Charitable Trusts significant amemdments upto Finance act 2022 CA Anil Sathe.pptx

1. SIGNIFICANT AMENDEMENTS INTAXATION OF
CHARITABLETRUSTS UPTO FINANCE ACT 2022
CA ANIL SATHE

2.  Over the last 10-15 years there has been a gradual change in the treatment of charitable trusts by
the law makers and the administrators of tax laws.
 Earlier the attitude was a benevolent one with an emphasis on the purpose of the provisions i.e. the
spirit rather than the letter.
 This has given way to a much stricter treatment some of it arising on account of suspicion.
 Some of the reasons for this change are justified some are on account of perception.
CA ANIL SATHE

3. Scope
The Scope of this presentation is :
a) Amendments in the recent past
b) Issues which will affect a large number of charitable/religious institutions.
Scope Limitation/ Issues not discussed
Issues which have existed for a long time
Issues regarding anonymous donations and accredited tax
are not covered and may be covered in Q & A subject to limitations of time.
CA ANIL SATHE

4. Basis of grant of exemption to CharitableTrusts
The exemption granted to charitable trusts is primarily based on application of income. The exemption
is allowed :
a) To income applied for charitable or religious purposes in India ( such application may be on revenue
or capital account ); or income accumulated or set apart for application upto 15% of such income.
b) Income in the form of voluntary contributions made with a specific direction that they shall form
part of a corpus of the institution do not attract the condition of application
c) Such corpus donations have to be invested in specified investments maintained specifically for
such corpus. ( Amendment by Finance Act 2021 effective for assessment year 2022-23)
CA ANIL SATHE

5. Issues
a) What are ‘corpus donations’ and what is ‘Specific direction’ ?.
b) What does the phrase maintained specifically for corpus means?
c) Will the condition apply to corpus donations received prior to 1st April 2021?
d) Within what time frame does the condition to invest corpus donation to be satisfied?
e) Can corpus donations be spent ?
CA ANIL SATHE

6. Donation to another trust as corpus donation not treated as application
If the charitable entity contributes/ donates to another charitable trust by way of corpus donation ,such
donation will not be treated as application.
CA ANIL SATHE

7. Restrictions
In computing the quantum of application:
1. Expenditure which infringes section 40(a)(ia) {mandate to deduct tax at source }.
2. Expenditure which violates section 40A(3) { Prohibition on payments towards expenditure not to
exceed Rs. 10,000 in cash }.
- shall not be treated as application.
CA ANIL SATHE

8. Amendment specifically applicable to religious trusts
 Where the property of the trust is a temple, mosque, gurudwara, church or notified place.
 The trust receives a voluntary contribution for renovation ,repairs and such structure.
 The trust may at its option treat such voluntary contribution as forming part of the corpus of the
trust
 This option is subject to fulfilment of certain conditions
CA ANIL SATHE

9. Spending out of corpus
in determining amount of application
 Application for charitable or religious purpose from the corpus of a trust shall not be treated as
application of income.
 The amount not treated as application shall be treated as application in the year in which the
amount or part thereof, is invested or deposited back into one or more of the modes specified in
section 11(5) and maintained specifically for such purpose
 Finance Act 2023 imposes some further condition which will be dealt with in the next
presentation.
CA ANIL SATHE

10. Spending out of loan or borrowing
In determining amount of application
 Application for charitable purpose from any loan or borrowing shall not be treated as application
 The amount earlier not treated as application, shall be treated as application in the year in which
such loan or borrowing or part thereof is repaid.
 Finance Act 2023 imposes certain further conditions which will be dealt with in the next
presentation
CA ANIL SATHE

11. No Set off of excess application
In quantifying the amount required to be applied or accumulated the calculation shall be made
without set off or deduction or allowance of any excess application in any of the preceding previous
year
CA ANIL SATHE

12. Issues
a) The amendments were made by FinanceAct 2021. From what date will the amendments
apply
b) How does one ascertain whether corpus or, loan /borrowing has been utilized
c) What is the meaning of term loan or borrowing is repaid ?
d) In case a continuing loan/borrowing , how is the amount of utilisation to be ascertained
e) What is a “ loan or borrowing “. Is loan/ borrowing from trustees covered?
CA ANIL SATHE

13. Application only on payment basis
Income shall be treated as having been applied by all trust institution.
 Only when the same is actually paid by it.
 Irrespective of the year in which the liability to pay such sum was incurred
This is a major change needs to be monitored by all trusts/ institutions.
CA ANIL SATHE

14. Procedural Provisions
(a) Modification of Objects
 If a trust institution undertakes modification of objects which do not conform to the conditions of
registration an application has to be made to the Principal Commissioner or Commissioner. For
registration
(b) Conditions for grant and exemption
 Books of Accounts and other documents have been kept a maintained in such form and manner at
such place as maybe prescribed
 The accounts of the trust are audited and the audit report is furnished before the specified date
 The trust/ Institution furnishes the return of income within the time allowed.
 Where the trust decides to claim accumulation u/s 11(2) then
- a statement has to be furnished before the due date of return
- the return has to be furnished within the time allowed under section 139(1)
CA ANIL SATHE

15. Penalty for benefit to related person
If a trust/ institution applies its incomes directly/ indirectly for the benefits at a related party
then it will be liable to by way at penalty
a) Sum equal to the amount of income applied when the violation occurs for the first time in
any previous year
b) A sum equal to two hundred per cent of the aggregate amount if the violation is noticed
against any subsequent year
CA ANIL SATHE

16. ThankYou