Charitable and Religious Trusts: Relief from Daunting Provisions Introduced by Finance Act 2023

In a significant development, the Central Board of Direct Taxes (CBDT) has issued Circular No. 6 of 2023, dated May 24, 2023, offering clarification on the provisions concerning charitable and religious trusts. The circular provides much-needed relief to trusts and institutions affected by the new registration and approval scheme and it has also addressed certain practical difficulties arising out of the amendments made by the Finance Act, 2023.

This article explores the implications of the circular and its impact on eligible trusts, emphasising the extended deadlines and exemptions from the accreted tax under Section 115TD.

1. Relaxation to get re-registration/re-approval by existing Trusts (Form 10A)

The circular has provided relaxation to get re-registration/re-approval to existing trusts registered or approved prior to 01-04-2021 under the following sections:

(a)		Registered under section 12A/12AA
(b)		Approved under section 10(23C)
(c)		Approved under section 80G

In all the above cases, the due date to file Form 10A for re-registration or re-approval has been extended upto 30-09-2023.

Section 11 provides an exemption to trusts or institutions registered under Section 12AB. Similarly, Section 10(23C) provides an exemption to certain funds or institutions approved under this provision. Section 80G allows deductions to donors in respect of donations made for charitable purposes. The donee institution or fund is required to obtain approval from the Principal Commissioner or Commissioner.

The new registration and approval scheme was introduced effectively from 01-04-2021, which withdrew the concept of perpetual registration. Trusts or institutions that had been granted perpetual registration before 1-4-2021 were required to apply for re-registration under the new registration scheme.

In such cases, the trust/institution had to submit an online application in Form 10A for registration within three months from the date on which the provision comes into force, i.e., three months from 1st April 2021 (by 30-06-2021). The due date for filing an application for registration has been extended multiple times, with the latest due date being 25-11-2022 (Circular No. 22/2022, dated 01-11-2022).

The Registration in such cases was required to be granted for a period of 5 years.

1.1. Consequences of not making an application for re-registration

The Finance Act, 2023 has, inter-alia, amended section 115TD of the Act and provided that the Trust who failed to apply for re-registration/approval or failed to apply for converting provisional registration to regular registration, within the specified time, shall be made liable to tax in accordance with the provisions of section 115TD of the Act. This amendment has come into effect from 01.04.2023 and therefore applies to the assessment year 2023-24 and subsequent assessment years.

After the said amendment, if an application for re-registration or re-approval was not made within the specified timeline, the registration or approval will be considered as having converted into a form that is not eligible for registration or approval in the previous year when the application period expires. As a result, the trust or institution will be subject to exit tax under Section 115TD.

For instance, ABC Trust was granted perpetual registration under Section 12AAbefore April 1, 2021. ABC Trust was required to apply for re-registration under the new registration scheme to continue the exempt status. The deadline for this application was 25-11-2022. However, ABC Trust failed to apply for re-registration by 25-11-2022 and as a result, it became a non-exempt entity by virtue of the amendment introduced by the Finance Act 2023. Such a trust will be deemed to have converted into a form that is not eligible for registration or approval on 25-11-2022 i.e., the last date by which application should have been submitted. ABC Trust shall be liable for tax on accreted income which must be paid to the credit of the Central Government within 14 days from the end of the previous year. In this case, the previous year ends on 31-03-2023. Therefore, all such trusts or institutions were required to pay the exit tax by 14-04-2023.

1.2. Relaxation by extension of time to file Form 10A

The circular provides an opportunity to apply for re-registration under Section 12AB, re-approval under Section 10(23C), or 80G using Form 10A. This option is available until 30-09-2023 for cases where the original due date for such applications has already passed.

The following category of trusts can benefit from this relaxation:

(a) Where no application for re-registration/re-approval is made so far

In such cases, Form 10A under clause (i) of the first proviso to Section 10(23C) or under Section 12A(1)(ac)(i) or under clause (i) of the first proviso to Section 80G(5) can be submitted till 30-09-2023.

(b) Trusts who have missed the deadline of 25-11-2022 and subsequently applied for provisional registration/approval

The circular also clarifies that where trusts have missed the deadline of 25-11-2022, for making an application for re-registration/ re-approval in Form 10A, and have subsequently furnished Form 10A seeking provisional registration/approval, the relevant functionality on the e-filing portal may be used for surrendering the Form 10A seeking provisional registration/approval and such trusts can make a new application in Form 10A for re-registration/re-approval within the extended period of 30-09-2023.

1.3. No Exit Tax under section 115TD in case of failure to apply for re-registration before 25-11-2022

If these trusts or institutions make use of the extended time limit of 30-09-2023 and registration is granted to them, they will be exempt from the requirement to pay accreted tax under Section 115TD. This provision, which was made applicable in such cases by the Finance Act of 2023, shall no longer be applicable to them.

2. Conversion of Provisional Registration/approval to Regular Registration /approval (Form 10AB)

The new registration scheme provides that the trusts or institutions applying for first-time registration under Section 12AB or for approval under Section 10(23C) or 80G must make the application in two stages.

In the first stage, the application is filed in Form 10A for provisional registration. This application has to be filed at least 1 month before the commencement of the previous year relevant to the assessment year from which the registration is sought. Such provisional registration shall be valid for a period of 3 years.

In the second stage, this provisional registration has to be converted into regular registration. This application for conversion has to be filed in Form 10AB at least 6 months before the expiry of the provisional registration period or within 6 months of the commencement of its activities, whichever is earlier.

If the due date to file the application for conversion of provisional registration to regular registration in Form 10AB falls on or before 29-09-2022, it was extended to 30-09-2022 by Circular No. 8/2022, dated 31-03-2022.

2.1. Consequences of not converting provisional registration to regular registration

The Finance Act, 2023 has, inter-alia, amended section 115TD of the Act and provided that the Trust who failed to apply for re-registration/approval or failed to apply for converting provisional registration to regular registration, within the specified time, shall be made liable to tax in accordance with the provisions of section 115TD of the Act. This amendment has come into effect from 01-04-2023 and therefore applies to the assessment year 2023-24 and subsequent assessment years.

2.2. Relaxation to file Form 10AB

Until 30-09-2023, trusts or institutions that have obtained provisional approval under Section 10(23C) or provisional registration under Section 12AB can use Form 10AB to apply for the conversion of their provisional registration to regular registration. This option is available even if they have not submitted their application or have done so after the six-month period from the commencement of activities.

Hence, to summarise, this circular provides relaxation for the following cases by extending the due date to 30-09-2023:

(a) If no application in form 10AB has been made so far

In such cases, an application under clause (iii) of the first proviso to Section 10(23C) or under Section 12A(1)(ac)(iii) can be submitted till 30-09-2023 where the due date for making such an application has expired prior to such date.

(b) If application in form 10AB has already been made but beyond the specified timeline and the order is yet to be passed

The extension of the due date as mentioned above shall also apply in case of all pending applications under clause (iii) of the first proviso to Section 10(23C) or Section 12A(1)(ac)(iii), as the case may be. Hence, in cases where the trust has already made an application in Form 10AB under the said provisions but such application has been furnished after 30-09-2022 and where the Principal Commissioner or Commissioner has not passed an order before the issuance of this Circular, the pending application in Form 10AB may be treated as a valid application.

(c) If the application made in form 10AB has been rejected solely on the ground that the application was furnished after the due date

In cases where the trust had already made an application in Form 10AB, and where the Principal Commissioner or Commissioner has passed an order rejecting such application, on or before the issuance of this Circular, solely on account of the fact that the application was furnished after the due date, the trust may furnish a fresh application in Form 10AB within the extended time i.e., 30-09-2023.

2.3. No Exit Tax under section 115TD in case of failure to convert provisional registration

If these trusts or institutions make use of the extended time limit and registration is granted to them, they will be exempt from the requirement to pay accreted tax under Section 115TD. This provision, which was made applicable in such cases by the Finance Act of 2023, shall no longer be applicable to them.

2.4. No relaxation for conversion of Provisional Approval to Regular Approval under section 80G where the time limit for making the application has already been expired

This circular has extended the date for submitting applications to convert provisional registration/approval under sections 12AB or 10(23C) where the original due date has already expired by 30-09-2022. However, no such extension has been granted for converting provisional approval under section 80G to regular approval under section 80G.

This situation raises questions about what will happen to donations received prior to 30-09-2022 when the provisional approval was valid, and donations received from 01-10-2022 onwards, if a trust fails to submit an application for converting provisional approval under section 80G to regular approval under section 80G.

It is important to note that provisional approval under section 80G was granted for a period of 3 years, with the condition that such approval should be regularised within six months of the commencement of charitable activities or six months prior to the expiry of provisional approval, whichever is earlier.

Due to Circular No. 8/2022 dated 31-03-2022, the deadline for submitting applications to convert provisional approval to regular approval has already been extended until 30-09-2022. Therefore, in cases where charitable activities have already commenced and the application has not been submitted within the extended timeline, the organisation will be considered to hold valid approval, allowing it to collect donations with the benefit of 80G approval. As a result, it seems that such a fund/institution should only be able to pass on the benefit to the donors until 30-09-2022.

Since the application was not submitted by 30-09-2022, the organisation is no longer eligible to receive the Section 80G benefit for the period after this deadline, unless any relaxation has been granted to such institutions in this circular.

Considering the genuine difficulties involved, the CBDT has already provided relief to trusts regarding the delay in filing applications for approval under section 10(23C) or registration under section 12AB. There should be no reason to withhold a similar benefit for approval under section 80G. Hence, CBDT should consider extending similar benefits for approval under section 80G.

3. Due date extended to file Statement of Donations in Form 10BD

The deadline for filing the Statement of Donations in Form 10BD has been extended through this circular. NGOs that have received approval from the Principal Commissioner or Commissioner of Income Tax under Section 80G are required to electronically file this statement on the income tax department's e-filing portal. The deadline for filing the Form 10BD statement, along with issuing the donation certificate in Form 10BE, for the Financial Year 2022-23 has been extended from 31-05-2023 to 30-06-2023.

It is important to note that the deduction for donors will be based on the information provided in the filed statement. If a statement is not filed, the donor will not be eligible for a deduction on the donation. Therefore, it is crucial for NGOs to adhere to the extended due date and submit the necessary documents to ensure donors can avail of the deduction.

4. Applicability of Provisional Registration

The application for provisional registration must be submitted at least one month before the start of the previous year relevant to the assessment year for which registration is sought. For example, if the ABC Trust is established on 01-10-2023 and wants registration for the assessment year 2025-26, the application must be filed by February 29, 2024. Hence, the trust becomes eligible for registration for the previous year, 2024-25 (the assessment year 2025-26).

Under the existing provisions, the ABC Trust cannot apply for registration to claim an exemption for the previous year 2023-24 because the application was not submitted at least one month before the start of the relevant previous year. As a result, trusts or institutions that have not yet commenced their activities must wait a year to avail the benefits of Sections 11 and 12.

This circular clarified that in case of trusts, funds or institutions seeking provisional approval or provisional registration, the said provisional approval or provisional registration shall be effective from the assessment year relevant to the previous year in which the application is made and shall be valid for a period of three assessment years subject to the provisions of clause (iii) of the first proviso to Section 10(23C) or in Section 12A(1)(ac)(iii) or clause (iii) of the first proviso to Section 80G(5), as the case may be.

5. No withdrawal of exemption benefit on the belated filing of Form 9A and Form 10

The Finance Act 2023 has amended Section 11 to provide that Forms 9A and 10 shall be filed at least two months prior to the due date specified under Section 139(1) for furnishing the return of income for the previous year. This amendment was made effective from the assessment year 2023-24.

After this amendment, the due dates for the filing of respective forms from the assessment year 2023-24 shall be as under:

Due dates for charitable trusts	Due date
Filing of ITR	31st October
Filing of Audit Report in Form 10B/10BB	30th September
Filing of Form 9A	31st August
Filing of Form 10	31st August

If Form 9A/10 for the corresponding financial year is not submitted at least two months before the due date specified under Section 139(1), the exemption with respect to the amount considered as the deemed application will not be available to the trust. This amendment has significant implications for all trusts and institutions, requiring them to finalise their accounts on or before 31^st August.

This circular has clarified that the accumulation or deemed application will not be denied to a trust as long as the statement of accumulation in Form 10 or deemed application in Form 9A is submitted on or before the due date for filing the return as provided in section 139(1). Therefore, it is permissible to submit Form 9A and Form 10 by the deadline of 31st October without facing any negative consequences for A.Y. 2023-24 and subsequent years.

6. Reporting in Audit Report in Form 10B/10BB

One of the conditions for availing exemptions under Sections 11 and 12 or Section 10(23C) is a requirement to get the audit of the accounts of the trust or institution registered under Section 12AB or approved under Section 10(23C). The trust or institutions with income exceeding the maximum amount not chargeable to tax are required to get their accounts audited.

Previously, there were two types of audit reports - Form 10B for trusts or institutions registered under Section 12AB and Form 10BB for trusts or institutions approved under Section 10(23C) approved entities. The CBDT has notified new audit reports Form 10B and Form 10BB vide Notification No. 7/2023, dated 21-02-2023 to be furnished by charitable or religious trusts and other institutions. The amended rules outline the conditions under which an audit report must be provided in either Form 10B or Form 10BB.

The trusts or institutions registered under Section 12AB or approved under Section 10(23C) who satisfy any of the following conditions must file an audit report in Form 10B.

(a)		If the total income of the trust or institution, without giving effect to the provisions of Sections 11 and 12 or Section 10(23C) (iv), (v), (vi), (via) of the Act, exceeds Rs. 5 crores during the previous year;
(b)		If such trust or institution has received any foreign contribution during the previous year; or
(c)		If such trust or institution has applied any part of its income outside India during the previous year.

The trusts or institutions registered under Section 12AB or approved under Section 10(23C) not falling in the above criterion must file an audit report in Form 10BB.

It is important to note that Form 10B and Form 10BB require the auditor to distinguish between payments or applications made through electronic modes and non-electronic modes. The previous description of electronic modes did not include account payee cheques drawn on a bank, account payee bank drafts or the use of electronic clearing systems through a bank account.

However, the circular has now clarified that, for the purposes of Form 10B and Form 10BB, the electronic modes mentioned in paragraph 18 should be considered in addition to account payee cheques drawn on a bank, account payee bank drafts, or the use of electronic clearing systems through a bank account.