‘Charitable institutions are over-regulated in India’

Experts ask why trusts must re-register for tax exemptions

March 12, 2020 01:48 am | Updated 01:48 am IST - Mumbai

The government’s move to make charitable and religious institutions renew their registration every five years through an amendment to the Income Tax Act came under criticism at a public meeting in the city on Wednesday.

Experts and representatives from various trusts and non-government organisations participated in the event organised by The Association for Protection of Public Trusts and Charities. They have decided to present a memorandum to Union Finance Minister Nirmala Sitharaman expressing their grievances.

Ms. Sitharaman had proposed substantial amendments for granting exemptions to charitable and religious trusts in the Union Budget 2020. Under the new tax regime, the Finance Minister proposed to introduce Section 12AB to grant registration to charitable institutions, enabling them to claim exemption under Section 11 of the Act.

All charitable institutions, including those registered under Sections 12AA or 12A, will now have to make a fresh application for registration on or before August 31 to be eligible to claim the exemption. On receiving the application, the Principal Commissioner of Income Tax or the Commissioner can grant registration to the trusts under Section 12AB, after carrying out the required examination. The registration granted after the examination will be valid only for five years.

“The amendments are very few, but have far-reaching implications,” said senior advocate Firoze Andhyarujina. The most crucial issue, he said, was the requirement for charitable institutions to make a fresh application for re-registration at the end of five years. “The other major issue is the confusion as to the role of the assessing officer in determining the object of the institution. The proposed amendments do not clearly state whether the registration granted will be valid till the end of the assessment year or the financial year after completion of five years,” Mr. Andhyarujina said.

Chief executive, Centre for Advancement of Philanthropy, Noshir Dadrawala, said charitable institutions and trusts are the most over-regulated sector in India. “These amendments are not even advantageous for the government because the government is not equipped to implement them,” he said.

Chartered accountant Viren Merchant questioned the need to renew the registration every five years. “If companies are not required to re-register, then why do charitable institutions need to do so? When clauses for cancellation of registration and scrutiny assessment exist, then what is the need to re-register?” he asked.

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