Articles

Sub-Granting by Section 12A or 10(23C) Registered Organizations & FCRA Provisions

SUB-GRANTING UNDER INCOME TAX ACT 

Major changes have been brought in under the Finance Budget 2023 through insertion of clause (iii) in Explanation 4 to sub-section (1) of section 11 AND clause (iii) in Explanation 2 to the third proviso of clause (23C) of section 10 of the Income Tax Act. 

 

PRESENT SCENARIO 

At present, the income of charitable organizations (being trust or institution) registered u/s 12A/ 12AB is exempt subject to the fulfilment of certain conditions. Some of such conditions are as follows: 

1. at least 85% of income of the trust or institution should be applied during the year for the charitable or religious purposes to ensure bare minimum application for charitable or religious purposes. 
2. Trusts or institutions are allowed to either apply mandatory 85% of their income either themselves or by making donations to other trusts or institutions with similar objectives. 
3. If donated to other trusts or institutions, the donation should not be towards corpus to ensure that the donations are applied by the donee trust or institutions. 
4. The trusts or institutions are allowed to accumulate the remaining 15% of the income for application in subsequent years without payment of any tax on that. 

 

NEW SCENARIO W.E.F. 1ST APRIL, 2024 

As per Finance Bill 2023, the Finance Minister Smt. Nirmala Sitharaman has inserted a new clauses i.e., clause (iii) in Explanation 4 to sub-section (1) of section 11 and clause (iii) in Explanation 2 to the third proviso of clause (23C) of section 10 of the Income Tax Act to provide that, any amount credited or paid out of the income of any trust or institution registered u/s 12A or 10(23C) to any other trust or institution registered u/s 12A or 10(23C), other than the amount transferred specifically towards the corpus of such trust or institution, shall be treated as application for charitable or religious purposes only to the extent of 85% of such amount credited or paid. 

That means, only 85% of the total amount being a donation or grant transferred to other similar institutions shall be treated as expenditure/ application of income towards the stated object of such institution. 

For Example: ABC Foundation is a 12A registered organization working towards welfare of underprivilege children. It sub-grants Rs. 1,00,000/- out of its funds to another 12A registered organization XYZ Foundation which is also working towards the similar object. In such case, ABC Foundation can show only Rs. 85,000/- as application/ expenditure in its Income Tax Computation however the whole amount of Rs. 1,00,000/- shall be shown in the Income & Expenditure Account of financial statements. Here, this need to be noted that the financial statements are prepared based on actual outflows or accruals however, the income tax computation is different from the financial statements which is prepared in line with the income tax provisions. 

 

SUB-GRANTING UNDER FCRA 

The Foreign Contribution (Regulation) Amendment Act, 2020 came into effect on 29th September, 2020 whereby many major amendments have been done by the Ministry under FCRA. This act has amended the Foreign Contribution (Regulation) Act, 2010 and has brought many radical changes having far reaching impact. The amended section 7 of the Act prohibits inter charity donations (sub-granting) i.e. one FC registered organization cannot sub-grant, further, to another FC registered organization. It can be seen that foreign contribution can no longer be transferred to another organization as was permissible earlier. The FCRA law is very particular that there should not be any direct or indirect involvement of any other entity in utilization of FC funds. 

 

CONCLUSION 

To conclude the above we can say the now the trusts or institutions who are registered u/s 12A or 10(23C) of the Income Tax Act, 1961 can transfer the local/ domestic funds to other registered trusts or institutions with similar object wherein the donor institution will be allowed to take benefit of such donation as its expense/ application of income only up to 85% of the donation amount. However, the trust or institution is strictly prohibited to transfer its FCRA funds to any other trust or institution irrespective of the nature of activity of such trust.

 

Guide to Renewal of or Application for 12A & 80G Registrations

This article focuses on the major changes brought in by the Finance Act 2020 by introducing new section 10AB replacing section 10AA and bringing in similar amendments in section 10(23C) and Section 80G. 

These provisions pertaining to registration were originally made effective from 01-06-2020. Subsequently, due to the crisis caused by COVID-19, the Central Board of Direct Taxes (CBDT) announced to deferment of the implementation of the new procedure for approval and registration to 01-04-2021 and, therefore, the old process for approval under section 12AA, 80G and 10(23C) continued till 31-03-2021. 

Now, from 1st April, 2021 the CBDT has made applicable the new provisions by introducing The Income Tax (6th Amendment) Rules, 2021 vide notification dated 26th March, 2021. The detailed guide to the renewal and fresh application process is as under: 

FORM 10A : FOR PROVISIONAL REGISTRATION AND RE-VALIDATION OF EXISTING REGISTRATION 

The Income Tax (6th Amendment) Rules, 2021 have notified Form 10A for making application for registration or provisional registration or intimation or approval or provisional approval. 

 

 

1. Who can apply in Form 10A? Form 10A shall be used for the following purposes: 

– Application for revalidation of registration/approval for existing organizations registered/approved under section 12A/12AA/10(23C)/80G. 

– Application for provisional registrations/approval under section 12AB/10(23C)/ 80G 

– Due Dates to apply in Form 10A 

1. Trusts already approved/registered and their approval/ registration is continuing an on 01-04-2021 : On or before 30-06-2021 
2. Trusts making application for provisional registration/ approval : 1 month before the commencement of the previous year from which the said approval is sought. 

FORM 10AB : FOR FIVE YEAR REGISTRATION AND CONVERSION OF PROVISIONAL REGISTRATION The Income Tax (6th Amendment) Rules, 2021 have notified Form 10AB for making application for registration or approval. 

 

 

1. Who can apply in Form 10AB? Form 10AB shall be used for the following purposes:

– Conversion of provisional registration into regular registration 

– Renewal of registration/approval after five years 

– Activating inoperative registration under section 10(23C)/10(46) 

– Re-registration for modification of objects for entities registered u/s 12.  

– Due Dates to Apply in Form 10AB 

1. Conversion of provisional registration into regular registration : Before 6 Months of Expiry or 6 Months from commencement of activities whichever is earlier. 
2. Renewal of registration/approval after five year : Before 6 Months of Expiry 
3. Re-registration for modification of objects for entities registered under section 12AB : Within 30 Days from such modification. 

 

PROCESS OF RENEWAL/ REGISTRATION 

Step-1 : Applicant (society or other institutions) shall apply for renewal/ registration from Income Tax Portal using their income tax login credentials in Form No 10A (or 10 AB as the case may be) electronically within prescribed due dates as explained above. Applicant shall be required to submit the documents with the application as listed below in this article. 

Step-2 : On submission of application, it shall be verified by the authorized signatory of the organization through Digital Signature if return of income is filed through Digital Signature otherwise through EVC. 

Step-3 : On receipt of an application in Form No 10A (or 10 AB as the case may be), the PCIT or CIT, authorized by the Board, shall either approve or reject the application. In case the application is approved, the PCIT or CIT shall issue a 16 digit alphanumeric URN. 

DOCUMENTS TO BE SUBMITTED The application in Form No. 10A or 10AB shall be accompanied by the following documents: 

(a) where the applicant is created or established, under an instrument, self-certified copy of such instrument creating or establishing the applicant; 

(b) where the applicant is created or established, otherwise than under an instrument, self-certified copy of the document evidencing the creation or establishment of the applicant; 

(c) self-certified copy of registration with Registrar of Companies or Registrar of Firms and Societies or Registrar of Public Trusts, as the case may be; 

(d) self-certified copy of registration under Foreign Contribution (Regulation) Act, 2010, if the applicant is registered under such Act; 

(e) self-certified copy of existing order granting approval under clause (23C) of section 10; 

(f) self-certified copy of order of rejection of application for grant of approval under clause (23C) of section 10, if any; 

(g) where the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of the applicant relating to such prior year or years (not more than three preceding years) for which such accounts have been made up; 

(h) where a business undertaking is held by the applicant as per the provisions of sub-section (4) of section 11 and the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of such business undertaking relating to such prior year or years (not more than three preceding years) for which such accounts have been made up and self-certified copy of the report of audit as per the provisions of section 44AB for such period; 

(i) where the income of the applicant includes profits and gains of business as per the provisions of sub-section (4A) of section 11 and the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of such business relating to such prior year or years (not more than three preceding years) for which such accounts have been made up and self-certified copy of the report of audit as per the provisions of section 44AB for such period; 

(j) note on the activities of the applicant. 

REQUIREMENT OF DARPAN ID Registration with Niti Aayog is mandatory to apply for grants under various schemes of Ministries/Departments/Governments Bodies. NGO-DARPAN portal has been started as an initiative of the Prime Minister’s Office, to create and promote a healthy partnership between NGOs and the Government. It is an e-governance application offered by NITI Aayog to electronically maintain data and transparency regarding NGOs in the country. Before filing Form 10A or Form 10AB, NGOs must have to register themselves on the NGO-DARPAN portal to obtain a Unique Identity Number (UIN) by furnishing the required details like registration number of the organization, PAN of the organization, PAN and Aadhaar details of the office bearers/trustees etc. 

REQUIREMENT TO FILE STATEMENT OF DONATION AND TO ISSUE CERTIFICATE TO DONORS With effect from financial year 2021-22, the institutions notified under section 35 or approved under section 80G are required to file a statement of donation received under Form 10BD and also to issue the certificate to the donor in Form 10BE specifying the amount of donation received during financial year from such donor. Both the forms shall be filed on or before the 31st May, immediately following the financial year in which the donation is received. Deduction on account of the donation shall be allowed to the donor only on the basis of the statement filed by the donee trust or institution. Hence, if a statement is not filed, the donor will not get any deduction for the donations made. In case of delay in filing such statement, a late fee of Rs. 200 per day shall be applicable under newly inserted section 234G of the Income-tax Act. Further, a penalty under section 271K, which shall not be less than Rs. 10,000 and which may extend up to Rs. 1 lakh, shall be leviable. 

EXPENDITURE ON RELIGIOUS ACTIVITY Form 10A and 10AB have a category of charitable cum religious organization which settles the confusion of whether an organization can be both charitable as well as religious simultaneously. The Forms separately require reporting of expenditure on religious activities which will be considered for eligibility of 80G registration as section 80G(5B) provides that up to 5% of religious activity shall be permissible and therefore to that extent an organization can be charitable cum religious.

 

2023 GST Updates

10th May 2023

CBIC notified the 6th phase of e-invoicing. Hence, taxpayers with ₹5 Cr+ turnover in any financial year from 2017-18 shall issue e-invoices w.e.f 1st August 2023.

 

6th May 2023

The GST department has deferred the time limit of 7 days to report the old e-invoices on the e-invoice IRP portals by three months. Further, the department is yet to announce the new implementation date.

 

13th April 2023

As per the GST Network’s advisories dated 12th April 2023 and 13th April 2023, taxpayers with annual turnover equal to or more than Rs.100 crore must report tax invoices and credit-debit notes to IRP within 7 days of invoice date from 1st May 2023.

 

31st March 2023

CGST notifications 02/2023 to 08/2023 issued on 31st March 2023 brings GST Council recommendations into effect as follows-

 

(1) Amnesty schemes valid up to 30th June 2023 are introduced for late filers of GSTR-4, GSTR-9, GSTR-10, defaulters attracting Section 62 of the CGST Act (Best Judgement assessment) and for applying revocation of cancelled GST registration in REG-21.

 

(2) Risk based biometric aadhaar authentication for Gujarat is notified through CGST notification 05/2023 with effect from 26th December 2022. 

 

(3) The extension of limitation period under Section 168A to issue orders under Section 79 (recovery proceedings) is extended for past years-

 

For FY 2017-18 – up to 31st December 2023

For FY 2018-19 – up to 31st March 2024

For FY 2019-20 – up to 30th June 2024 

1st February 2023

 

Updates from Budget 2023-

The decriminalisation of offences and extension of the composition scheme to e-tailers are a few key highlights from the Budget 2023. For complete GST highlights, read our Budget 2023 highlights 

 

12th January 2023

An automated drop proceedings facility is available on the GST portal to revoke cancelled GSTINs where taxpayers file pending GST returns.

 

4th January 2023

CGST Notification 01/2023 was issued on 4th January 2023 to assign more powers vested with a Superintendent of central tax to the Additional Assistant Directors in DGGI, DGGST and DG Audit.