Income Tax--Current Issues

Practice Update

V.K. Subramani

A BREATHER FOR MICRO EDUCATIONAL/HOSPITAL INSTITUTIONS

Clause 12A(1)(ac) of the Income-tax Act mandates filing of application by the charitable trusts and institutions for registration in order to avail the benefit of exemption from tax or continue to have the benefit of exemption from income-tax. All existing registered charitable trusts and institutions have to make an application within 3 months from the 1st day of April, 2021. They would be eligible for the benefit of exemption by virtue of such application for a period of 5 years as per section 12AB(1).

Further, they have to apply for renewal or continuance of such registration at least 6 months prior to the expiry of the period of their registration. In other words, after 4 years and 6 months each of the trust or institution has to once again make an application for continuance of the benefit. At this point of time (as the law exists now) the income-tax authority i.e. the PCIT/CIT may seek documents or information to satisfy himself about the genuineness of the activities of the trust or institution and the compliance of such other requirements of any other law for the time in force by the trust or institution as are material for the purpose of achieving its objects.

In the case of new charitable trust or institutions which come into existence on or after 01.04.2021 they would eligible for provisional registration for a period of 3 years from the assessment year from which the registration is sought.

The Finance Act, 2021 has increased the threshold limit of aggregate annual receipts to educational institutions and hospitals not run for purposes of profit. The exemption from income-tax would apply under section 10(23C)(iiiad)/section 10(23C)(iiiae) if the aggregate annual receipt of such university or educational institution or the hospital does not exceed Rs. 500 lakhs.

Obviously, micro NGOs who were previously availing tax exemption by virtue of section 12A/12AA have to comply with section 12AB for the purpose of continuance of tax relief. As on 1st April, 2021 all NGOs remain unregistered. Only when they make application within 3 months under section 12A(1)(ac) they are eligible for the exemption. In the light of the blanket exemption available under section 10(23C) with enhanced limit for aggregate receipt, many small or micro NGOs can avail the benefit of tax exemption without complying with section 12A(1)(ac). Thus these institutions by default can get out of section 12A requirements and still be eligible for tax exemption. However, they have to file return of income every year as per section 139(4C) in case their income without giving effect to provisions of section 10 exceeds the maximum amount which is not chargeable to income-tax. It is necessary to remember that the monetary limit of Rs.500 lakhs is with reference to aggregate receipt of educational institution/medical institution and therefore any other income by way of rent or interest on deposits will not be considered in the said threshold limit of Rs. 500 lakhs.