RECENT AMENDMENTS RELATING TO CHARITABLE TRUSTS · CHARITABLE TRUSTS 24th April 2020 JKKG 21....

24th April 2020 JKKG 1

RECENT AMENDMENTS RELATING TO CHARITABLE TRUSTS

By

CA (Dr.) Gautam Shah

Bombay Chartered Accountants Society DTHRC


Introduction

All the existing charitable and religious institutions areregistered/approved under the following sections:

a) Section 10(23C)b) Section 12A (prior to 1996)c) Section 12AA (registered after 1996)d) Section 80G

Important Aspects at the Time of creating a New Charitable Trust

• Intention of the Settlor/ Trustee/ ManagingCommittee Member/ Directors

• Charitable Trust is not a tool for tax planning.

• Constitution of the Charitable Trust is themost important document.


SECTION 10(23C) OF THE INCOME TAX ACT, 1961


Situation When the application hasto be made?

The period for which theapproval is applicable andreceipt of final order

(i) Existing 10(23C)approved Trusts

Within 3 months from1.06.2020

a. Pass an Order for 5 yearsb. Final Order received within 3months from the end of themonth in which application ismade.

(ii)Trusts alreadyapproved under newprovisions of 10(23C)

Atleast 6 months prior tothe expiry of the period forwhich approval wasoriginally granted.

a. Pass an Order for 5 years(After meeting Terms &Conditions specified later)b. Final Order received within 6months from the end of themonth in which application ismade.


Situation When the application hasto be made?

The period for which the approvalis applicable and receipt of finalorder

(iii)New Trustsprovisionallyapproved under10(23C)

Atleast 6 months prior tothe expiry of the provisionalperiod for which approvalwas originally granted orwithin 6 months ofcommencement of itsactivities, whichever isearlier.

a. Pass an Order for 5 years(After meeting Terms & Conditionsspecified later)b. Final Order received within 6months from the end of the monthin which application is made or 6months of commencement of itsactivities, whichever is earlier.

(iv) In any othercase (Includes NewApprovals andpending approvalsunder the oldprovisons for finalorder )

One month PRIOR to thecommencement of the P.Y.(relevant to the A.Y.) fromwhich such said approval issought

a. Pass an Order provisionallyapproved for 3 years from the A.Y.from which the approval is soughtb. Final Order received within 1month from the end of the month inwhich application is made.


New Explanation inserted for Corpus Donation u/s. 10(23C)

• For Charitable Trust availing 10(23C) exemption,Total income includes Corpus Donation. As perthe new explanation Corpus Donation willhenceforth not included in the Total Income.

• Now this clause is akin to section 12A/12AA.

• This was not there in the Finance Bill 2020, buthas been inserted in the Finance Act, 2020.


Amendment in Explanation 2 of section 11(1)

• Before Amendment:Any amount paid out of 15% or amount accumulated as perExplanation 1 read with section 11(1) to a trust/ institutionregistered under section 12AA with specific direction forming partof corpus will not be treated as application of income.

• After Amendment:Any amount paid out of 15% or amount accumulated as perExplanation 1 read with section 11(1) to any fund or trust orinstitution or any university or other educational institution or anyhospital or other medical institution referred to in sub-clause (iv)or sub-clause (v) or sub-clause (vi) or sub-clause (via) ofclause(23C) of section 10 or other trust or institution registeredunder section 12AA, being contribution with a specific directionthat it shall form part of the corpus will not be treated asapplication of income.


New Provisions u/s. 12AB of the Income Tax Act, 1961

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New Scheme for Registration u/s. 12AB

• Application to be made by Trust (including the existing registered Trusts) in prescribed form and manner within specified time to PCIT/CIT.

• The PCIT/CIT will pass order by granting a Unique Registration Number (URN).

• The reasons behind introduction of this new Scheme are :a. To provide an electronic database.b. Old Trust registered however have misplaced their

registration number nor the Income Tax Department hasany records of the same.

c. New Trust facing difficulties due to non commencementof any activities.


Situation When Application has to bemade? -Section 12A(1)(ac)[newly added]

The period for which the registration isapplicable and receipt of final order

(i) Trusts alreadyRegistered under12AA or 12A


a. Pass an Order for 5 yearsb. Final Order received within 3 monthsfrom the end of the month in whichapplication is made.

(ii)Trusts alreadyregistered under12AB

Atleast 6 months prior tothe expiry of the period forwhich registration wasoriginally granted.

a. Pass an Order for 5 years(After meeting Terms & Conditionsspecified later)b. Final Order received within 6 monthsfrom the end of the month in whichapplication is made.

(iii)New Trustsprovisionallyregistered under12AB

Atleast 6 months prior tothe expiry of the provisionalperiod for whichregistration was originallygranted or within 6 monthsof commencement of itsactivities, whichever isearlier.

a. Pass an Order for 5 years(After meeting Terms & Conditionsspecified later)b. Final Order received within 6 monthsfrom the end of the month in whichapplication is made or 6 months ofcommencement of its activities,whichever is earlier.



Situation When Application has to be made? -Section 12A(1)(ac) [newly added]

The period for which the registration is applicable and receipt of final order

(iv) Trusts registrationbecoming inoperativedue to first proviso ofsection 11(7). (12A or12AA)

Atleast 6 months prior tothe commencement of theA.Y. for which registration issought


(v) Trust adopted orundertakenmodifications of itsobjects which do notconform to theconditions ofregistration

Within 30 days from thedate of said adoption ormodification.


(vi) In any other case(Includes NewRegistrations andpending registrationsunder old provision of12AA for final order )

One month PRIOR to thecommencement of the P.Y.(relevant to the A.Y.) fromwhich such saidregistration is sought

a. Pass an Order provisionallyregistering for 3 years from the A.Y.from which the registration is soughtb. Final Order received within 1 monthfrom the end of the month in whichapplication is made.

Simultaneous Benefits under two sections will not be allowed

• If a Trust is registered u/s. 12A(1) or 12AA andeither u/s. 10(23C) and makes an applicationeither u/s. 10(23C) then the registration u/s.12AB will not be operative and vice versa if aTrust makes an application u/s. 12AB then theapproval u/s. 10(23C) will be inoperative.

• In short henceforth the Trust will be able to enjoyexemptions either u/s. 10(23C) or u/s. 12AB.

• The word used is “inoperative”.


AMENDMENT IN SECTION 80G OF THE INCOME TAX ACT, 1961


Situation When the application has to be made?

The period for which the approval is applicable and receipt of final order

(i) Existing 80Gapproved Trusts


a. Pass an Order for 5 yearsb. Final Order receivedwithin 3 months from theend of the month in whichapplication is made.

(ii)New Trusts alreadyapproved under 80G

Atleast 6 months prior tothe expiry of the period forwhich approval wasoriginally granted.

a. Pass an Order for 5 years(After meeting Terms &Conditions specified later)b. Final Order receivedwithin 6 months from theend of the month in whichapplication is made.


Situation When the application has to be made?

The period for which the approval is applicable and receipt of final order

(iii) New Trustsprovisionally approvedunder 80G

Atleast 6 months prior to theexpiry of the provisionalperiod for which approval wasoriginally granted or within 6months of commencement ofits activities, whichever isearlier.

a. Pass an Order for 5 years(After meeting Terms &Conditions specified later)b. Final Order received within 6months from the end of themonth in which application ismade or 6 months ofcommencement of itsactivities, whichever is earlier.

(iv) In any other case(Includes NewApprovals and pendingapprovals of old 80G forfinal order )

One month PRIOR to thecommencement of the P.Y.(relevant to the A.Y.) fromwhich such said approval issought

a. Pass an Order provisionallyapproved for 3 years from theA.Y. from which the approval issoughtb. Final Order received within 1month from the end of themonth in which application ismade.


Circular issued for availing deduction u/s. Section 80G

• The date for making various donation for claimingdeduction under section 80G has been extendedto 30th June, 2020. Hence the donation can bemade up to 30.06.2020 for claiming thededuction for FY 2019-20.

• This clearly shows that the donor can claimexemption under section 80G in F.Y. 2019-20 evenif the donation is given upto 30.06.20

• The Trust will treat this as income in the year inwhich it is received.


Annual Statement of Donation (80G)

• The Trust or institution (donee) who have 80G registration have tosubmit a Annual Statement of Donation (ASD) for such period as may beprescribed and delivered or cause to be delivered to the prescribedIncome Tax Authority or the person authorized by such authority withinsuch time as maybe prescribed.

• If the ASD contains any mistakes or there is a need for anyaddition/deletion/updation of information in the same then a correctionstatement maybe delivered in the prescribed form and verified inprescribed manner.

• The information in the ASD should generally contain the donor detailssuch as the Name, Address, PAN Number, Aadhar Number and Amountdonated.

• Donors will get deduction only based on ASD filed by the Trust. It is akinto 26AS TDS Credit.

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Annual Statement of Donation (80G) contd…..

• The charitable institution shall furnish to the donor, acertificate which shall specify the amount of donation in aprescribed manner containing prescribed particulars andwithin prescribed time.

• The donor shall be provided the deduction under 80G directly inthe return of income on the basis of the prescribed statements(ASD).

• Incase there is a delay in filing ASD, a late fee of Rs. 200/- per dayshall be applicable u/s. 234G , which is mandatory. Fees to be paidbefore delivering the ASD or before furnishing the certificate.

• A penalty of Rs. 10,000/- which may go up to Rs. 10,00,000/- u/s.271K.

24th April 202019

JKKG

Other Terms and Conditions applicable to approval u/s. 10(23C), registration u/s. 12AB and approval

u/s. 80G

• Call for such documents or information ormake such inquiries as the Officer thinksnecessary in order to satisfy himself about,

- the genuineness of activities

-the compliance of such requirements of anyother law for the time being in force as whichare material for the purpose of achieving itsobjects.


OTHER MISCELLANEOUS AMENDMENTS RELATED TO

CHARITABLE TRUSTS


Amendments under Section 80GGA

• The Finance bill, 2020 has specified that nodeduction shall be allowed to the donor underSection 80GGA in respect, of donationexceeding amount of Rs. 2,000/- unlessdonation is paid in any mode other then cash.


Amendment under Section 115TD

• After the introduction of Section 12AB, nothingcontained in Section 12AA shall be applicable tothe trust or institution registered under Section12AA. Hence in order to make the provisions ofSection 115TD applicable, the Finance Bill, 2020have substituted the word, figures and letters“under section 12AA” with the words, figures andletters “under section 12AA or section 12AB” inSection 115TD which shall be effective from

1st June, 2020.


Date of Filing Audit Report in Form 10B or Form 10BB and ITR

• The date of filing the Form 10B or Form 10BBfor AY 2020-21 will be on or before 30th

September, 2020.

• The date of filing the ITR for AY 2020-21 willbe on or before 31st October, 2020.


Proposed Provision under Maharashtra Public Trust Act, 1950

• The Maharashtra Public Trust Act, 1950 (MPT) is proposedto be amended to include new fund.

• Currently u/s. 57 of MPT there is a fund called “PublicTrusts Administration Fund”. The Mumbai High Court asgranted stay for collecting any contribution u/s.57.

• Due to COVID-19 a new section 57A of MPT is proposedwhich will be called “Epidemic Disease Relief Fund &Disaster Relief Fund” by invoking provisions of the EpidemicDisease Act, 1987 or occurrence of any disaster under theDisaster Management Act, 2005.

• There will be a contribution towards this new fund whichwill be a percentage of their Gross Annual Income asprescribed.


New Provision under FCRA

• The Ministry of Home Affairs (MHA) has come out with anonline response form in relation to COVID-19 activities.

• It is not mandatory, but advisable to file Online response.Only applicable to Trust having FCRA registration.

• This online form may be submitted by the 15th of everymonth. (monthly reporting)

• The actual activities relating to COVID-19 needs to besubmitted. Both FCRA and Local Funds, including activitiesin Kind need to be reported.

• You need to login to fcraonline.nic.in and go to the headertitled “Service under FCRA”.


PM CARES Fund(Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund)

• Donation to PM CARES Fund would qualify forsection 80G benefits (100% Exemption ) underthe Income Tax Act, 1961.

• Donation to PM CARES Fund will also qualify asCorporate Social Responsibility (CSR) Expenditureunder the Companies Act, 2013.

• PM CARES Fund has been granted FCRAregistration.

• Donation given upto 30th June, 2020 will begetting deduction u/s.80G for FY 2019-20.


Proposed Rules under Corporate Social Responsibility

• The proposed new rules under “The Companies (Corporate SocialResponsibility Policy) Amendment Rules, 2020 (Draft).

• The existing rules under Companies (CSR) Rules, 2014 is as under,

Currently, CSR activity can be carried out through,

a) a company established u/s.8 of the Companies Act, 2013 or

b) a registered trust or a registered society, established by the companyor established by the Central or State Government or any entityestablished under an Act of Parliament or a State legislature.

• The proposed new rule sought to amend this to “CSR activities to beundertaken by the company itself or through,

a)a company established u/s. 8 of the Act, or

b)any entity established under an Act of Parliament or a Statelegislature”.


Controversial Topics• Under Section 12AB –

a. Modification of Objects (12A(1)(ac)(v))

b. The compliance of such requirements of any other law for the time being in forceas which are material for the purpose of achieving its objects. (T&C)

c. Atleast one month prior to the commencement of the P.Y. relevant to A.Y.(12A(1)(ac)(vi)) and 10(23C)(A)(iv)

d. All pending application upto 1.06.2020?

e. Whether provisional registration can be cancelled ?

f. Whether registration can be cancelled retrospectively ?

g. If a Trust already registered u/s. 12A or 12AA does not apply for renewal ofregistration u/s. 12AB before 31.08.2020 then whether the provisions of section115TD will become applicable ?

h. Whether Trusts under litigation before Tribunal due to rejection of 12AAregistration are covered?

i. If no activities by a Trust till the time of renewal or provisional renewal, whetherregistration will be renewed?


Controversial Topics• Under Section 80G-

a. Donation for the full year deducted from the employee’s salary towardsPM Care Funds, can the employee claim 80G for FY 2019-20.

b. Donation by a registered Charitable Trust out of their accumulated fundsu/s.11(2) (Specific purpose) can be given to PM Care Funds or can beutilised for COVID-19.

c. Donation given between 1.04.2020 to 30.06.2020 and claimed asdeduction u/s. 80G for F.Y. 2019-20 whereas the Trust will be issuing thedonation receipts in subsequent Financial Year.

d. Application u/s. 12A & 80G to be made on or before 31.08.20. IfApplication for both are made on 31.08.2020 then 12AB and 80G must beissued on or before 30.11.2020. If 80G Approval is given after theregistration u/s. 12AB then this 3 month period maybe overshot so in suchsituation what is the outcome.


Other Issues

• A Charitable Trust having primarilyEducational activities as its object can donatefor COVID-19?

• If a Charitable Trust which is into Educationalactivities only and is registered under FCRA,receives donation for Education purpose, canthis donation received be utilized for COVID-19 purpose. Let us assume that donor has noobjection for the same.


Responsibility as an Auditor

Audit of

Proprietorship Concern

Proprietorship Concern

Charitable Trusts & Institutions

Partnership Concern & LLP

Private & Public Limited Company

Responsibility towards the Proprietor

Responsibility towards the

Partners

Responsibility towards the

Shareholders

Responsibility towards the PUBLIC AT

LARGE and Donor


In aLightervein………


CA.(Dr.) Gautam Shahemail : [email protected]


RECENT AMENDMENTS RELATING TO CHARITABLE TRUSTS · CHARITABLE TRUSTS 24th April 2020 JKKG 21....

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