A Big Relief For Charitable Trusts: Exit Tax Norms

A Big Relief For Charitable Trusts: Exit Tax Norms

On Wednesday, the Central Board of Direct Taxes (CBDT) announced that charitable and religious trusts can apply for registration and be approved for income tax exemption until 30th September 2023. 

On April 1st, the Finance Act 2023 amended the Income Tax Act, which applies to AY 2023-24 and subsequent assessment years. The amendment states that trusts who do not apply for registration and approval will face taxation on their accredited income. 

Stakeholders were concerned about the maximum marginal rate of tax being 34.94%. According to the CBDT, religious trusts and institutions can apply Form 10A by 30th September 2023, compared to the previous date, 25th November 2022. Provisionally registered 

and approved trusts can furnish applications for regular approval and registration under Section 10(23C) and 12AB till 30th September 2023. This extension spans over a year, compared to the previous 30th of September 2022. 

According to the tax board, several trusts have not been able to apply for registration and approval within the stipulated time frame due to valid issues. This led to the rejection of applications due to them being late. 

Accredited income of defaulting trusts could be subjected to tax under exit tax provisions due to lack of clarification, according to a partner of Nangia Andersen, Sandeep Jhunjhunwala. 

The I-T Act makes it mandatory for a trust to get registration to be exempt from paying income tax. The deadline for tax exemption registration and approval for existing trusts was 30th June 2021, with the registration lasting for five years. At least a month before the start of the previous year, provisional registrations and applications should be made by new trusts. These applications depend on the assessment year from when registration or approval is needed. 

The due date for furnishing the statement of donation in Form No. 10BD and certificate of donation in Form No. 10BE received in 2022-23 was extended till 30th June 2023 by the CBDT. 31st May was the date for form submission in the financial year following the receipt of the donation. 

Accumulation or deemed application will not be denied to a trust as long as the trust furnishes accumulation or deemed application before the due date of furnishing return, according to the circular. Two months before the due date of furnishing income returns, a statement of accumulation in Form No. 10 and Form No. 9A.

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