Amendments Regarding Charitable and Religious Trusts in Finance Bill 2023 (Simplified in 10 Points)

[Rishabh Jain]

As we are aware that many major changes have been done in relation to Charitable or Religious Trust (CRT) vide Finance Act 2023 (FA 23). This article attempts to sum up all the changes and simplify them for the readers. These changes will be applicable from 1^st of April 2023, unless some other date is specifically mentioned. Further, below pointes only cover the amendments in relation to sections 11, 12, 12A, 12AA and 12AB i.e. the sections which deal with CRT other than those which are covered u/s 10 (23C). 

1. Explanation 1 of Section 11(1)- If any Charitable or Religious Trust (CRT) fails to apply minimum 85% of its income for Charitable or Religious Purpose, then it has two options -
   1. to apply the same in the next previous year (PY) (if income is received during the year) or
   2. the PY in which income is actually received or the next  PY in which it is received.

Although to exercise such option the CRT has to file Form 9A with the department. Earlier the last date to file this form was the due date mentioned in Section 139(1) for filling the ROI i.e. 31^st October of the AY. After the amendment, from 1^st , April 2023, the due date for exercising the option via Form 9 will be at least 2 months prior to the due date of filling the return of income, i.e. 31^st August of the AY.

2. Explanation 4 of 11(1)-  We all are aware that corpus donation is not treated as income of the trust, therefore if any expenditure/application is done from the corpus, it will not be treated as application for calculating 85% limit. However, when the CRT will deposit back the amount in the corpus (in modes specified u/s 11(5)), it will be treated as application of funds to the extent of deposit back.

Finance Act 2023 has inserted few conditions which need to be complied with for treating the deposit back as application of funds, these conditions are-

1. 1. There was no violation of certain provisions when the funds from corpus were used.
   2. Amount is deposited back within 5 years from the end of the year in which funds were 1^st used from corpus.
   3. Funds must be withdrawn from the corpus only after 31^st March, 2021. (if withdrawn before this date then deposit back not treated as applied).

               Same conditions are applicable for repayment of loans.

3. Explanation 4 of 11(1)- Another major change introduced by FA 23 is regarding the donations/contributions (except corpus donations) made to other trusts covered u/s 10(23C) or 12AB. In case any such donation is made, only 85% of such donation will be treated as applied for calculation of amount applied. E.g. CRT A donates Rs. 100 to CRT B. Then only Rs 85 will be treated as applied for CRT A. The basic logic behind this reduced benefit to the CRT is that CRT B is also required to apply only 85% of the donation received and will get exemption of entire Rs. 100 donation received.

4. Section 11(2) - Similar to the amendment regarding the due date of furnishing Form 9, last date for submission of Form 10 has been brought back by 2 months ie. at least 2 months prior to the due date of furnishing ROI u/s 139(1). Just for the sake of mention, Form 10 is for informing the AO that income has been accumulated or set apart for application within a period of 5 years. Form 10 needs to be filled on or before 31^st August of the AY.

5. Section 11(7) – (Applicable w.e.f. 1^st April 2024). Earlier any CRT registered u/s 12A, 12AA, or 12AB, could only avail the exemptions of Section 10 (1), (23C) and (46). But now FA 23 has added clause 46A to section 10, and CRT are allowed to avail the exemption of this new clause.

Clause 46A -  It states that income of any body, board, commission, trust etc. which has been established by the central or state government for benefit of general public will be exempt from income tax .

6. Section 12A (1) (ac) (vi)- Earlier in order to claim exemption u/s 11, a new CRT had to apply for fresh registration u/s 12AB at least 1 month prior to the beginning of the PY from which the exemption was required. FA 23 has amended this sub clause and made 2 scenarios in case of fresh registration, which are as follows-

1. 1. If the activities of the CRT have not started – Apply for registration at least 1 month prior to the beginning of the PY from which you want to avail the benefits of section 11. Say for E.g.  you want to take the exemption during the PY 2024-25 and you have not started the religious or charitable activity at the time of application then you must apply for registration u/s 12AB on or before 29^th February 2024.
   2. If the activities of the CRT have started – In such as case you have the freedom of applying at anytime of the previous year from which you seek the exemption. However, one must keep in mind that no exemption has been claimed under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, or section 11 or section 12 in the past.

7. Section 12A (1) (ba)- Another benefit bestowed by the FA 23 on the CRT is that earlier a condition to avail exemption was that the ROI had to be filled within the time allowed u/s 139(1) i.e. 31^st October of the AY, however now even if he return has been filled belated, within the time allowed u/s 139(4), still the exemption u/s 11 can be availed.

8. Section 12A (2)- FA 23 has snatched away certain benefit of the CRT by omitting the 2^nd, 3^rd and 4^th provisos of this sub section. Earlier if a CRT has applied for registration in a particular year. On the date of such registration any proceedings for any preceding PY were going on then the CRT could get the benefit of Section 11 for the PY for which the assessment proceedings were going on. However, the objectives of the CRT must be same in both the years. This benefit has been forfeited by the new amendments.

9. Section 12AB (1) (i) (b) and (c) (Applicable from 01-10-23)- Due to the amendment mentioned in point no. 6 regarding the time of applying on the basis of activities have commenced or not, changes were required in Section 12AB (1) (i)-

1. 1. If the activities of the CRT have not started-  In such a case the department will give provisional registration for a period of 3 years.
   2. If the activities of the CRT have started – In such a case the department will give registration for a period of 5 years after being satisfied about the genuineness of the activity of the trust.

Earlier as per clause c, all new CRT were given provisional registration for 3 years.

10. Explanation to Section 12AB (4)- This explanation lists out certain specifies violations. If these violations are done by any CRT then the department may cancel tha registration. FA 2023 has added an item to list which is – that while applying for registration u/s 12A(1)(ac) any incomplete for false information is given then the department may cancel the registration.

Following is the brief summary of the above amendments –

1. Due date for exercising the option via Form 9 is 31^st August of the AY.
2. Few conditions have been inserted to treat deposit back to corpus/ repayment of loan as application of funds.
3. Only 85% of donation to another CRT treated as applied.
4. Last date for submission of Form 10 is 31^st August of the AY.
5. CRT allowed to avail exemption of newly added clause 46A in Section 10.
6. New CRT may apply for registration at any time of the PY if activity have already started and not taken any exemption before.
7. CRT can claim exemption even if the ROI is belated.
8. If at the time of registration any proceedings for any previous year are pending then the CRT will not get the exemption for the PY for which proceedings are pending.
9. If fresh registration is taken and the activities of CRT have already commenced then registration will be given for 5 years.
10. If while applying for registration any incomplete for false information is given then the department may cancel the registration.