[Opinion] Finance Bill 2023 – Changes and Amendment related to Trust & NGOs

Authored by Yogesh Kr. Agarwal | Chartered Accountant

Union Budget 2023 has already been presented on 01.02.2023 by the Hon’ble Finance Minister of India. There were many amendments proposed in the Finance Bill. We are here discussing the amendments concerning the entities which are enjoying the benefit of exemptions under the provisions made in Section 10(23C) and Section 11 of the Income Tax Act 1961.

Highlights of those proposals are as follows:

1. Proposal: It is proposed to provide that application out of corpus or loans or borrowings before 01.04.2021 should not be allowed as application for charitable or religious purposes when such amount is deposited back or invested in to corpus or when the loan or borrowing is repaid. It is further proposed to provide that if the trust or institution invests or deposits back the amount in to corpus or repays the loan within 5 years of application from the corpus or loan, then such investment/depositing back into corpus or repayment of loan will be allowed as application for charitable or religious purposes. It is also proposed to provide that where the application from corpus or loan did not satisfy the conditions as stated above, the repayment of loan or investment/depositing back in to corpus of such amount will not be treated as application.

Observation: It has become now necessary to go back to the records and check to ensure that repayment of loans is not treated as application in the event of exemption is claimed prior to 01.04.2021. It should also be noted that these amendments are effective from AY 2023-24 only.

2. Proposal: The government has proposed to amend the law that if the donation is paid to other registered trusts/institution, only 85% of such donation shall be treated as application for charitable/religious activities.

Observation: In addition to earlier amendments which restricts the donation paid to be treated as valid application like when the donation is given from corpus or from accumulated income, donation so paid is not treated as application for the purpose of charitable activities. Now with this even if the donation paid to other trusts is not falling within the above two category, the trusts shall be allowed to claim only to the extent of 85% of the Donation so paid.

3. Proposal: It is proposed to amend the law with respect to approval/registration process by amending the provision as follows:

a. The trusts and institutions shall be allowed to make application for provisional approval, at least one month prior to the commencement of the previous year relevant to the assessment year from which the said registration is sought

b. After commencement of activities, the trust/institution shall make application for a regular approval under 10(23C) or 12A or 80G, as the case may be

c. Such application shall be examined by the Principal Commissioner or Commissioner as per the provisions of the Act

d. Where the Principal Commissioner or Commissioner is satisfied about the objects and genuineness of the activities and compliance of other requirements provided in law, registration or approval in such cases shall be granted for 5 years

e. The Principal Commissioner or the Commissioner shall pass an order granting or rejecting such applications within 6 months calculated from the end of the month in which such application was received.

Observation: It is very much welcome step towards rationalization of ambiguous provisions.

4. Proposal: It is proposed to insert clauses in section 10(23C) and 12AB of the Act, to provide that “specified violation” shall also include the case where the application for registration/approval/registration/re-approval is not complete or it contains false or incorrect information.

Observation: There may be many instances where bonafide mistake has been occurred at the time of filing the application for registration/approval etc. After the proposed amendment it will be at the discretion of PrCIT/CIT to treat these kind of bonafide mistakes even as specified violation and may cancel the registration/approval.

5. Proposal: It is proposed that in the case of following violation, provisions of accreted income u/s 115TD of the Act shall apply on such trusts or institutions:

a. If the new trusts/institution does not apply for provisional registration/approval at least one month prior to commencement of the previous year relevant to the assessment year from which the registration/approval is sought.

b. Provisionally registered/approved trusts and institutions under section 10(23C) or 12A will again need to apply for regular registration/approval at least six months prior to expiry of the period of the provisional registration/approval or within six months of the commencement of activities, whichever is earlier. If the same is not done by the provisionally registered trust.

c. The trusts and institutions registered under section 10(23C) or 12A are required to apply at least six months prior to the expiry of re-registration/approval. If the same I s not done by the trust.

Observation: The trust/institutions has to be very careful with respect to meet the deadlines and timely compliance/application.

6.  Proposal: It is proposed to amend the due date of filing of Form 9A/10A to two months prior to the due date of filing of return.

Observation: In case of accumulation of income or deemed application of income these forms are required to be filed. Earlier these forms could be filed along with return of income but now it has to be filed at least two months prior to the due date of filing of ITR. In the event of failure of compliance of the same exemption of income from tax shall not be available.

7. Proposal: It is also clarified by way of proposed amendment that exemption shall not be available in case of return is not filed as per the due date specified u/s 139(1) or 139(4).

Observation: it is clarified that exemption shall not be available in the case of updated return is filed as per the provisions of section 139(8A)of the Income Tax Act 1961.

Conclusion: With times the Government is bringing more and more stringent compliance and wishes the societies to be more and more transparent and compliant. Even a bonafide mistake can penalize the Trusts and Societies heavily.

Dive Deeper:
Highlights of the Finance Bill 2023
Income Tax Slab Rates for A.Y. 2024-25 | F.Y. 2023-24
Union Budget 2023-24 | 45+ Recommendations and Expectations