Re-registration of tax exemption for existing trust begins – SK Patodia

Re-registration of tax exemption for existing trust begins

Re-registration of tax exemption for existing trust begins
The Income Tax Act allows a list of exemptions which are available to tax-payers. There are different types of exemptions on income tax which can be claimed. In order to claim exemptions under section 11 & 12 of Income Tax Act, 1961, it is mandatory for all NGOs trust, society , section 35 companies and Non-Profit Organization (section 8) companies to get registration under section 12A of the act. Trusts and NGOs having registration enjoy exemption from paying income tax on the surplus income of the Trust or NGO. Hence, it is important for all Trusts, NGOs and other Not-for-Profit organizations to obtain registration right after incorporation under section 12A of Income Tax Act.

Changes in Registration in Finance Bill, 2020:

Finance Act, 2020 has completely revamped the registration procedure of a charitable trust under the Income Tax Act. These amendments are related to Re registration of all the existing registered trusts under section 12AB, renewal of registration, approval for deduction u/s 80G and furnishing statement of donations received to the Income Tax Authorities.

The concept of renewal of registration certificate for claiming exemption by a charitable and religious trust is introduced for the first time in the Finance Act, 2020 in order to weed out all the inactive and defunct charitable institutions.

The uniqueness of this is that the registration granted will not be perpetual and will remain valid for a period of 5 years and needs to be renewed. Hence All existing Charitable Trust or Institutions have to register themselves under the new section 12AB to claim exemption u/s 10 or 11 within 3 months from effective date i.e 01st April, 2021 . (01st April,2021 to 30th June, 2021)

Benefits of Registration to Donors

A NGO avail income tax exemption by getting itself registered and complying with certain other formalities, but such registration does not provide any benefit to the persons making donations.

To attract potential donors, The Income Tax Act has certain provisions, which offer tax benefits to the “donors”- Section 80G is one of such sections
Section 80G applies only to charitable trusts or institutions (excluding religious trusts or institutions), whereas scheme of exemption u/s 12A was applicable to both charitable as well as religious trusts.

Presently the approval u/s 80G is valid for perpetuity. The Finance Bill 2020, provides that all the existing 80G approvals need to be revalidated and the application for the same should be submitted within three months from the effective date 1st April 2021. The re approvals will be valid for a period of 5 years and thereafter approval for 80G has to be again applied for at least 6 months prior to the validity period.

Procedural Requirements

An application to claim exemption shall be made to the Principal Commissioner or Commissioner of Income Tax in Form 10A or Form 10AB as applicable.
Form No. 10A or 10AB shall be furnished electronically, –
i) digital signature (DSC), if the return of income is required to be furnished under digital signature ,or
ii) through electronic verification code (EVC) in a case not covered under clause i)
On receipt of the an application form, a sixteen digit alphanumeric Unique Registration Number (URN) shall be generated (Subject to certain specified conditions)
**The approval or rejection of the applications under 10A/10AB shall be notified in Form 10AC/10AD

Insertion of new Rule 18AB:

Furnishing of Statement of particulars & Certificate under relevant clause of section 80G or Section 35 (as applicable) by following prescribed reporting conditions.

Such Statement has to be furnished by the trust every year in Form 10BD beginning from FY 2021-22 on or before 31st May, immediately following the financial year in which the donation is received.

Trust shall furnish a certificate of donation in Form No 10BE to the donor which will be required to claim the tax benefit while filing their return of income.