The Union Budget presented by the Finance Minister of India had considerable amendments granting exemptions to the Charitable or Religious Trusts, Institutions etc. wherein it was proposed to insert a new section 12AB. The Finance Minister in her budget speech of 2020 had introduced the concept of a new procedure for registration of all existing and new charitable trusts and institutions under section 12AB of the Income Tax Act, 1961. The Finance Act, 2020 completely revamped the registration procedure of a charitable trust under the Income Tax Act.
Earlier, the trusts or institutions were registered under section 12AA or under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996].
Now Section 12AB of the Income Tax Act requires that every trust or institution which is already registered under section 12A or 12AA is required to apply again within the specified timeline. The Income-tax Department shall issue a National Unique Registration Number to all the charitable and religious institutions which would create a National Database of the exempt entities.
Section 12AB came into effect from June 01, 2020, and all the trusts and institutions were required to apply for registration and approval under this new section within 3 months from June 01, 2020, i.e., by August 31, 2020.No enquiry is proposed to be made and the registration shall be granted within a period of three months from the end of the month in which the application was made.
A question here would arise in the mind that what would be the validity of the registration. Well, the validity of registration granted under section 12AB shall be for five years except in the case of provisional registration which shall be valid for three years. All registrations made under section 12AB are required to be renewed as specified under the new scheme of registration.
The registration has been limited to a period of 5 years to check whether the objects of the trust on which registration was granted are being followed in true spirit or not. Also, to keep a check on the genuineness of the activities the trust carries on and its compliances with other laws applicable, this periodicity prevails.
Provisional registration for three years will be granted to new charity institutions which are yet to start their charitable activities. This concept has been introduced to handle the practicality of issues faced in granting registration or approval before the start of actual charitable activities by a trust or an institution.
The Finance Act, 2020 further prescribed that all applications pending for registration shall be considered as applications under new section 12AB and therefore, applicants making such applications are not required to apply again. As per section 12AB, application for new registration has to be made at least one month prior to the commencement of the previous year relevant to the assessment year from which the said registration is sought.
A trust or an institution that is granted registration under section 12AB(1)(a) can avail the exemption under section 11 and section 12 from the assessment year from which registration was earlier granted to the trust or institution. Hence, this means that the exemption shall continue and there will be no break in the exemption that the trust or institution is enjoying at present.
Furthermore, the Finance Act 2020 also provides that an organisation parallelly cannot enjoy approval under two provisions. It is mandatory for a trust to get the registration under section 12AB of the Income-tax Act, 1961 so as to claim an exemption under Section 11. By bringing an amendment to section 11, it has been clarified that the registration under section 12AA or 12AB shall be inoperative from the date:
- On which the trustor institution has approved under clause (23C) OR
- Is notified under clause (46) of section 10 of the Income-tax Act.
However, this new registration procedure was extended to October 01, 2020, and end by December 31, 2020, but due to current pandemic situation and subsequent lockdown imposed again, it has been extended to April 01, 2021, and hence now all existing trust have to re-register themselves under section 12AB from April 01, 2021. Hence, the new provisions related to charitable trusts and other institutions shall now apply from the financial year 2021-22.