The Finance Bill in the Union Budget 2020 proposed significant changes for charitable trusts and institutions. Charitable trusts and other institutions need to get income tax registration or approval under section 12AA or under Section 10(23C) Income Tax Act, 1961. The provision for registration and renewal of charitable trusts and institutions is all set to make a major change with effect from 1st April 2020. Thousands of charitable trusts and other institutions (religious) like the Parsi trusts and associations which includes Panchayats, Anjumans, Agyaris and Atashbahrams which enjoys tax exemptions or offer tax deduction as per section 80G will also be affected. Registration and Approval for Charitable Trusts and Institutions Present Regime The procedure for registration of charitable trusts and institution for tax exemption is prescribed under section 12AA and Section 12A for trusts registered before 1996. Currently, it is proposed to be governed by new Section 12AB.Registration granted under section 12AA will be valid unless it is cancelled by the authority.Furthermore, the charitable trusts are eligible for approval under Section 80G, which approves its donors to get tax benefit on donation done by them.University, Educational Institution, Hospitals or other Medical Institution can claim tax exemption under section 10(23C) if the authority approves them. At present, approval once granted under section 10(23C) is operative unless and otherwise cancelled by the authority. Proposed Regime The existing charitable trusts and institution registered as per sections 10(23C), 12AA or 12A will have to apply for fresh registration under the new provisions of sections 10(23C) or 12AB on or before 31/08/2020.Fresh registration will be granted only for five years. Currently, registration is granted for a long time until and unless it is revoked by the tax authority. Now the registration will be granted for a limited period of 5 years.All the Trusts or Institutions claiming exemption according to section 10(23C) or 11 will have to renew the registration and approval every 5 years.Where a Trust or Institution has modified its objects, and such modifications do not conform with the conditions of registration, the application must be made again with the designated authority within 30 days from the date of such change. Concept of Provisional Registration for New Charitable Trusts and Institutions The concept of provisional registration is proposed for new charitable institutions, which are not registered or have not started any activities.It is proposed that the new charitable trusts and other institutions must make an application to the Principal Commissioner of Income Tax one month before the commencement of the previous year in which the registration is sought.The provisional registration would be valid for three years.The charitable trusts and other institutions which are provisionally registered are required to apply for regular five years registration within six months of commencement of its activities or at least six months before the expiry of 3 years.The provisional registration will be granted with minimum documents and without making a detailed enquiry into the objects or activitiesIn short, new charitable trusts or institutions or first-timer will not be directly given full and final registration but they will be granted only provisional approval or registration. Later on, such trust may be granted regular registration after verification of its activities.By introducing this scheme, the trial involved in granting of 12AA registration is brought to an end. Dual registration under section 12AB and 10(23C) – Not Permissible for Charitable Trusts and Institutions A new provision in section 11 of the Income Tax Act, 1961 provides that the charitable trusts and other institutions can either claim an exemption under section 11 and 12 of the Income Tax Act or under section 10(23C) of the Income Tax Act, 1961. The charitable trusts and institutions have the discretion to choose only one of the above exemptions.At present, there are several hospitals, schools and colleges which are registered simultaneously under section 10(23C) as well under section 12AA.If an exemption has been denied under section 10(23C) then such trust could have taken the benefit of alternative backup of section 12AA. Now, all such charitable trusts and other institutions which are currently registered u/s 10(23C), as well u/s 12AA will have to choose any one section. Dual registration under both section 10(23C) and section 12AA is not allowed. New Reporting Obligation on Receipt of Donation Every trust that is registered under section 80G will be required to file a statement of donations received in the prescribed manner. Deduction for donations as prescribed in section 80G to the donors shall be available only if the aforesaid statement or return is furnished by the charitable institution. Non-submission of the return and statement will attract a late fee and fine. The due date for the filing of Income Tax return has been extended to 31st October for Charitable Trusts and Institutions. The due date for filing of the tax return for charitable trusts and institutions has been extended to 31st October from 30th September. Time Schedule Proposed under the New Regime for Charitable Trusts and Other Institutions The Charitable trusts and institutions who are already registered under the existing provisions are required to apply for registration or approval on or before 31 August 2020.New charitable trusts and other institutions applying for provisional registration under the new scheme have to make an application at least one month prior to the commencement of the previous year relevant to the assessment year from which provisional registration is sought. As per the existing regime, an application can be made in the year from which exemption is sought.For trust and institution which has been provisionally registered as in the new regime has to make an application within six months of the commencement of its activities or at least six months prior to the expiry of 3 years, whichever is earlier.Where registration has been granted to trust and institutions for five years under the new regime, and the said registration is about to expire, then again the new application must be made at least six months prior to the expiry of 5 years registration period. Where the trust has changed or undertaken modifications of the objects clause, then an application is required to be done within 30 days from the date of the said modification. Conclusion The Finance Bill 2020 proposed a new time limit to allow for the registration of charitable trusts by the Income-tax department. The new regime will ensure better accountability and transparency for the trust of considerable magnitude. The proposal to ask for all the existing charitable trusts and institutions to get a fresh registration will be inconvenient. Some of the deserving charitable trusts and other institutions may be denied registration considering the small window for the tax department to approve or reject.