On May 5, 2016, the Lok Sabha passed the Finance Bill 2016. The Bill which was presented originally in the Lok Sabha on February 29, 2016 has not been passed in its original form. Various changes have been made in the Bill and new amendments have been proposed while some earlier proposed amendments have been removed.
Where charitable organizations are concerned, the following is of interest:
Tax on Accreted Income of Trusts
The Finance Bill, 2016 proposed to insert a new Chapter XII-EB, containing Section 115TD, 115TE and 115TF, under the Act to provide that 'accreted income' of a trust or institution registered under section 12AA shall be chargeable to tax at the maximum marginal rates in following circumstances:
a. If the trust or institution gets converted into any form which is not eligible under section 12AA;
b. If the trust or institution gets merged into any entity which is not eligible under section 12AA;
c. If the trust or institution, in case of dissolution, fails to transfer its assets to exempt entities under section 12AA and section 10(23C) (iv), (v), (vi) & (via).
The difference between the fair market value of the assets and liabilities of the trust or institution would be treated as 'accreted income' and tax thereon shall be paid in addition to the income-tax chargeable in respect of the total income of such trust or institution.
The Finance Bill, 2016 as passed by the Lok Sabha makes certain changes in the proposed Section 115TD, as under:
A. Assets which don't form part of accreted income
A proviso is inserted in Section 115TD to provide that the value of the following assets shall not be taken into consideration while computing the 'accreted income':
a. Any asset acquired by a trust or institution out of its agricultural income.
b. Any asset acquired by the trust before getting registered under section 12AA provided that no exemption under section 11 or 12 is provided to trust or institution during that period.
B. Time-limit to pay tax on accreted income
As per section 115TD, a trust or an institution shall be deemed to have been converted into any form not eligible for registration under section 12AA in a previous year on occurrence of following events:
a. when registration granted to it under Section 12AA has been cancelled; or
b. It has adopted or undertaken modification of its objects which do not conform to the conditions of registration and it:
· has not applied for fresh registration under Section 12AA in the said previous year; or
· has filed application for fresh registration under Section 12AA but the said application has been rejected.
It was proposed under Finance Bill, 2016 that the tax on accreted income shall be payable within 14 days from date of receipt of order cancelling registration or date of order rejecting application for fresh registration.
The Finance Bill, 2016 as passed by the Lok Sabha has proposed new time-limit for payment of tax on accreted income. It has been prescribed that tax on accreted income shall be paid within 14 days from:
aa. the date on which the period for filing appeal before ITAT against the order cancelling the registration (or order rejecting the application) expires, if no appeal has been filed by the trust or the institution; or
bb. the date on which the order in any appeal, confirming the cancellation of the registration (or application), is received by the trust or institution.
Validity of registration obtained under section 12A
The Finance Bill, 2016 as passed by the Lok Sabha has made a clarificatory amendment to provide that registration under section 12AA shall include any registration obtained earlier under section 12A.
The bill will now require approval of the Rajya Sabha after which it will be sent to the President for his Assent and on receipt of assent the same will become and act applicable from the date of its notification in the official gazette.
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