Implications of Finance Bill 2020 on charitable institutions

The Finance Bill 2020 presented by the Finance Minister on 1st February 2020 has proposed amendments which will have far reaching consequences for charitable institutions.

Either 10(23) or 12AA

Tax exemption under section 10(23C) (iv), (v), (vi) or (via) of Income tax is available to any fund or trust or institution or university or other educational institution or hospital or other medical institution. However, Finance Bill has now proposed that from the date on which the trust or institution is approved under Section 10(23C) any registration which it may have under section 12AA shall become inoperative from the date on which the trust or institution is approved under section 10(23C).

In other words, from now on any fund or trust or institution or university or other educational institution or hospital or other medical institution can seek tax exemption under either section 10(23C) or section 12AA but not under both sections simultaneously. Until now, if tax exemption was denied under one section the trust could still seek tax exemption under the other.

Registration sought under section 10(23) would be valid for a period of five years.

Insertion of new section 12AB.

Procedure for fresh registration under section 12AA has be laid down under the proposed new section 12AB and under which validity of registration under section 12AA shall be for a period of five years.

Amendment to section 80G

Charitable institutions will now be required to prepares statements of donations received for such period as may be prescribed and deliver or cause to be delivered to the prescribed income-tax authority or the person authorized by such authority such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed.

It has been proposed in Budget 2020 that Income Tax Return (ITR) Forms will come pre-filled with details of donations made by a taxpayer in a financial year.

The Finance Minister said in her budget speech: “In order to ease the process of claiming deduction for donation, it is proposed to pre-fill the donee’s information in taxpayer’s return on the basis of information of donations furnished by the donee. This would result in hassle-free claim of deduction for the donation made by the taxpayer.”

It has also been proposed that applications made under section 80G by charitable institutions shall be valid for a period of five years.

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