The Income Tax Act has served as a medium to formalize acts of charitable giving in Indian Society. A trust maybe created for various purposes such as for the benefit of certain class or classes of people, but as per the Income Tax Act, a trust is considered to be a charitable trust when the objects of the trust are meant for the benefit of the public and not for the benefit of any individuals or a group of individuals.
The simplest acts of kindness are by far more powerful than a thousand heads bowing in prayer
– Mahatma Gandhi
Every religion propounds charity. The act of selfless giving is considered to be above all other humane acts. To give a solid foundation to this idea, the Indian Income Tax Act has long advocated specific rules for the taxation of Trusts.
The Income Tax Act has served as a medium to formalize acts of charitable giving in Indian Society. A trust maybe created for various purposes such as for the benefit of certain class or classes of people, but as per the Income Tax Act, a trust is considered to be a charitable trust when the objects of the trust are meant for the benefit of the public and not for the benefit of any individuals or a group of individuals.
Presently, though the registration process of any public charitable trust is managed by respective state governments, the taxation benefits such as 12A registration and 80G are regulated by the Central Government through Income Tax Department.
Recently, Tamilnadu Government in order toregulate the operations of the trust.
Tamil Nadu Public Trusts Bill:
The Tamil Nadu state government has now introduced a bill proposing a Public Charitable Trusts Act at the state level called The Tamil Nadu Public Trusts Act, 2020. The main objective of this Act would be to govern and regulate Trusts at the state level. The Act is considered to resemble several provisions of The Bombay Public Trusts Act but without a Charity Commissioner and that role will be played by the Registrar of each District. Surprisingly, there seems to be no provision for mandatory conduct of meetings which might figure separately in the Rules.
The salient features of the proposed Act are:
1. Any new public trust which is being created must mandatorily be registered under this Act.
2. For public trusts in existence as of September 2020, registration under this Act must be done within a period of 3 months.
3. The public trust shall cease to exist after a period of 4 months if such registration is not complete or such application is disposed of, whichever is earlier.
4. An application must be submitted to the registrar of the district where the principal place of the trust is and activities are being carried on with such other details regarding the trust. Such application shall be accompanied by a fee of Rs. 5,000/-.
5. On receipt of the application made by the applicant, the registrar shall make an inquiry including giving a public notice. The Registrar shall make entries in his register that the findings are final and conclusive.
6. If there are any changes required in the entries made by the registrar, the working trustee within a period of 90 days may request the Registrar for such change in the manner prescribed.
7. Where the trust properties are located in more than one district, the Registrar shall send copies to the Collector of other districts where trust properties are situated and this shall be recorded in the register of that district.
8. The following persons stand disqualified for an appointment as or for being a trustee in public trusts:
a. Convicted by a criminal court for Moral turpitude.
b. Not a citizen of India
c. Less than 25 years of age, unless he is a hereditary trustee.
d. Undischarged insolvent
e. Of Unsound mind
f. Has been removed from service from a CG, SG or by local authority
g. Acted in adverse interest to the public trust.
h. Has arrear of any kind due by him to any public trust.
i. Where proclamation has been issued against him under Sec 82 of Cr. PC
9. All monies of the trust other than money required for day to day expenditure shall be kept in a scheduled bank or a Post office Savings bank or any bank registered under the TN Cooperative Societies Act. The Registrar may permit the trust to invest the money in such other manner.
10. The accounts of the trust should be audited by a Chartered Accountant and shall be sent to the registrar. Where, the gross annual income of the trust exceeds Rs. One Lakh, it shall in such form and manner submit to the Registrar, a budget showing the probable receipts and disbursements of trust property during the following year.
11. In the case of a public trust created by a will, the registration under this Act maybe done before a period of 3 months where the probate of the will is granted and in cases where the probate of the will is not required, the registration shall be done within a period of 6 months.
12. Transfer/sale of immovable property to be done only with prior consent of Registrar.
The fine print of the enacted law may throw additional points for discussion.
Income Tax Act:
There have been various changes surrounding the law governing Charitable Trusts. The 2020-21 Union budget made several revisions to the provisions with the major change being that all charitable trusts and exempt institutions which are already registered under Sec 80G, 12A or 12AA of the Income Tax Act, 1961 will now be required to obtain fresh registration by December 31, 2020. All trusts registered under Sec 12A or 12 AA will also be required to obtain fresh registration under Sec 12AB within three months, starting October 1, 2020. As per the TL Relaxation and other amendments Act, 2020 which is tabled in the parliament, the due date for registration under Section 12AB has been extended till June 30, 2021. All such fresh registrations will be valid for a period of 5 years only as against the current model of perpetual registration.
The last feature may need to be analysed as under the Income Tax Act, one of the conditions stipulated is that any transfer of immovable property shall be with the prior permission of commissioner of income tax. In this apparent conflict between the state Act and a Central Act’s provision, we may need to wait and see which proviso will override the other.
A thorough reading of both, changes in central provisions as well as the introduction of a new state level Act to govern trusts is indicative of increased compliance requirements for trusts. Increase in the filing and regulatory requirements would also indicate an increase in administrative costs. However trusts are typically the custodians of public money and therefore owe it to the public to maintain a high level of transparency in operations. While the administration of trusts may have become a little more tedious and costly, the end result will surely be more transparent and financially healthy in the long run.