New Budget Provisions Ease Burden on Charitable Trusts
The recent budget has introduced significant changes that benefit charitable trusts and institutions. For the first time in years, these provisions aim to simplify the registration process and enhance tax exemptions. The changes are particularly beneficial for smaller trusts, which often struggle with administrative burdens. This article explores the key provisions of the new budget and their implications for charitable organizations.
Extended Registration Period for Trusts
One of the most notable changes in the budget is the extension of the registration validity period for charitable trusts. Previously, trusts had to renew their registration every five years to maintain their tax-exempt status. Now, smaller trusts with an income of less than Rs 5 crore can enjoy a registration period of ten years. This extension is a welcome relief for many organizations that operate on limited resources.
However, this new provision comes with specific conditions. Trusts must demonstrate that their income has been below the threshold for the two years preceding their application for renewal. This means that only those trusts that consistently operate within this income limit will benefit from the extended registration. Furthermore, this change will only apply to applications made after March 31, 2025. New trusts seeking provisional registration will still receive a shorter three-year term. Existing smaller trusts with registrations expiring on March 31, 2026, must apply for renewal by September 30, 2025, but will then be granted a ten-year registration.
This extended period not only reduces the administrative burden but also allows trusts to focus more on their charitable activities rather than paperwork. The implications of this change are significant, as it provides a more stable foundation for smaller organizations to plan their future initiatives.
Simplified Registration Process
Another important change is the easing of the registration application process. Minor errors in the application will no longer lead to the deregistration of trusts. Previously, any mistake could result in a trust losing its registration, which would trigger a tax liability on the fair market value of its assets. This was particularly concerning for trusts in metropolitan areas that own valuable properties.
Now, the registration will only be canceled in cases of false or incorrect information. This change is crucial for many charitable organizations that may struggle with complex application forms. The previous system often penalized trusts for minor oversights, creating a climate of fear and uncertainty. With the new provisions, trusts can focus on their missions without the constant worry of losing their registration due to clerical errors.
However, it is important to note that trusts will still need to reapply every five years for approval under Section 80G, which allows donors to claim tax benefits for their contributions. This requirement remains unchanged, but the overall simplification of the process is a step in the right direction.
Increased Donation Limits and Record-Keeping Relief
The budget also addresses the long-standing issue of donation limits for charitable trusts. Previously, trusts faced significant challenges in identifying and maintaining records of donors who contributed more than Rs 50,000 since the trust’s inception. This limit had remained unchanged for 40 years, making compliance nearly impossible for many organizations.
The new budget raises this limit to Rs 1 lakh for donations made during the year and Rs 10 lakh for total contributions since the trust’s inception. Additionally, relatives or concerns of substantial donors are now excluded from the list of specified persons. This change will greatly ease the burden on trusts, allowing them to maintain accurate records without the fear of losing tax exemptions.
While this adjustment is a positive development, the retention of the aggregation period for donations since the trust’s inception may still pose challenges for older trusts. Many organizations have been operating for decades, and tracking donations over such a long period can be cumbersome. Nevertheless, the increase in limits is a much-needed relief for trusts that rely on donor contributions to fund their activities.
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