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May 15, 2021

How to get Provisional Registration for Trust without Starting Charitable Activities?

by Mahesh Mara in Income Tax

How to get Provisional Registration for Trust without Starting Charitable Activities?

Under the existing provisions of the Income-tax Act, exemption from income-tax in respect of the income of a charitable trust is available with respect to satisfaction of certain conditions. In order to get exemption from Income Tax the foremost condition is to make an application for registration of the charitable trust in the prescribed form and in the prescribed manner to the Commissioner of Income-tax (Exemptions) within the specified time. The Commissioner of Income-tax (Exemptions) further shall call for documents and information and enquire with regards the genuineness of the charitable trust.

Once the Commissioner of Income-tax (Exemptions) is satisfied about nature of the objects and genuineness of the activities of the trust or institution, than he will passes an order granting registration and in case Commissioner is not so satisfied, he will passes an order refusing registration, after providing an opportunity of being heard to the applicant before passing of an order of refusal to grant registration and mention the reasons for refusal of registration in the order. Further, the order granting or refusing registration has to be passed within six months from the end of the month in which the application for registration is received by the Chief Commissioner or Commissioner and a copy of such order is sent to the applicant.

What is the Form in which new trust shall make application for registration?

The application for registration shall be made in the following Form, namely:- Form No. 10A in case of application under sub-clause (i) or (vi) of clause (ac)of sub-section (1) of section 12A to the Principal Commissioner or Commissioner authorised by the Board; or

(ii) Form No. 10AB in case of application under sub-clause (ii) or (iii) or (iv) or (v) of clause (ac) of sub-section (1) of section 12A to the Principal Commissioner or Commissioner under the said clause.

The normal/final registration shall remain valid for a period of five years – as per the provisions discussed for an already registered trust under new regime of 12 AB. Trusts provisionally registered u/s 12AB of the Act Earlier of the following:

(i) 6 months prior to the date of expiry; or

(ii) Within 6 months of commencement of activities.

What are the documents to be accompanied along with the Application?

Refer this link for the list to be accompanied along with the Form 10AB

What will be the status of pending applications as at 1st April 2021?

An application which is pending for registration as on 01st April 2021, the same will be considered as an application pending under the new provisions of section 12AB. No separate application is required to be made for such pending application. The registration will be given within three months but the registration will be a provisional registration and will be valid for a period of three years. The pending application shall be at par with a fresh registration for a newly established trust.

What is the Time limit for making application for new registration u/s 12AB for a newly established Trust?

New Trust who wishes to claim exemption u/s 11 and u/s 12 are mandatorily required to obtain registration under the Income Tax Act in by filing Form No. 10A along with the prescribed documents as mentioned above. As per Section 12A(1)(ac)(vi), the time limit for making an application for new registration is at least 1 month prior to the commencement of the previous year relevant to the assessment year from which approval is sought. Thus the application for new registration must be made one month prior to the commencement of the relevant previous year from when exemption is sought. As per the law, the trust should have made an application in the month of February to take benefit of tax exemption from the same financial year.

Is exemption available on the income in case of provisional registration?

In case of provisional registration the exemption shall be available immediately from the assessment year from when the provisional registration is granted. When a newly established trust is granted a provisional registration then the said trust shall be eligible to claim exemption from the assessment year immediately following the financial year in which application is made.

What is the time period till which the registration will be valid?

In case of a newly registered Trust, the trust will be granted provisional registration and that too for a maximum period of three years. At the end of the first three years, the trust needs to be converted to normal or final registration which shall have a validity of 5 years. This registration shall remain valid for a period of five years and to be renewed after every 5 years as per provisions of the act for an existing trust. Further, there is no provision so far in the Act to extend the period of three years further. Hence, the Trust must commence the charitable activities within this period. Since the application for normal registration is required to be made within 2.5  years, charitable activities must be commenced by that time as while granting the normal provision u/s 12AB this factor will be seen.

What is the provision for Cancellation of Provisional Registration under Income Tax act?

Once a newly established trust or institution is provisionally registered under section 12AB for a period of three years then it needs to apply for a normal/regular/final registration as stated above. Only at that time, provisional registration can be cancelled if the PCIT/CIT is not satisfied with the genuineness of its activities, its objects and compliances under any other law. Once provisional registration is cancelled, provisions of section 115TD shall apply.

What is the mode of Furnishing of application and how to verify it?

a. Furnishing of application

Form Nos. 10A or 10AB, as the case may be, shall be furnished electronically, — (v)       under digital signature, if the return of income is required to be furnished under digital signature; (vi)     Through electronic verification code in a case not covered under clause (i).

b. Verification of form

Form Nos. 10A or 10AB, as the case may be, shall be verified by the person who is authorised to verify the return of income under section 140, as applicable to the applicant.

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