Income Tax offers tax relief to charitable organizations registered under the Income Tax Act. This is different from being registered under the Act through which it is incorporated, i.e., under the Companies Act, Societies Act, Local Public Trust Act, etc. The registration process for charitable trusts under the Income Tax Act underwent a major change with effect from April 1, 2021. This resulted from two key developments, vide notification dated March 26, 2021, and the introduction of Section 12AB to the Income Tax Act by way of Finance Act 2020 and then Finance Act 2021.

In 2020, due to the pandemic, the applicability for re-registration was pushed to April 2021. Hence, all the trusts registered under the Income Tax Act were required to re-register themselves by filing Form 10A and submitting details that included trust deeds, details of trustees, nature of charitable activity done by the organization, etc. Re-registration for charitable trusts under the new rules were to be completed by June 30, 2021. This process was required under Section 12A (trust being able to claim exemption under Section 11) and for Section 80G (for donors to claim exemption under Section 80G).

Previously, upon approval, charitable organizations were allowed lifetime registration till March 31, 2021. However, post the amendment, the registration came with a validity period.

Major Reasons for Re-registration of Existing Trust

  1. To ensure that these organizations remain compliant, the validity of registration was introduced, i.e., registration would now be valid only for five years.
  2. This can prevent roving inquiries being conducted, as these organizations must re-register every five years.

Various Extensions for Re-registration of Charitable Organization

 Particulars   Date of Compliance 
Introduction of Re-registration   June 30, 2021 
First Extension   August 31, 2021 
Second Extension  March 31, 2022 
Third Extension  November 25, 2022 
Fourth Extension  September 30, 2023 
Fifth Extension  June 30, 2024 

The fifth extension was brought by Circular No. 7 on April 25, 2024, which relieved organizations that could not re-register previously. As per our observations, they should not be hit by amendment brought by way of the Finance Act, 2023, wherein all charitable organizations that do not re-register shall be liable to tax under provisions of Section 115 TD or Exit Tax, at the Maximum Marginal Rate on the Fair Market value of assets less liabilities.

We believe these organizations would likely not be impacted by the amendment introduced in the Finance Act of 2023. This amendment applies an exit tax (Section 115TD) to charitable organizations that failed to reregister by the deadline. Exit tax is levied at the highest marginal tax rate on the difference between the fair market value of the organization’s assets and its liabilities.

Major Clarifications Given in this Circular Dated April 25, 2024, are as follows:

  • Even if applications were filed late and a cancellation order has not yet been issued, they may still be considered valid.
  • If your application for registration was rejected due to late filing or using the wrong code, you can submit a new application by June 30, 2024. It will be considered as submitted on time.
  • If the trust fails to file the application for re-registration and thereby files an application for granting provisional registration as a new trust, it can apply to surrender new registration and seek re-registration for an existing trust by making an application on or before June 30, 2024.

Conclusion

Charitable organizations are required to re-register themselves on or before June 30, 2021, and those that did not re-register have been given a fifth extension. They are now required to re-register themselves on or before June 30, 2024, i.e., three years from the first scheduled due date for applying for re-registration. In our view, tax authorities also understand that these charitable organizations have limited professional help and understanding of ever-evolving tax laws. Considering these facts, Income Tax authorities have given another opportunity to ensure that on account of genuine reasons, a charitable organization should not be barred from claiming exemption under Section 11 of the Income Tax Act, and further, it should not be burdened by provisions of Exit Tax and thereby they must apply for registration before June 30, 2024.