Charitable or religious? Trusts have to disclose to avail of tax benefits

CBDT notifies rules, to be effective from October 1

The income-tax (I-T) authorities have tightened disclosure norms for charitable trusts. They now have to declare the nature of their activities from October 1 for tax purposes.

The Central Board of Direct Taxes (CBDT) has notified changes in reporting rules where the charitable institutions have to mention whether the activities undertaken are charitable, religious, or both to claim tax benefits.

The move will ensure that only genuine trusts and activities get tax benefits.

The CBDT amendment also includes a declaration under which the charitable institution will have to furnish details of donations received over Rs 2 lakh in a single day.

The details to be furnished include the name of the payer, address, payment amount, and permanent account number (if available).

Under current tax laws, the income of a charitable and religious trust is exempt from tax, subject to conditions. However, there are several past instances of misuse of these benefits.

The tax department has been keeping close tabs on charitable trusts and has, over the years, also reinforced various provisions for obtaining registration and claiming tax exemption under the Act.

“The government has now made consequential amendments to the I-T Rules (Rule 17A/11AA/2C). The amended rules shall be applicable from October 1. Further, the ‘undertaking’ given at the end of the respective forms has also been slightly tweaked and requires an additional undertaking from the applicant,” says Vishwas Panjiar, partner, Nangia Andersen LLP.                                                  

The Union Budget 2023-24 announced several changes in the tax treatment of charitable trusts. It has proposed to levy an exit tax when the trust gets merged with a non-charitable organisation but with dissimilar objects or does not transfer the asset to another charitable trust.

Further, it has also proposed to consider only 85 per cent of the eligible donations made by a trust or institution to another trust or institution as the application of such donation for charitable or religious purposes.

While the provisional requirement itself was straightforward, it posed unnecessary difficulties in claiming exemption by such entities in the first year of incorporation.

Besides, entities where activities have already commenced were required to apply for two registrations (provisional and regular) simultaneously, observes Panjiar.