Page 24 - Union Budget, 2022

Union Budget, 2022

Rationalisation of provisions relating to Trusts

Effective monitoring and implementation of two exemption regimes
• Exemption for trusts or institutions is currently allowed under two regimes viz. Sec 10(23C) (hereinafter
“first regime”) and u/s 12AA/12AB (hereinafter “second regime”).
• It is now proposed to clarify that maintenance of books of account is mandatory if the income chargeable

to tax exceeds the basic exemption limit, without giving effect to exemption under the said regimes. (w.e.f.
01.04.23)
• It is proposed to amend the provisions (w.e.f. 01.04.2022) so as to give the PCIT/CIT the powers to call
for the requisite documents, cancel/ refuse to cancel the registration or approval of exemption, if any of
the specified violations are noticed or pursuant to reference by AO during assessment. Such order to
revoke/refusing to revoke registration or approval is to be passed within 6 months from the end of the
quarter in which first notice is issued (on or after 01.04.2022) by the PCIT/CIT calling for requisite
documents.
- “Specified violations” include: Income applied contrary to object clause, non-incidental business
income or non-maintenance of separate books of account for incidental business income, application
of income for private religious purposes, particular religious community and carrying out of any
activity which is ingenuine, not in accordance with conditions of registration/approval or non-
compliance with any other law.
- The period of reference (till the date of receipt of order by AO) shall be excluded in calculating the
period of limitation in completion of assessment, reassessment and recomputation.
- Further, if any intimation was made by the AO to the CG or prescribed authority, and the approval
granted is not withdrawn or notification issued is not rescinded before 31.03.2022, the same shall be
taken forward by the PCIT/CIT as per the aforesaid provisions.
- Consequential amendment is proposed to be made in Sec 143(3) to provide that on identification of
specified violation by the trust/institution, AO shall intimate the PCIT/CIT and assessment shall be
made considering the order passed by PCIT/CIT.

Streamlining provisions of second regime to first regime
• Conditions w.r.t. to accumulation of income if 85% application is not possible during the FY i.e. furnishing
of statement to AO before due date of ROI, deposit in specified modes, etc., is now proposed to be
extended (w.e.f. 01.04.2023) to first regime as well. In the event of breach of any conditions, accumulated
income shall be treated as deemed income in the PY in which such breach takes place or in the last PY of
the period for which the intended accumulation was made. On reasons beyond the control of the assessee,
upon application, AO may allow application for purposes other than the intended one but which
conforms with the object clause.
• Application of income for the benefit of specified persons referred u/s 13(3) (broadly connected persons
of the trust/institution), shall be deemed to be income of such person in the year of mis-application.
Provisions of Sec 13(2),(4) and (6) regarding instances of such application, relaxations in the case of certain
institutions will now apply to first regime as well.
• Provisions of Sec 115TD 115TE and 115TE, relating to exit tax on accreted income are now proposed
to be made applicable to first regime as well.
• Exit tax under Sec 115TD at 34.944% applies when a trust/institution is no longer eligible to be registered
to claim exemption under the regimes. Instances for exit tax includes conversion/merger into another
form/entity not eligible for grant of registration, non-distribution of assets to another eligible entity within
12 months of dissolution, etc.
• First regime trusts/institutions are now mandated to file ROI in order to claim exemption.

AY 2023-24 and subsequent AYs

Earlier under the second regime, when accumulated income was not spent within the stipulated period, the
same was taxed in the year immediately following the period of expiry. However, now provisions under both
the regimes are amended to tax in the last year of the stipulated period of accumulation.

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