Proposed Important Amendments for Charitable Trust by Finance Bill 2017

CA Rahul Sureka

While presenting budget 2017, there were several amendments proposed by Finance Minister Mr. Arun Jaitley with respect to Taxation of Charitable Trust. Articles discusses four of such Important Amendments.

1^st Amendment

In clause (x) section 56(2)  has been introduced to widen the scope and to cover trust under its ambit.

In order to prevent the practice of receiving the sum of money or the property without consideration or for inadequate consideration, it is proposed to insert a new clause (x) in sub-section (2) of section 56 so as to provide that receipt of the sum of money or the property by any person without consideration or for inadequate consideration in excess of Rs. 50,000 shall be chargeable to tax in the hands of the recipient under the head “Income from other sources”. It is also proposed to widen the scope of existing exceptions by including the receipt by certain trusts or institutions and receipt by way of certain transfers not regarded as transfer under section 47.

Therefore, now if any property is received by trust (charitable or private) without consideration or for inadequate consideration in excess of Rs. 50,000 then it will be taxable in the hands of recipient under the head “Income from other sources” u/s 56(2)(x)

2^nd Amendment

Till FY 2016-17 donations made by a trust to any other trust is considered as application of money in the hands of donor even if donation is made to other trust with specific direction that it shall form part of corpus.

Therefore, it is proposed to insert a new Explanation to section 11 of the Act to provide that any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1) of section 11, being contributions with specific direction that they shall form part of the corpus of the trust or institution, shall not be treated as application of income.

Therefore, from FY 2017-18 any trust made donation to other trust with the specific direction that it shall form part of corpus then such donation will not be treated as application of income in the hands of donor trust.

3^rd Amendment

If any trust which is registered u/s 12AA and wants to modify its object clause then from FY 2017-18 onwards it has to obtain fresh registration by making an application within a period of thirty days from the date of such adoption or modifications of the objects in the prescribed form and manner.

Earlier such trust did not require fresh registration certificate upon modification of its object clause, But now it is proposed that such trust shall require fresh registration by making an application within a period of thirty days from the date of such adoption or modifications of the objects.

4^th Amendment

As per the existing provisions, the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. However, there is no clarity as to whether the said return of income is to be filed within time allowed u/s 139 of the Act or otherwise.

In order to provide clarity in this regard, it is proposed to further amend section 12A so as to provide for further condition that the person in receipt of the income chargeable to income-tax shall furnish the return of income within the time allowed under section 139 of the Act.

Therefore, trust will have to file their  return of income within the time allowed u/s 139 of the Act.

Article is written by CA Rahul Sureka, FCA, CS, LLB and can be reached at rahulsureka28@gmail.com or 9773450180.

Disclaimer: This article is for general guidance on matters of interest only and does not constitute any professional advice from me/us. One should not act upon the information contained in this article without obtaining specific professional advice. Further, no representation or warranty (expressed or implied) is given as to the accuracy or completeness of the information contained in this article.