Mandatory Re-registration of existing Trust registered u/s 12A, 12AA, 10(23C) & 80G to New Section 12AB of Income Tax Act,1961

Section 12AB of Income TAx act,1961

Mandatory Re-registration of existing Trust registered u/s 12A, 12AA, 10(23C) & 80G to New Section 12AB of Income Tax Act,1961

Background for section 12AB:-

The Finance Act, 2020 has made changes leading to a complete overhaul in the registration process of charitable and religious trusts. Therefore all existing charitable and religious trusts registered U/S 12A, Section 12AA, Section 10(23C), and Section 80G of the Income Tax Act, need to be Re-registered under the new section i.e Section 12AB to claim exemption u/s 10 or 11, as the case may be.

Section 12AB was to come into effect from 1 June 2020. But the New Registration procedure prescribed under section 12AB for charitable trusts and institutional introduced by Finance Act 2020 has been deferred and extended to 01 April 2021 by the Taxation and Other Laws (Relaxation and Amendments of Certain Provisions) Act, 2020.

Hence now all existing trusts have to re-register themselves under section 12AB from 01.04.2021 and before the end of three months from the 1st Day of April 2021.

Note:- The procedure for registration of every trust under the new scheme will be completely electronic under which a unique registration number (URN) will be allotted.

What is the new section 12AB of the Income Tax act,1961?

Before understanding section12AB, first we have to understand Section 12A of the Income Tax Act,1961 :

Section 12A :-

(1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:—

(ac) notwithstanding anything contained in clauses (a) to (ab), the person in receipt of the income has made an application in the prescribed form and manner to the Principal Commissioner or Commissioner, for registration of the trust or institution,—

  •  (i)  where the trust or institution is registered under section 12A or under section 12AA, within 3 months from the 1st day of April 2021;
  • (ii)  where the trust or institution is registered under section 12AB and the period of the said registration is due to expire, at least six months prior to the expiry of the said period;
  • (iii) where the trust or institution has been provisionally registered under section 12AB, at least six months prior to the expiry of the period of the provisional registration or within six months of commencement of its activities, whichever is earlier;
  • (iv) where registration of the trust or institution has become inoperative due to the first proviso to sub-section (7) of section 11, at least six months prior to the commencement of the assessment year from which the said registration is sought to be made operative;
  • (v)  where the trust or institution has adopted or undertaken modifications of the objects which do not conform to the conditions of registration, within a period of 30 days from the date of the said adoption or modification;
  • (vi) in any other case, at least 1 month prior to the commencement of the previous year relevant to the assessment year from which the said registration is sought, and such trust or institution is registered under section 12AB;
Time Limit for Application for Section 12AB

Note:- clause (ac) is inserted after clause (ab) of sub-section (1) of section 12A by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, w.e.f. 1-4-2021 :

Section 12AB of Income Tax Act,1961 :-

(1) The Principal Commissioner or Commissioner, on receipt of an application made under clause (ac) of sub-section (1) of section 12A, shall,—

  • (a) where the application is made under sub-clause (i) of the said clause, pass an order in writing registering the trust or institution for a period of five years;
  • (b) where the application is made under sub-clause (ii) or sub-clause (iii) or sub-clause (iv) or sub-clause (v) of the said clause,—
    • (i)  call for such documents or information from the trust or institution or make such inquiries as he thinks necessary in order to satisfy himself about—
      • (A) the genuineness of activities of the trust or institution; and
      • (B) the compliance of such requirements of any other law for the time being in force by the Trust or institution as is material for the purpose of achieving its objects;
    • (ii) after satisfying himself about the objects of the trust or institution and the genuineness of its activities under item (A) and compliance of the requirements under item (B), of sub-clause (i),—
      • (A) pass an order in writing registering the trust or institution for a period of five years; or
      • (B) if he is not so satisfied, pass an order in writing rejecting such application and also cancelling its registration after affording a reasonable opportunity of being heard;
  • (c) where the application is made under sub-clause (vi) of the said clause, pass an order in writing provisionally registering the trust or institution for a period of three years from the assessment year from which the registration is sought, and send a copy of such order to the trust or institution.

(2) All applications, pending before the Principal Commissioner or Commissioner on which no order has been passed under clause (b) of sub-section (1) of section 12AA before the date on which this section has come into force, shall be deemed to be applications made under sub-clause (vi) of clause (ac) of sub-section (1) of section 12A on that date.

Conclusion:-

Section 12AB requires that every trust or institution which is already registered under section 12A/12AA is required to apply again within the specified timeline and in case such application is not made, then, by implication, the benefit of sections 11 and 12 shall not be available from the financial year 2020-21.

The validity of the registration granted under section 12AB shall be for five years except in the case of provisional registration which shall be valid for three years. All registrations made under section 12AB are required to be renewed as specified under new scheme of registration.

The Finance Act, 2020 has completely changed the registration procedure of a charitable trust under the Income Tax Act. The major change in this time is that the registration granted will not be perpetual and will remain valid for a period of 5 years and needs to be renewed.

The concept of renewal of registration certificate for claiming exemption by a charitable trust is introduced for the first time in the Finance Act, 2020 in order to curb malpractices in abusing the exemptions given to a trust.

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