Giving Compass' Take:

• Noshir Dadrawala explains how India's social sector will be impacted by the 2020 budget and how to appropriately respond to the changes to come. 

• How can funders appropriately respond to political shifts impacting the social sector? Are you ready to support organizations through the 2020 transition in India? 

• Read about philanthropy in India in 2019.

The Union Budget and Finance Bill 2020 have proposed major changes for charitable trusts and institutions. Here is a simple snapshot of the key changes and what one needs to do.

Revalidation of existing registrations

All the existing charitable and religious institutions already registered under Section 12A (trusts and institutions registered prior to 1996), Section 12AA (trusts and institutions registered after 1996), Section 10(23C) and Section 80G will be required to re-apply to the income tax authorities to revalidate their existing registrations.

Registration u/s 12AA means the Income Tax authorities recognise the trust or institution as “established for charitable purpose” and therefore exempt from payment of income tax, subject to other compliances under law.

The laws that govern India's nonprofits
Registration under 80G is of no direct benefit to the charitable trust or institution. Donors contributing to a trust or institution registered under section 80G can enjoy tax deductions. In other words, having registration under section 80G is an incentive for donors.

The process will be online and the new online form will particularly focus on whether the charitable activities of the trust or institution are genuine.

Once the online forms are ready there will be a window of three months within which the application must be submitted. Trusts and institutions may do this on their own or through their auditors or practicing chartered accountants.

After processing your application, your trust or institution’s registration under section 12AA and 80G may be revalidated by income tax for a period of five years.

Application for renewal after five years must be made at least six months prior to the expiry of the five years validity period.

New organisations

Newly established trusts and institutions applying to income tax for registration for the very first time will be given provisional registration for three years. Once granted, the provisional registration shall be valid for three years from the Assessment Year from which the registration is sought.

Thereafter, application for renewal or rather registration (instead of provisional registration) can to be submitted at least six months prior to the expiry of validity period of the provisional registration, and registration so granted shall be valid for five years.

Read the full article about the 2020 budget by Noshir Dadrawala at India Development Review.