SYNOPSIS OF MAJOR CHANGES FOR NGOs IN BUDGET 2020
The Finance Bill 2020 has made changes pertaining to the registration and exemptions of charitable institutions. Synopsis of major changes for NGO are as follows:-
A) Revalidation of Registration
I. The Finance Bill 2020 has proposed major changes with regard to the existing registrations under various sections of the Income Tax Act 1961. All the existing charitable and religious institutions are registered/ approved under the following sections:
- Section 12A
- Section 12AA
- Section 10(23C)
- Section 80G
Now they are required to apply for re-validation within three months from 1st June 2020. Registration so re-validated shall be valid only for 5 years. The application for the renewal of registration (after five years) needs to be submitted atleast six months prior to the expiry of validity period.
II. The implications of the above amendment are as under:
- The Government will create a national register of all the charitable and religious institutions. Currently the registration is issued and recorded locally.
- The Income Tax Department shall issue an Unique Identification Number to all the charitable and religious institutions.
- The exercise of revalidation of all the charitable institutions will enable the Government to weed out all the inactive and defunct charitable institutions.
- The renewal of both 12A and 12AA, every five years, will provide an opportunity to withdraw the exemptions without going through the complicated cancellation provisions.
B) REGISTRATION OF NEW ORGANISATIONS
The Finance Bill 2020 provides a provisional registration for three years for all new organisations applying for exemptions under various sections. The registration once granted shall be valid for three years from the Assessment Year from which the registration is sought. This provision seems to be towards rationalising the registration process. The organisations shall be entitled for provisional registration based on the documents and self declaration. Application for renewal of such new registration needs to be submitted at least six months prior to the expiry of validity period and registration so granted shall be valid for 5 years.
C) SIMULTANEOUS BENEFIT UNDER
TWO REGISTRATION WILL NOT BE ALLOWED
I. Under the prevailing law, an organisation registered under section 12AA can also avail approval under section 10(23C), thereby can have the option of availing tax exemptions under either of the two sections. The Finance Bill 2020 proposes that an organisation cannot simultaneously enjoy exemptions under two provisions. By amendment in Section 11 it is clarified that if the benefit of approval u/s.12A is opted for, then the other approval if any i.e. under section 10(23C), 10(46) shall becomes inoperative and vice-versa.
Hence only one approval is effective at a time. It may be noted all organisation should apply for re-validation of either or 12A or 10(23C) or 10(46), otherwise if multiple application for re-validation are made then the 12A registration will become inoperative.
II. If anyone want to re-activate the other approval, then it can be done within six months prior to the commencement of the Assessment Year from which the said registration is sought to be operative and in such case the existing registration shall become inoperative. This provision shall apply to all existing and future institutions, for example all the existing institutions having registration under section 12A or 12AA or section 10(23C) or 10(46) shall have to opt for exemption either under section 11 or under 10.
D) AUDIT OF NGO
I. Under the Section 12A(b) of the Income Tax Act there is a condition for audit in Form 10B & furnishing of the audit report along with return. However, there is no mention of the time limit by which audit report has to be obtained.
II. Now the Finance Bill 2020 has provided the time limit within which the audit report has to be obtained and the time limit so specified is in accordance with the specified date as per Sec. 44AB of the Income Tax Act, 1961, which provides :-
"specified date", in relation to the accounts of the assessee of the previous year relevant to an assessment year, means date one month prior to [the due date for furnishing the return of income under sub-section (1) of section 139]".
Hence it becomes mandatory that audit report needs to be obtained one month prior to due date i.e. before 30th September of every year, even if for some reason the filing of Audit Report is delayed. It is to be noted that due date is also proposed to be amended to 31st October, in place of 30th September.
E) SECTION 80G- AMENDMENTS
I. Benefit to Donors: The Finance Bill 2020 provides that the donee institution/ fund has to submit the statement of donation received in such form & manner as may be prescribed & the benefit of 80G shall be available to donor on the basis of information relating to donation furnished by the corresponding institution/fund.
II. Validity & Re-Approvals: Presently the approval u/s 80G is valid in perpetuity. The Finance Bill 2020 provides that all the existing 80G approvals needs to be revalidated and the application for the same should be submitted within three months from the date on which the proposed amendment come into force.
III. The re approvals will be valid for a period of 5 years and thereafter approval for 80G has to be again applied for atleast 6 months prior to the validity period.
IV. New applications for approval under section 80G shall be approved only for a period of 3 years and thereafter approval for 80G needs to be reapplied atleast 6 months prior to the validity period. The subsequent approval shall be valid for five years.
