Exit tax norms: Relief for charitable trusts

In a significant relief to charitable and religious trusts, the Central Board of Direct Taxes (CBDT) said on Wednesday that they can now apply for registration and approval to avail income tax exemption until September 30 this year.

The Finance Act, 2023 had amended the Income Tax Act to provide that the accreted income of the trusts that had not applied for registration or approval, within the specified time, would be liable to tax. The amendment came into effect from April 1 this year and applies to assessment year 2023-24 and subsequent ones.

This tax is levied at the maximum marginal tax rate of 34.94% and had raised concerns among stakeholders.

The CBDT has now said that the due date for furnishing the application under Form 10A by the charitable or religious trusts and institutions for re-registration and approval has been extended from November 25, 2022 to September 30, 2023. Similarly, the due date for furnishing application for regular registration and approval by provisionally registered and approved trusts or institutions has also been extended from September 30, 2022 to September 30 this year for registration under Section 10(23C) and 12AB.

“Representations have been received stating that several trusts have not been able to apply for registration and approval within the required time due to genuine hardship. This has also led to rejection of applications simply on the ground that these were delayed,” the tax board said.

Sandeep Jhunjhunwala, partner, Nangia Andersen, said. “Lack of such a clarification could have resulted in subjecting the accredited income of the defaulting trust to tax under the exit tax provisions.”

Under the I-T Act, it is mandatory for a trust to get registration to avail income tax exemptions. All the existing trusts were required to apply for tax exemption registration or approval by June 30, 2021 and the registration was to be valid for a period of five years. New trusts are required to apply for provisional registration or approval at least one month before the start of the previous year, relevant to the assessment year from which the registration or approval is sought.

Following this extension, the CBDT has also extended the due date for furnishing of the statement of donation in Form No 10BD and the certificate of donation in Form No 10BE for donations received in 2022-23 to June 30 this year. Typically, these forms have to be submitted by May 31, immediately following the financial year in which the donation is received.

The circular also clarified that the accumulation or deemed application would not be denied to a trust as long as the statement of accumulation or deemed application is furnished on or before the due date of furnishing the return. Typically, the statement of accumulation in Form No 10 and Form No 9A is required to be furnished at least two months prior to the due date of furnishing return of income.