Rationalisation Provisions for Charitable Trusts and Institutions

Introduction

The Union Budget 2025 introduces several key amendments aimed at easing compliance and reducing administrative burdens for charitable trusts and institutions. One significant change clarifies that incomplete registration applications will no longer result in automatic cancellation. For smaller trusts and institutions with annual income below ₹5 crores, the validity of registration will be extended from 5 to 10 years, offering greater stability and predictability.

Revisions to Section 13 of the Income Tax Act also redefine the categories of individuals excluded from tax exemptions, specifically targeting those who contribute more than ₹1 lakh annually or ₹10 lakh cumulatively. These updates are designed to streamline regulatory processes for smaller entities while maintaining oversight and transparency.

For a detailed overview of these changes, continue reading this article

Clarification on ‘Specified Violation’ for Cancellation of Registration

The Union Budget 2025 proposes an amendment to the Explanation under sub-section (4) of section 12AB of the Income Tax Act. Under this revision, an incomplete application for the registration of a trust or institution will no longer be classified as a “specified violation.” This change aims to ensure that registration is not cancelled merely due to procedural errors or incomplete documentation in the application process.

Extended Registration Period for Smaller Trusts and Institutions

To ease compliance requirements for smaller charitable trusts and institutions, the Union Budget 2025 proposes to extend the validity of their registration from 5 years to 10 years. This extension applies to entities that have filed an application under sub-clauses (i) to (v) of clause (ac) of sub-section (1) of section 12A, provided their total income (before applying exemptions under sections 11 and 12) does not exceed ₹5 crores in each of the two financial years immediately preceding the year of application

Rationalisation of Specified Persons Under Section 13(3) for Charitable Trusts and Institutions

Under the current provisions of Section 13 of the Income Tax Act, trusts and institutions lose eligibility for tax exemptions under Sections 11 and 12 if their income or assets are used, directly or indirectly, for the benefit of certain specified persons listed under sub-section (3).

To bring greater clarity and focus to these rules, it is proposed to amend sub-section (3) of Section 13 as follows:

Contributor Threshold: Individuals who contribute more than ₹1 lakh in a financial year, or whose cumulative contribution exceeds ₹10 lakh up to the end of the relevant financial year, will be classified as specified persons under clause (b) of sub-section (3).
Exclusion of Relatives: Relatives of such contributors will no longer be considered as specified persons under this provision.
Exclusion of Concerns with Substantial Interest: Business concerns in which these contributors hold a substantial interest will also be excluded from the list of specified persons.

These changes are intended to target significant contributors while easing restrictions on indirect associations, thus refining the scope of compliance without compromising regulatory oversight

To promote investment in electronics manufacturing, it is proposed to introduce a presumptive taxation regime for non-resident service providers engaged with resident companies that are establishing or operating electronics manufacturing facilities. This measure aims to simplify tax compliance and provide certainty to investors.