Insights & Research
CA Ajmal Muhajir
Head Consultant : Taxation & Audit
Currently the income derived from the property of the trust is exempt from income-tax under the purview of section 11 of the Act. If the trust or not-for-profit organizations are of charitable nature and the income is applied to the objects of the trust or accumulated. However, for being eligible to claim the exemption, a trust must get itself registered under section 12AA of the Act and also subject to certain other conditions.
Further, if these entities are also registered under Section 80G of the Income Tax Act then persons making donations to such entities are also eligible for deduction against their taxable income. Similarly, educational institutions, universities, hospitals, other medical institutions, funds, and trusts etc. granted approvals under Section 10(23C) of the Act enjoy full exemption of their income.
Earlier provision relating to registration of or not-for-profit organizations was cumbersome with respect to no clear timeline given to Income tax department to approve the application. However, registration once granted is for the life and can be annulled in only certain scenario.
Proposed changes effective from 1st October 2020:
The amendments, as per Finance Act, 2020 were applicable from 1st June 2020. However, due to unprecedented situation caused due to the Covid-19, the applicability of the aforementioned provisions has been deferred to 1st October 2020.
(a) The genuineness of activities of the applicant trust or institution or university or hospital or institution etc.; and
(b) Compliance by it with such requirements of any other law in force as is relevant for achieving the objectives of the applicant.
On being satisfied about the objects of the applicant entity, the genuineness of its activities, and its compliance with the requirements of the other laws applicable to it the Commissioner may grant approval to it for five years. If the Commissioner is not so satisfied, he may reject the application and cancel its approval after giving a reasonable opportunity of being heard. An appeal will lie to Tribunal against orders rejecting grant of registration or cancelling the registration.
Fine / Penalty
Deductions under Sections 80G and 80GGA of the Act to donors to the exempt entities will be granted only on the basis of such 'statement of donations' filed by them. In case of delays in filing of these statements the exempt entity will be liable to pay a Fee of Rs 250/- per day of delay. The default will be further punishable by penalty varying between Rs 10,000/- to Rs. 100,000/-
Proposed time limit to allot the registration by the Income tax department is a welcome move. Further, aligning the list of donee detail similar to withholding tax compliance will help reduce the tax leakage. Though on down side this will increase the compliance cost for the Exempt entities.
Proposal to ask for all the existing exempt entities to get afresh registration will be cumbersome and even some of the deserving exempt entities may be denied the registration considering the small window for tax department to approve or reject. Further, timeline of new exempt entities to apply one month prior to commencement of the previous year can be avoided and can be amended to apply one month prior to commencement of proposed charitable activity.
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