Recent Relaxations Provided To Charitable And Religious Trust

Introduction-

The income of a charitable trust is exempt from income tax under Section 10 & 11 of the Income Tax Act, 1961. However, there are certain conditions that must be met in order to qualify for this exemption. These conditions have been becoming more and more stringent day by day and obtaining and maintaining a registration for charitable trust has become very difficult. The difficulty level has increased to such an extent that to comply with each and every condition would require tremendous manpower and experience. And since everything comes at a cost small trust and societies would have to pay huge fees to professionals just to maintain their status . Further since the compliance burden has increased to such an extent that a professional who earlier was willing to make compliances for the trust on free of cost or on charity basis would now hesitate as his cost would also significantly increase.

The work of a charitable trust has become more of a chase to meet the deadline without failure as the consequences of even a single day delay in adhering to the deadline would mean loss of exemption or even worse loss of registration. Circular No. 06/2023 Dated 24th May, 2023 provides certain much needed relief to these charitable and religious organisations. Through this article these registrations

1. Section 115TD-

Finance Act, 2023 has, inter-alia, amended section 115TD of the Act, so as to provide that the accreted income of the trusts not applying for registration/ approval, within the specified time, shall be made liable to tax in accordance with the provisions of section 115TD of the Act. This amendment has come into effect from 01.04.2023 and therefore applies to assessment year 2023-24 and subsequent assessment years.

Several trusts have not been able to apply for registration/ approval within the required time due to genuine hardship. This has also led to rejection of applications simply on the ground that these were delayed. These trusts shall be subject to tax under section 115TD of the Act in accordance with the provisions of the said section, as amended by the Finance Act, 2023.

In order to mitigate genuine hardship in such cases, the Board, in the exercise of the power under section 119 of the Act, extends the due date of making an application in,-

(i) Form No. 10A, in case of an application under clause (i) of the first proviso to clause (23C) of section 10 or under sub-clause (i) of clause (ac) of sub-section (1) of section 12A or under clause (i) of the first proviso to sub-section (5) of section 80G of the Act, till 30.09.2023 where the due date for making such application has expired prior to such date;

(ii) Form No. 10AB, in case of an application under clause (iii) of the first proviso to clause (23C) of section 10 or under sub-clause (iii) of clause (ac) of sub-section (1) of section 12A of the Act, till 30.09.2023 where the due date for making such application has expired prior to such date.

In view of the above, trusts may now apply for registration/approval under clause (i) or clause (iii) of the first proviso to clause (23C) of section 10 or sub-clause (i) or sub-clause (iii) of clause (ac) of sub-section (1) of section 12A of the Act by 30.09.2023 and where such application is made by the said date and registration/approval is granted, the provisions of clause (iii) of sub-section (3) of section 115TD of the Act shall not apply on account of delay in making application in accordance with the provisions of clause (i) or (iii) of the first proviso to clause (23C) of section 10 or sub-clause (i) or (iii) of clause (ac) of sub-section (1) of section 12A of the Act.

The extension of due date as mentioned above shall also apply in case of all pending applications under clause (iii) of the first proviso to clause (23C) of section 10 or sub-clause (iii) of clause (ac) of sub-section (1) of section 12A of the Act, as the case may be.

Further, in cases where the trust had already made an application in Form No. 10AB, and where the Principal Commissioner or Commissioner has passed an order rejecting such application, on or before the issuance of this Circular, solely on account of the fact that the application was furnished after the due date, the trust may furnish a fresh application in Form No. 10AB within the extended time provided in paragraph 5(ii) i.e. 30.09.2023.

2. Clarification regarding applicability of provisional registration

Eighth proviso to clause (23C) of section 10 of the Act, inter-alia, provides that in the case of a trust referred to under sub-clauses (iv) , (v) , (vi) or (via) of clause (23C) of section 10 of the Act seeking provisional approval, such approval shall be from the assessment year immediately following the financial year in which the application is made. However, the first proviso to clause (23C) of section 10 provides that the application for provisional approval is required to be made at least one month prior to the commencement of the previous year relevant to the assessment year from which approval is sought.

Similarly, clause (ac) of sub-section (1) of section 12A of the Act provides that the trusts seeking provisional registration are required to make an application at least one month prior to the commencement of the previous year relevant to the assessment year from which registration is sought. However, sub-section (2) of section 12A, inter-alia, provides that the provisional registration shall be applicable from the assessment year immediately following the financial year in which the application for such registration is made.

With a view to bring consistency, it was clarified that in case of trusts, funds or institutions seeking provisional approval or provisional registration as referred to in para 10 and 11, the said provisional approval or provisional registration shall be effective from the assessment year relevant to the previous year in which the application is made and shall be valid for a period of three assessment years subject to the provisions of clause (iii) of the first proviso to clause (23C) of section 10 or in sub-clause (iii) clause (ac) of sub-section (1) of section 12A or clause (iii) of the first proviso to sub-section (5) of section 80G of the Act, as the case may be.

3. Clarification regarding denial of exemption in case where the statement of accumulation is not filed by the due date.

Finance Act, 2023 has amended sub-section (2) of section 11 of the Act to provide that statement of accumulation as referred to in clause (a) of said sub-section [Form No. 10] is required to be furnished at least two months prior to the due date of furnishing return of income under subsection (l) of section 139. Similarly, the provisions of Explanation 3 to the third proviso to clause (23C) of section 10 of the Act have also been amended. Further, the due date for furnishing the option for deemed application of income in Form No. 9A under clause (2) of the Explanation I to sub section (1) of section 11 of the Act has also been amended to be at least two months prior to the due date of furnishing return of income, under sub-section (1) of section 139.

Representations had been made that the trusts may not be able to furnish Form No. 10 and Form No. 9A before the finalisation of their computation of income. Since the computation of income is finalised at the time of furnishing of return of income, therefore, the trusts should be allowed to furnish Form No. 10 and Form No. 9A by the due date of furnishing their income tax return.

It was clarified that the statement of accumulation in Form No. 10 and Form No. 9A is required to be furnished at least two months prior to the due date of furnishing return of income so that it may be taken into account while auditing the books of account. However, the accumulation/deemed application shall not be denied to a trust as long as the statement of accumulation/deemed application is furnished on or before the due date of furnishing the return as provided in sub-section (1) of section 139 of the Act.

4. Clarification regarding audit report to be furnished in Form No. 10B.

Form No. 10B and Form No. 10BB requires the auditor to bifurcate certain payments or application in electronic modes and non-electronic modes. The Notes to the said Forms provide that electronic modes shall be the following modes referred in rule 6ABBA of the Income-tax Rules, 1962:

(a) Credit Card;

(b) Debit Card;

(c) Net Banking;

(d) IMPS (Immediate Payment Service) ;

(e) UPI (Unified Payment Interface) ;

(f) RTGS (Real Time Gross Settlement) ;

(g) NEFT (National Electronic Funds Transfer) ; and

(h) BHIM (Bharat Interface for Money) Aadhar Pay.

It has been represented that the above description of electronic modes does not include account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account.

It was clarified that for the purposes of Form No. 10B and Form No. 10BB electronic modes referred to in para 18 are in addition to the account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account.