Charitable Trust and Planning

1. Public Charitable Trusts:

The registration and taxation of charitable trusts is governed by Chapter III of the Income Tax Act which contains sections 11, 12, 12A, 12AA and 13.

Section 12A/12AA contains the provisions concerning the registration and the registration procedure under the Income Tax Act. Section 11 and 12 contains the provisions concerning the conditions to be fulfilled by the charitable trusts in order to claim exemption from income tax. Section 13 stipulates the provisions concerning the trusts which are not eligible for exemption u/s 11 & 12.

(a) Registration: A public charitable trust is required to obtain registration u/s 12A of the Income Tax Act,by filing an online registration application in prescribed form 10A electronically, with the jurisdictional CIT (Exemptions).

The Finance Act 2020 has provided for a new scheme of registration of charitable trusts and institutions u/s 12AB, wherein the registration of such trusts and institutions shall remain valid for a period of five years only and not for an indefinite period.

(i) Existing Registered Charitable Trusts:

In order to ensure that the conditions of registration are being adhered to, all the existing trusts and institutions registered u/s 12A of the Act, have to compulsorily apply afresh for their registration under the said section, within a period of three months from October 1, 2020.

Any failure, lapse or omission on the part of the existing registered charitable trusts u/s 12A, to apply for renewal of their registration before the competent tax authorities within the stipulated time period of 1st October 2020 till 31st December 2020, would result in losing of their registration status under the respective clauses.

(ii) New Charitable Trusts:

All new trusts and institutions making applications for their registration u/s 12AB, shall be provisionally approved or registered for a period of three years on the basis of their applications, without detailed enquiry, in the cases where activities of such trusts and institutions are yet to begin and subsequently such trusts and institutions have to apply again for their approval or registration which, if granted, shall be valid for a period of five years, from the date of such provisional registration. The application of registration subsequent to provisional registration should be made at least six months prior to expiry of provisional registration or within six months of start of activities, whichever is earlier.

(b) Compulsory Audit: Where the total income of the charitable trust or institution, exceeds the basic exemption limit, that is, Rs.2,50,000/- in any previous year, the accounts of the trust or institution are required to be audited by a qualified Chartered Accountant, and the audit report in Form No. 10B is required to be furnished electronically before filing the e-return of income.

(c) Filing of electronic Return of Income (ITR): Where the total income of the trust (before allowing exemption under sections 11 and 12) exceeds the maximum amounts which is not chargeable to tax (i.e. Rs.2,50,000 w.e.f. A.Y.2015-16 and onwards), it is required to e-file its return in prescribed Form ITR-7, on or before the date specified in section 139. The due date specified under section 139 is 30th September every year where the trust is required to get its accounts audited under any provision of the Act and 31st July every year in other case. However, for the AY 2020-21, the due date for filing ITR is 30th November 2020. In case return is not filed by prescribed date then benefit of exemption from income-taxis not available.

2. Educational Institutions & Hospitals:

Section 10(23C) of the Income Tax Act, 1961, is a self-contained code, containing the legislative provisions concerning the availability of tax incentives and exemptions to universities and education institutions and hospitals and medical institutions, subject to the fulfilment of stipulated conditions.

(a) Registration: The educational institutions and hospitals are required to make an application in the prescribed Form No. 56, electronically, for their registration u/s 10(23C) of the Income Tax Act, before the jurisdictional CIT(Exemptions), to claim exemption from income-tax.

The Finance Act 2020 has provided for a new scheme of registration of educational trusts and hospitals u/s 10(23C), wherein the registration of such trusts and institutions shall remain valid for a period of five years only and not for an indefinite period.

(i) Existing Registered Charitable Trusts:

In order to ensure that the conditions of registration are being adhered to, all the existing trusts and institutions registered u/s 12A of the Act, have to compulsorily apply afresh for their registration under the said section, within a period of three months from October 1, 2020.

Any failure, lapse or omission on the part of the existing registered charitable trusts u/s 12A, to apply for renewal of their registration before the competent tax authorities within the stipulated time period of 1st October 2020 till 31st December 2020, would result in losing of their registration status under the respective clauses.

(i) Existing Educational Institutions & Hospitals:

In order to ensure that the conditions of registration are being adhered to, all the existing educational institutions and hospitals registered u/s 10(23C) of the Act, have to compulsorily apply afresh for their registration under the said section, within a period of three months from October 1, 2020.

Any failure, lapse or omission on the part of the existing registered institutions u/s 10(23C), to apply for renewal of their registration before the competent tax authorities within the stipulated time period of 1st October 2020 till 31st December 2020, would result in losing of their registration status under the respective clauses.

(ii) New Educational Institutions & Hospitals:

All new educational institutions and hospitals making applications for their registration u/s 10(23C), shall be provisionally approved or registered for a period of three years on the basis of their applications, without detailed enquiry, in the cases where activities of such trusts and institutions are yet to begin and subsequently such trusts and institutions have to apply again for their approval or registration which, if granted, shall be valid for a period of five years, from the date of such provisional registration. The application of registration subsequent to provisional registration should be made at least six months prior to expiry of provisional registration or within six months of start of activities, whichever is earlier.

(b) Compulsory Audit of Books of Accounts: Where the total income of the educational institution or hospital, exceeds the basic exemption limit, that is, Rupees 2,50,000/- in any previous year, the accounts of theinstitution or hospital are required to be audited by a qualified Chartered Accountant, and the audit report in Form No. 10BB is required to be furnished electronically before filing the e-return of income.

(c) Filing of Annual Income Tax Return: Where the total income of the educational institution or hospital exceeds the maximum amounts which is not chargeable to tax (i.e. Rs.2,50,000 w.e.f. A.Y.2015-16 and onwards), it is required to e-file its return in prescribed Form ITR-7, on or before the date specified in section 139. The due date specified under section 139 is 30th September every year where the trust is required to get its accounts audited under any provision of the Act and 31st July every year in other case. However, for the AY 2020-21, the due date for filing ITR is 30th November 2020. In case return is not filed by prescribed date then benefit of exemption from income-taxis not available.

How TaxAaram can Help You

TaxAaram, on receiving the necessary e-mandate/authorization from its valued registered users(charitable trusts/educational institutions/hospitals), will render its seamless and hassle-free e-services in relation to the online registration of such registered users under sections 12A/12AB/10(23C)/80G, and will also ensure all accounts, audit and tax-assessments, appeals and rectifications related compliances done, in a faceless and paperless manner.

The registered users will get such e-services, in the most professional and cost-effective manner, within the comforts of their homes, without even the requirement of visiting the income-tax department or tax consultants’ office.

The ‘e-applications/returns/submissions prepared and brainstormed by ‘TaxAaram’ will be available to be viewed and approved by the registered users electronically before being uploaded in the e-Proceedings utility in the e-filing portal of the Income-tax department.

This revolutionary and path-breaking e-service in relation to e-registration/filing, is taxpayer friendly and cost-effective as besides saving precious time of the registered users, it will also provide them with a 24X7 anytime/ anywhere access to the ‘e-submissions’ documents and information filed electronically with the income-tax department by TaxAaram, on behalf of its registered users.