[Opinion] Rationalisation of Exemptions available to Charitable Entities

CA Akash Agarwal – [2024] 165 taxmann.com 283 (Article)

Finance Bill, 2024 (Bill No. 55 of 2024) as introduced in LOK SABHA on 23rd July, 2024, turned up with sweeping paramount amendments in the approval and registration of charitable institution under Income Tax Act, 1961.

The major changes are brought under following section: –

• Section 10 clause (23C) sub-clause (iv), (v), (vi), (via).
• Section 11
• Section 12A
• Section 12AB
• Section 13
• 80G
• Insertion of Section 12AC

Merger of Section 10(23C)(iv)/(v)/(vi)/(via) into Section 12A/12AB

Earlier, there existed two regimes to obtain registration / approval for charitable entities, the first being under section 10(23C) (iv)/(v)/(vi)/(via) and the other being under section 11 to section 13. Earlier, an entity was allowed to obtain registration u/s 10(23C) as well as under Section 12 but over the years the procedure and conditions have been aligned to synchronised both regimes in a phased manner.

As both the regimes have the intention of granting similar benefit and in order to simplify the procedures of availing these exemptions for charitable institutions and to reduce administrative burden, Finance Bill, 2024 proposed to turn down the first regime as in-operative under section 10(23C).

Sub-clause (iv), (v), (vi), (via) of clause (23C) of section 10 deals with Income not to be included in the Total Income of the previous year after obtaining prior approval from Principal Commissioner /Commissioner of Income Tax, subject to specific conditions, arising to: –

• any other fund or institution established for charitable purposes
• any trust or institution wholly for public religious purposes or wholly for public religious and charitable purposes.
• any university or other charitable institution existing solely for educational purposes and not for profit.
• any hospital or other institution.

As such, the impact of the proposed amendments shall be as under:

• Any application seeking provisional or final approval under sub-clause (iv), (v), (vi), (via) of clause (23C) of Section 10 made on or after 1st day of October, 2024 shall not be considered.
• As for the applications which are either filed or pending under these sub-clauses before 1st day of October, 2024,these would be processed and considered under the extant provisions of first regime itself and subsequently shall be aligned with the new provisions only.
• The trusts, funds or institutions who are already approved under sub-clauses (iv), (v), (vi), (via) of clause (23C) of Section 10, will continue to get the benefit of exemption as per the provisions of first regime till the validity of the said approval.

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