The Union Budget and Finance Bill 2020 has proposed major changes for charitable trusts and institutions. Like thousands of other charitable and religious institutions in India, Parsi trusts and associations (including Panchayats and Anjumans, Agyaris and Atashbahrams which enjoy tax exemptions or offer tax deductions u/s 80G) will also be affected. Once the Bill is passed and Notified, the Finance Act 2020 will come into force and will apply from the new fiscal year starting 1st April, 2020. For the moment, simply be aware, understand the changes, be prepared and above all else stay calm. Here is a snapshot of the key changes and what one needs to do:
Revalidation Of Existing Registrations: All existing charitable and religious institutions registered under Section 12A (prior to 1996), Section 12AA (after 1996), Section 10(23C) and Section 80G, will be required to re-apply to the Income Tax (IT) authorities to revalidate their existing registrations.
Registration Under 12AA: means that IT authorities recognize the trust or institution as ‘established for charitable or religious purpose’, and therefore exempt from payment of IT, subject to other compliances.
Registration Under 80G: is of no direct benefit to the charitable outfit. Donors contributing to a trust or institution registered under section 80G can enjoy tax deductions. Hence, 80G registration is an incentive for donors.
Process Of Renewal/Revalidation: will be online and the new form will focus on the authenticity of the charitable/religious activities of the trust or institution. Applications must be submitted within a window of 3 months, either by Trusts themselves or through their auditors or practicing CAs. After processing the application, the institution’s registration (U/s 12AA and 80G) may be revalidated by IT for a period of five years. Applications for renewal after five years must be made at least six months prior to the expiry of the five years validity period.
New Organizations: Newly established trusts and institutions applying for registration for the very first time will be given provisional registration for three years. Once granted, the provisional registration shall be valid for three years from the Assessment Year from which the registration is sought. Thereafter, application for renewal or rather registration (instead of provisional registration) can be submitted at least six months prior to the expiry of validity period of the provisional registration. Registration so granted shall be valid for five years.
National Register And UIN: The Government also proposes to create a National Register of all charitable/ religious institutions and the IT Dept will issue a Unique Identification Number to all.
Either 12AA or 10(23C): Charitable trusts / intuitions currently registered under both 10(23C) and 12AA are required to decide whether they prefer to apply for revalidation or renewal of either the registration u/s 10(23C) or 12AA, but not both.
Additional New Compliance U/s 80G: All charitable trust / institutions registered u/s 80G are now required to submit a statement of donations received in a format prescribed and the benefit of 80G shall be available to donors on the basis of information relating to donation furnished by the corresponding charitable trust / institution. Also, tax deduction u/s 80G will not be available to donors (individuals or companies) who opt for reduced rate of tax. This could significantly inhibit the flow of charitable contributions.