logo
 
     
   
 

Blog Categories

SECTION 12A VIZ-A-VIZ 10(23C) OF INCOME TAX ACT,1961
Category: Charitable Institutions, Posted on: 01/05/2021 , Posted By: Mahendra K. Satya & Co.
Visitor Count:784

SECTION 12A VIZ-A-VIZ 10(23C) OF INCOME TAX ACT,1961

The Finance Act, 2020 has amended various provisions relating to the charitable institutions. W.e.f 01/04/2021, an institution may either be approved u/s 10(23C) or registered u/s 12A.  Following comparison will help an institution having activities which are covered by both the sections, in opting most suitable option considering its dominant activities for claiming exemption.

Sn.

Descriptions

Section 11/ 12A

Section 10(23C)

1

Nature of Income exempt

Charitable Institution may carry one or more of following activities:

1.Releif to poor

2.Education

3.Yoga

4.Medical Relief

5.Preservation of environments or monuments.

6.Other objects of general public utility, However any business receipts should not exceed 20% of total receipts.

(iv)-institution established for charitable purpose having importance throughout India or in any state/states.

(v)institution which is wholly public religious or wholly for public religious and charitable purpose.

(vi)educational institutions solely for education purpose having gross receipts more than 5Crores.

(via) medical institutions solely for philanthropic purpose having gross receipts more than 5Crores.

2

Application for registration/approval to be filed

Section 12A(1)(ac)

First proviso to section 10(23C)

3

Validity of exemption- 5 years

Section 12AB(1)

Second proviso to section 10(23C)

4

Application of Income to the extent of 85% of the income during the year

Section 11(1)

Third Proviso to section 10(23C)

5

Deemed application of Income where application is less than 85%

Clause 2 of Explaination  1 to section 11(1),

Reason for non application is-

1.income not received – will be applied in the year of receipt or immediately next F.Y.

2.Other reason-will be applied in the immediately next F.Y.

NA

6

Accumulation of income for 5 years in case not applied during the year

 Section 11(1)

Third Proviso to section 10(23C)

7

Accumulated income to kept in specified modes

Section 11(5)

Third Proviso to section 10(23C)

8

Corpus Donation received shall not be part  of the income

Section 11(1)(d)

Explanation to third proviso to section 10(23C)

9

Corpus Donation given shall not be considered  of the application of income

Explanation 2 to Section 11(1)

Twelfth proviso to section 10(23C)

10

Where Cost of Acquisition of asset is claimed as application, depreciation shall not be  considered application

Section 11(6)

Explanation to the nineteenth proviso

11

Payment to any registered or approved institution out of accumulated income shall not be considered application  of income

Section 11(3)(d)

Fourteenth proviso to section 10(23C)

12

Exemption shall not apply to business until business is incidental to the objects and separate books of accounts are maintained

Section 11(4A)

Seventh  proviso to section 10(23C)

13

Exemption shall not apply in case business receipts exceeds 20% of total receipts - Proviso to section 2(15)

Section  13(8)

Eighteen  Proviso to section 10(23C), applicable for institution approved under sub clause (iv) or (v) r.w. third proviso to 143(3)

(not applicable for educational & medical)

14

Non applicability of exemption

Section 12(2)-

Value of services provided to any related person shall be deemed to be income and exemption shall not apply to such income.

Section 13(1) & (2)

Application of income for directly or indirectly for the benefit of related persons

NA

15

In case, accumulated income could not be applied for the purpose it was accumulated  shall be chargeable to tax

  1. Section 11(3),

  2. Section 11(3A)

Application may be filed to AO,he may allow to apply such amount to other objects of the institution.

  1. Third Proviso to section 10(23C)

  2. NA

16

Audit form to be filed

Form 10B-Rule 17B

10BB-Rule 16CC

17

Audit of accounts,if income before providing exemption exceeds minimum amount not chargeable to tax

Section 12A(1)(b)

Tenth proviso to section 10(23C)

18

ITR to be filed within due date for claiming exemption

Section 12A (1)(ba)

NA

19

Particulars to be furnished in Audit report

1.Application of income during the year

2.Accumulation of income and investment in specified modes

3.Application of accumulated income

3.Application of income for the benefit of related persons u/s 13(3)-(transactions with related party)

4.Investment made in concerns in which persons u/s 13(3) having substantial interest.

1.Total income earned and amount applied during the year

2.Accumulation of income and investment in specified modes

3.Application of accumulated income

4.Details of business carried out (if any)

5.Anonymous donation received

20

Application of exemption in previous years for which any assessment proceedings are pending,if activities are same

Exemption shall be allowed as per First proviso to section 12A(2)

NA

21

In case of capital gain from property held under the trust is utilized for acquiring another capital asset, such capital gain shall be deemed to the application .

Section 11(1A)

NA

22

Disallowance of application in case TDS not deducted or payments made in cash

Explanation 3 to Section 11(1)

Thirteenth proviso to section 10(23C)

23

Anonymous donation u/s115BBC shall form part of total income

Section 13(7)

Seventeenth proviso to section 10(23C)

24

Provisions of 115TD-tax on accreted income

Applicable

Not applicable

25

Approval u/s 80G

Eligible

Eligible

26

Computation of income without giving effect of registration/approval by AO

AO can compute income without giving benefit of section 11/12 while invoking provisions of section 13

First proviso of section 143(3) subject to third proviso discussed at S.No. 13.

AO cannot compute income without giving benefit of approval unless approval is rescinded by the prescribed authority.

27

Additional exemption allowed-10(1)i.e agricultural income

Section 11 (7)

Nineteenth proviso to section 10(23C)

28

Cancellation/Rescindment of registration/approval

Section 12AB(4) &(5)

In the following cases

1. Application or investment of fund not made as per provisions

2.Activities of the institution  not genuine or not in accordance with the conditions subject to which it was approved.

3.Not complied with any other laws in force.

Fifteenth Proviso,

In the following cases

1.Application or investment of fund not made as per provisions

2.Activities of the institution  not genuine or not in accordance with the conditions subject to which it was approved.

3.Not complied with any other laws in force.

Additional Ground for Cancellation(Section 13(1))

a-Income/property for Private religious institution

b. Income/property for benefit of particular religious community or caste

c. Income/property  directly for benefit of any specified person(related party)


OBSERVATIONS


  • Institution which are registered u/s 12A and also approved u/s 10(23C), W.e.f. 01/04/2021  its registration u/s 12A shall become inoperative  from the date of approval u/s 10(23C) or 01/04/2021 which ever is later. Further, when institution applies u/s 12AB the approval 10(23C) shall cease to operate.

  • W.e.f 01.04.2022 i.e. A.Y. 2022-23, where aggregate receipts does not exceed 5 crores, educational and medical institution may take benefit of section 10(23C)(iiiad) and (iiiae) as the case may be, without obtaining approval  .

IN FAVOUR OF APPROVAL U/S 10(23C)

  1. It is more specific activity oriented.

  2. No reporting requirement in Audit report as regard to the transactions with the related persons as defined in section 13(3) in case of institution approved u/s 10(23C) . However required to be reported in case of registered institutions u/s 12 .

  3. Registration u/s 12A may be cancelled where the provisions of 13(1) applies, However no such provisions for rescindment of approval u/s 10(23C).

  4. Where any services have been provided to any related person as defined in section 13(3) or any income is applied for their benefit, exemption u/s 11/12 shall not be available. However, no such clause exists in Section 10(23C) .

  5. To claim exemption u/s 11/12, ITR must be filed within the due date as mentioned in section 13(1), However, no such clause exists in Section 10(23C).

  6. Provisions section 164(2) as regard taxability of trust/institution at Maximum marginal rate shall not apply  in case of institutions approved u/s 10(23C).

  7. Provisions of section 115TD (tax on accreted income) shall not apply on the institutions approved u/s 10(23C).

  8. AO cannot compute income without giving effect of section 10(23C) unless the approval is rescinded  by the Prescribed Authority.

IN FAVOUR OF REGISTRATION U/S 12A/AB

  1. It provides exemption for charitable, religious and even general public utility activities .

  2. In case of registration u/s 12A , such exemption shall also be available for preceding years in case any assessment proceedings are pending if the activities are same. However, no such   clause exists in Section 10(23C).

  3. Where any institution could not apply its income due to income was not received or any other reason, such amount shall be deemed to be application if specified conditions are satisfied, However, no such option available in section 10(23C).

  4. In case, accumulated income could not be applied for the purpose it was accumulated, an application may be filed to AO to allow to apply such amount to other objects of the institution. No such option available in section 10(23C).

  5. In case of capital gain from property held under the trust is utilized for acquiring another capital asset, such capital gain shall be deemed to the application in case of registered institutions. However, no suc

    h option available in section 10(23C).


DISCLAIMER

  • This document is prepared by research team of our firm to provide basic knowledge of law relating to charitable institutions.
  • For detailed insight and for better understanding of various provisions of the said law the said presentation should  be read along with related provision of the Income Tax Act,1961 and Income Tax Rules 1962.
  • Neither our firm nor any partner or an employee or an article of the firm  shall be responsible for any decision taken on the basis of said presentation and without obtaining any professional guidance or consultation of the matter for which reliance was  made on the presentation.


To Activate comments you need to provide details for google authentication and facebook authentication
  
     
150357 Times Visited