RSM India

Newsflash on Key Highlights of Finance Act 2020 Amendments related to Charitable entities

The Finance Act 2020 had made significant changes to the governance framework for existing as well as new charitable entities in India. The changes pertain to:

  1. Procedure for obtaining registration / re-registration for claiming exemption by entities registered under section 12AA of the Income Tax Act, 1961 (‘IT Act’) as well as for obtaining registration /re-registration under section 80G of the IT Act; and
  2. Requirement of additional compliances to be made by the charitable entity which is registered under section 80G of the IT Act pertaining to donations made by the donor. The changes would be effective from 1 June 2020.

In this respect, we have in the enclosed newsflash endeavored to cover the significant changes which shall be applicable to existing as well as new / proposed charitable entities. A new section 12AB has came into force with effect from 1 June 2020 which will replace the provisions of registration under section 12AA or section 12A of the IT Act.

Some of the significant changes include:

  • Existing Charitable Entities - All the existing registered charitable trusts under section 12A or section 12AA shall be required to make an application of re-registration by 31 August 2020. The registration window shall start from 1 June 2020. Similarly, the provisions of section 80G(5) of the IT Act are amended wherein all registered charitable institutions are required to make an application for re-registration starting from 1 June 2020 till 31 August 2020. If such institutions fails to make re-registration application, then implications u/s 115TD of the IT Act may arise. The same is explained in details in later part of this Newsflash. Notably, under the existing provisions registration u/s 12AA and u/s 80G(5)(vi) were granted without any validity.
  • New Charitable Entities - A new charitable entity can make an application for provisional registration u/s 12AB and u/s 80G(5)(vi) to PCIT/CIT which shall be granted for a period of 3 years. Such institutions are required to make a further application earlier of the following:
  • 6 months prior to end of provisional registration or
  • within 6 months from commencement of activities

In this newsflash, besides the above amendments we have also covered other significant changes such as the newly inserted reporting obligation by exempt entity receiving donations, further restriction on cash donation limit, implication of not obtaining re-registration by existing charitable entities by 31 August 2020, etc.

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