Income Tax 01 Feb,2020
Rationalization of provisions related to trusts and Institutions
Vinay V. KawdiaCA

Introduction: Section 11 of the Act provides for grant of exemption in respect of income derived from property held under trust for charitable or religious purposes to the extent to which such income is applied or accumulated during the previous year for such purposes in accordance with the provisions contained in sections 11, 12, 12A, 12AA and 13 of the Act. Similarly, Sub clauses (iv), (v), (vi) and (via) of clause (23C) of Section 10 contains provisions related to registration of other trusts, funds, institutions, university or other educational institutions, hospitals etc.

The present process of registration of trusts, institutions, funds, university, hospital etc. under section 12AA or under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10, and approval of association, university, college, institution or company etc need improvement with the advent of technology and keeping in mind the practical issue of difficulty in obtaining registration/approval/notification before actually starting the activities. It is also felt that the approval or registration or notification for exemption should also be for a limited period, say for a period not exceeding five years at one time, which would act as check to ensure that the conditions of approval or registration or notification are adhered to for want of continuance of exemption. This would in fact also be a reason for having a non-adversarial regime and not conducting roving inquiry in the affairs of the exempt entities on day to day basis, in general, as in any case they would be revisiting the concerned authorities for new registration before expiry of the period of exemption. This new process needs to be provided for both existing and new exempt entities.

Amendments at a glance:


Amendment in brief

S. 11(7)
w.e.f. 01.06.20

Similar to exemptions under clauses (1) and (23C) of S. 10, exemption under clause (46) of section 10 shall be allowed to an entity even if it is registered under section 12AA subject to the condition that the registration u/s 12AA shall become inoperative from the date on which the entity is approved under S. 10(23C)/(46) or 01.06.20, whichever is later. If the entity wishes to make it operative in the future u/s 12AB, it will have to file an application and then its approval under clause (23C) or (46) of the section 10 shall cease to have any effect from the date on which the registration u/s 12AB becomes operative.


It is not clear whether the above restrictions on switching between the exemption regimes will also apply in case of entities registered u/s 12AA and claiming exemptions under various sub-clauses of S. 10(23C) where the exemption is direct without any necessity of formal approval such as Sub-clause (iiiab) or (iiiad) of S. 10(23C).

Sub clauses (i) to (vi) below Clause (ac) to S. 12A(1) w.e.f. 01.06.20

 (i) All the trusts registered under erstwhile 12A/12AA shall have to reapply on or before 30.09.20.

(ii) where the trust or institution is registered under new section 12AB and the period of the said registration is due to expire, reapply at least six months prior to expiry of the said period;

(iii) where the trust or institution has been provisionally registered under section 12AB, reapply at least six months prior to expiry of period of the provisional registration or within six months of commencement of its activities, whichever is earlier;

(iv) where registration of the trust or institution has become inoperative due to the first proviso to sub-section (7) of section 11, reapply at least six months prior to the commencement of the assessment year from which the said registration is sought to be made operative;

(v) where the trust or institution has adopted or undertaken modifications of the objects which do not conform to the conditions of registration, reapply within a period of thirty days from the date of the said adoption or modification;

(vi) in any other case, apply at least one month prior to the commencement of the previous year relevant to the assessment year from which the said registration is sought,

Clause (b) to S. 12A(1)

where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have to audited and the audit report should be furnished before the specified date referred to in section 44AB [i.e. on or before the date one month prior to due date specified u/s 139(1)]

S. 12AA

Nothing contained in Section 12AA shall apply on or after 01.06.2020.

S. 12AB

  -  In case of application of registration under S. 12A(1)(ac)(i) - CIT shall directly pass order of registration for 5 years w.e.f. 01.04.20 within 3 months from end of month in which application was received.

  -  In case of application of registration under S. 12A(1)(ac) (ii)/(iii)/(iv)/(v), Pr. CIT shall pass an order granting registration for 5 years or order rejecting the application , as the case may be after calling for necessary documents and information to verify genuineness of activities of trust and compliance of any other law by the trust as applicable. (within 6 months from end of month in which application was received.)

  -   An entity making fresh application for approval under clause (vi) of section 12A(1)(ac), shall be provisionally approved or registered for three years on the basis of application without detailed enquiry even in the cases where activities of the entity are yet to begin and then it has to apply again for approval or registration which, if granted, shall be valid from the date of such provisional registration. (within 1 months from end of month in which application was received.)

  -   The application of registration subsequent to provisional registration should be at least six months prior to expiry of provisional registration or within six months of start of activities, whichever is earlier.

  -   The application pending for approval, registration, as the case may be, shall be treated as application in accordance with the new provisions, wherever they are being provided for.

SS. (4) and (5) to S. 12AB

Sub section (4) and (5) of S. 12AB contains the provisions related to cancellation of registration by CIT where activities of trust were found to be non-genuine/against the approved objects/in violation of provisions of any other law etc.

1st, 2nd, 8th, 9th, 10th and 16th provisos to Sec. 10(23C)

Provisions exactly similar to above have been inserted in case of trust or institution or university or other educational institution or hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of Section 10(23C) and claiming exemptions and registered/seeking registration under the respective sub-clauses.

Sec. 80G(5)

Provisions exactly similar to above have been inserted in case of entities registered/seeking registration u/s 80G of the Act.

Clause (viii) and (ix) to Sec. 80G(5)

At present, there is no reporting obligation by the exempt entity receiving donation/any sum in respect of such donation/sum. In order to standardize the process through which one-to-one matching between what is received by the exempt entity and what is claimed as deduction by the assessee (similar to TDS matching), the entities receiving donation/sum may be made to furnish a statement in respect thereof, and to issue a certificate to the donor/payer and the claim for deduction to the donor/payer may be allowed on that basis only. In order to ensure proper filing of the statement, levy of a fee and penalty may also be provided in cases where there is failure to furnish the statement.

Expln. 2A below S. 80G(5D)

Accordingly, Expln. 2A is proposed to be inserted below s. 80G(5D) to the effect that, claim of the assessee for a deduction in respect of any donation made to an institution or fund to which the provisions of sub-section (5) applies, in the return of income for any assessment year filed by him, shall be allowed on the basis of information relating to said donation furnished by the institution or fund to the prescribed income-tax authority etc.


Hon'ble finance minister started the speech on direct tax proposals with the words that she is committed to further simplify the direct taxes law and procedures. Only the coming time will decide whether the above amendments are going to simplify the procedural aspects relating to registration/approval of charitable trusts and institutions.