Simplification of tax provisions for charitable trusts/institutions :Finance Bill 2025

The Finance Bill, 2025, proposes several key changes in the Income Tax Act, 1961, to continue reforms in the direct tax system through tax reliefs, removing difficulties faced by taxpayers, and rationalizing¹ various provisions. Here are some of the key changes:

SIMPLIFICATION AND RATIONALISATION

I. Simplification of tax provisions for charitable trusts/institutions

Income of any trust or institution registered under section 12AB of the Act is exempt subject to the
fulfilment of the conditions provided in the Act. Section 12A provides for procedure to make application for
the registration of the trust or institution to claim exemption under section 11 and 12. Section 12AB, provides
for the procedure related to approval and cancellation of the registration for the trust or institution making
application under section 12A. Section 13 provides that exemption under section 11 and 12 shall not be
available to a trust or institution if such trust or institution does not fulfill the conditions specified therein.

II. Rationalisation of ‘specified violation’ for cancellation of registration of trusts or institutions

Sub-section (4) of the section 12AB inter alia provides that where registration or provisional
registration of a trust or an institution has been granted and subsequently, the Principal Commissioner
or Commissioner has noticed occurrence of one or more specified violations during any previous year,
the Principal Commissioner or Commissioner shall, pass an order in writing, cancelling the registration
of such trust or institution if he is satisfied that one or more specified violations have taken place.

2. Explanation to sub-section (4) of the said section provides that “specified violation” inter alia
means the cases where the application referred to in clause (ac) of sub-section (1) of section 12A is not
complete or it contains false or incorrect information.

3. It is noted that even minor default, where the application referred to in clause (ac) of sub-section
(1) of section 12A is not complete, may lead to cancellation of registration of trust or institution, and
such trust or institution becomes liable to tax on accreted income as per provisions of Chapter XII-EB
of the Act.
4. It is, therefore, proposed to amend the Explanation to sub-section (4) of section 12AB so as to
provide that the situations where the application for registration of trust or institution is not complete,
shall not be treated as specified violation for the purpose of the said sub-section.
5. These amendments will take effect from the 1st day of April, 2025.

[Clause 7]

III. Period of registration of smaller trusts or institutions

Section 12AB provides registration of trust or institution for a period of 5 years or provisional
registration (where activities have not commenced at the time of filing application for registration) for a
period of 3 years. At the expiry of such registration or provisional registration, or in case of provisional
registration, if the activities of the trust or institution have commenced, the trust or institution is
required to make application for further registration.
2. It has been noted that applying for registration after every 5 years, increases the compliance
burden for trusts or institutions, especially for the smaller trusts or institutions.
3. To reduce the compliance burden for the smaller trusts or institutions, it is proposed to increase
the period of validity of registration of trust or institution from 5 years to 10 years, in cases where the
trust or institution made an application under sub-clause (i) to (v) of the clause (ac) of sub-section (1) of
section 12A, and the total income of such trust or institution, without giving effect to the provisions of
sections 11 and 12, does not exceed Rs. 5 crores during each of the two previous year, preceding to the
previous year in which such application is made.
4. These amendments will take effect from the 1st day of April, 2025.

[Clause 7]

IV. Rationalisation of persons specified under sub-section (3) of section 13 for trusts or
institutions

Section 13 of the Act, inter alia, provides that section 11 or section 12 shall not apply to exclude
any income from the total income of trust of institution, if such income enures, or such income or any
property of the trust or the institution is used or applied, directly or indirectly for the benefit of any
person referred to in sub-section (3), which inter alia are as following –

 any person who has made a substantial contribution to the trust or institution, that is to say, any
person whose total contribution up to the end of the relevant previous year exceeds fifty
thousand rupees;
 any relative of any such person as aforesaid;
 any concern in which any such person as aforesaid has a substantial interest.
2. Suggestions have been received that there are difficulties in furnishing certain details of persons
other than author, founder, trustees or manager etc. who have made a ‘substantial contribution to the
trust or institution’, that is to say, any person whose total contribution up to the end of the relevant
previous year exceeds fifty thousand rupees. These details are about their relatives and the concerns, in
which they are substantially interested.

3. It is, therefore, proposed to amend the sub-section (3) of section 13 to provide that,–
(i) persons referred to in clause (b) of sub-section (3) of section 13, shall be any person whose total
contribution to the trust or institution, during the relevant previous year exceeds one lakh rupees,
or, in aggregate up to the end of the relevant previous year exceeds ten lakh rupees, as the case
may be;
(ii) relative of any such person as mentioned in (i) above, shall not be included in persons specified
in sub-section (3) of section 13; and
(iii)any concern in which any such person as mentioned in (i) above has a substantial interest, shall
not be included in persons specified in sub-section (3) of section 13.

4. These amendments will take effect from the 1st day of April, 2025.
[Clause 8]