Important Amendment in provisions for Trust and Charitable Institutions

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Published on 27 Apr 2020 / In Trust and Charitable Institutions

Important Amendment in provisions for Trusts and Charitable Institutions

•Finance Act, 2020 has unleashed certain new compliance burdens on Charitable Trusts and Exempt Institutions. As per new provisions of the Finance Act, 2020, Charitable Trusts and exempt institutions will have to reapply for Income Tax registration.

•The Finance Act, 2020 has made far-reaching and sweeping changes pertaining to the registration and exemptions of charitable institutions.

All the existing charitable and religious institutions (including NGOs) which are registered or approved under the following sections-
Section 12A
Section 12AA
Section 10(23C)
Section 80G
are compulsorily required to switch to section 12AB for fresh registration.

•In the past, many registered trusts were found engaged in malpractices for private profiteering rather than doing any genuine social work. On assessment neither they were able to show registration certificates nor department had any record of such trusts.

•The department wants to curb those practices. The renewal of registration after every five years will provide an opportunity to withdraw the exemptions without going through the complicated cancellation provisions.

•Charitable trusts and exempt institution which are already registered under section 12A or section 12AA of Income Tax Act, 1961 will now be required to reapply online for registration and approval by August 31, 2020.

•Provisions of registration under section 12AA or section 12A will become redundant from 01st June 2020 and a new section 12AB will come into force with effect from 01st June 2020. All the existing registered trusts under the erstwhile section 12A or section 12AA would move to new provision section 12AB.

•The new section 12AB proposes to change the registration process by prescribing the time frame for processing the application and validity of such a registration certificate so granted under the new section 12AB.

•An order granting registration or approval shall be passed within 3 months of the application. Such registration or approval shall be valid for 5 years. Application for renewal to be placed after 4.5 years, as department shall require 6 months’ time to assess and evaluate whether registration shall be renewed or not.

•In case of provisional registration, the exemption under sections 11 and 12 can be claimed from the first assessment year in which provisional registration was granted. In other words, the benefit of exemption can be claimed immediately.

•Further, where a provisional registration was granted earlier being a new trust, the application for final registration is to be made at least 6 months prior to the expiry of the period of provisional registration or within 6 months from commencement of the activities of the trust.

•Same provision continues now where provisional registration shall be given for 3 years.

•Similarly, charitable trusts and exempt institutions which already have Section 80G certificate will now be required to reapply online for registration or approval by August 31, 2020. The registration shall remain valid for 5 years.


•The compliance burden on Charitable Trusts and Exempt Institutions goes further to file statements of donation received and issue of donation certificates to donors in line with TDS provisions. Hefty fines and penalties are imposed for any failure to file such statements. This deduction shall be auto populated in Income tax Return of the assessee.


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