way of Inter-charity donations

3.De-facto roll back of provisional registration for existing organization

Dr. Manoj Fogla & CA. Suresh Kejriwal

(Assisted by CA. Tarun Kumar)

4.No retrospective benefit of registration

5.Giving incomplete/false information can attract cancellation

6.Exit Tax u/s 115TD : If Fails to make application for ReRegistration/renewal/provisional to regular registration

7.Benefit of exemption can’t be claimed by filing updated ITR

8.Preponment of time limit to file Form 9A and Form 10

Similar Amendments proposed u/s 10(23C)

Treatment of application out of Corpus and Loans & Borrowings

Current Treatment

 Application out of corpus donations/Loans & Borrowings shall not be considered as an application for charitable or religious purposes in the year of application.

 However, when such corpus donations are invested or deposited back/ loan or borrowing is repaid, such amount shall be allowed as an application in the previous year in which it is deposited back to the corpus to the extent of such deposit or investment/ to the extent of repayment of loan or borrowings.

Proposed Amendment (FROM AY 2023-24) :

 Application out of corpus or loans & borrowings before 01-04-2021 not allowed even if not considered as application in the respective year

 Cap on time limit of Five years to restore the corpus or repayment of loan

 Amount of application out of Corpus or Loans only to the extent of eligible application of the concerned year :

 The application out of corpus or loan or borrowing shall not be considered as an application if it is corpus donation, TDS not deducted, paid in cash, benefitted to related person, paid outside India, etc.

Restriction on application By way of Intercharity Donations

Current Treatment

 Inter-charity donation (other than corpus) is treated at par with direct application for the purposes of Sections 11(1)(a).

Proposed Amendment [From AY 2024-25]:

 Only 85% of the eligible donations made by a trust or institution (registered or approved under the first or second regime) to another trust (registered or approved under the first or second regime) shall be treated as the application

Key Issues

Issue 1: What if the amount was not claimed as an application before 01-042021? Will it be allowed or not?

Issue 2: How to keep track of whether the amount of application has satisfied the specified conditions in which it was applied to claim it in subsequent years?

Issue 3: How to treat the amount if not invested back into the corpus or loan is not repaid within 5 years?

Key Issues ( Inter Charity Donation )

Issue 4: How will this amendment impact the amount mother NGOs or corporate foundations pay to small charitable organizations?

Issue 5: What will be the impact of this amendment on restricted grants?

De- facto Roll back of provisional Registration for existing oganisation

Current Position:

 Trust or institution which has already commenced the activities is required to file registration application in two stages, first, for provisional registration, and second, this provisional registration is required to be converted to regular registration.

Proposed Amendment [From 1st October 2023]:

 Trust or institutions shall make an application for regular registration/approval if it has already commenced the activities and it has not claimed exemption under Section 10(23C) or Section 11/12 for any previous year ending on or before the date of such application.

 Only those trusts and institutions shall file an application for provisional registration/approval that has not commenced its activities.

No retrospective benefit of registration

Current Position: proviso to sub section 2 to section 12A

 The exemption under Sections 11 and 12 shall be available for assessment year which assessment proceedings are pending before the Assessing Officer as on the date of such registration.

 Assessing Officer shall not take any action for reopening of an assessment for any assessment year preceding the first assessment year for which the registration applies, merely for the reason that such trust or institution has not obtained the registration for the said assessment year.

 However, this benefit would not be available in the case of any trust or institution that had applied for registration, and the same was refused, or the registration was cancelled.

Proposed Amendment [From 1st April 2023]:

 Finance Bill has proposed to omit the second, third and fourth proviso to Section 12A(2). Thus, the benefit of exemption provisions under Section 11/12 shall not be available for the earlier years.

Key Issues

Issue 1: Should the organisations apply for provisional registration and then commence the activities or apply directly for regular registration after commencing the activities?

Issue 2: Organisations need to apply one month before the commencement of previous year & at the same time it is proposed to withdraw back years benefit presently available – what shall be its impact?

Giving incomplete/false information can attract cancellation

Current Position:

 Cancellation proceedings can be initiated if the PCIT/CIT has noticed the occurrence of a specified violation, and the violation need not be noticed only upon assessment.

 If the registration has been obtained on incomplete or false or incorrect information, the CIT has a power to cancel the registration after giving an opportunity of being heard. [Rule 17A(6)]

Proposed Amendment [From 1st April 2023]:

 Explanation to Sec. 12AB(4) provides specified violation which results in cancellation

 Specified violation shall include the case where the application for approval or registration is incomplete or contains false or incorrect information.

Exit Tax u/s. 115TD : If fails to make application for Reregistration/Renewal/Provisional to regular registration

Current Position:

As per the new registration requirement –

 Every existing registered organisation u/s. 12A / 12AA need to re-register

 The re-registration shall be valid for 5 years & thereafter this gain to be renewed

 Once the provisional registration is granted, one needs to apply for normal registration

Proposed Amendment [From 1st April 2023]:

 As per the proposed amendment where application are not made for any of the above situation, then the organization shall be deemed to have been converted into any form not eligible for registration or approval in a previous year, u/s.115TD of the Income Tax Act, 1961 and shall be subject to Exit Tax

 It is also provided that date of deemed conversion shall mean the last date for making an application for registration

Key Issues

Issue 1: What shall be the impact if the organisation registered u/s. 12A/12AA has not yet re-registered ( keeping in view of the Circular No.22/2022 dt. 01/11/2022, extending the time to submit application upto 25/11/2022)

Issue 2: What is the difference if the situation is covered as specified violation and the situation is directly covered u/s. 115TD?

Benefit of exemption can’t be claimed by filing updated ITR

Current Position:

 Finance Act, 2022 has inserted sub-section (8A) in Section 139 to enable filing an updated return.

 Nothing in the law that restricts the filing of updated return by institutions claiming exemption under Sections 11 and 12.

Proposed Amendment [From AY 2023-24]:

 Return of income shall be filed within the time allowed under Section 139(1) or Section 139(4).

 Meaning thereby the trusts or institutions cannot claim the exemption by filing an updated return of income. The exemption shall be available only if the return of income is filed within the time allowed to file the original return of income under Section 139(1) or the belated return of income under Section 139(4).

Preponment of the Time limit to file Form 9A and Form10

Current Position:

 Minimum 85% has to be spent

 Shortfall in application –

 Option to spend in subsequent year in the year of receipt : Form 9A

 Accumulation for 5 years : Form 10

 Present time line of submitting Form 9A & 10 is within the due date of furnishing of return.

Proposed Amendment [From AY 2023-24]:

 Form 9A/10 shall be filed at least two months prior to the due date specified under Section 139(1) for furnishing the return of income for the previous year.

 This means if 31st October is the due date of submitting of return, then 31st August is the deadline of submitting Form 9A & 10

Key Issues

Issue 1: Should the benefit of section 13(10) & 13(11) be available in the updated return?

Issue 2: What shall be impact of preponing the time limit of submission of form 9A and form 10.

TIME FOR DISCUSSION

Dr. Manoj Fogla & CA.Suresh Kejriwal

(Assisted by CA. Tarun Kumar)

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