10(23C) REGISTRATION- ALL YOU NEED TO KNOW.

10(23C) Registration- All you need to know.

10(23C) Registration- All you need to know.

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Introduction

Various institutions are exempted to pay taxes on their revenues because they work for a greater social cause and not merely for the sake of profits, such as the Prime Ministers National Relief Fund. Several other funds and schemes initiated by the government of India come under this purview. Clause 23(C) of section 10 of the Income Tax Act provides for exemption of income received by various NGOs as well as medical institutions and universities as specified in the sub-clauses of the section.

This blog will provide all the information regarding the most recent amendment in this section, the registration process for the exemption, the conditions to be followed, the registration procedure, the documents required, and all the necessary details.

The Government of India amended the first provision and second provision of Section 10(23C). By way of inserting clause (ac) under sub-section (1) of Section 12A of the Act through Finance Act, 2020 the government of India required that all existing institutions should make fresh applications with the Principal Commissioner or Commissioner for seeking approval or registration in the prescribed form, as the case may be. The Central Board of Direct Taxes (‘CBDT’) through a notification on 26 March 2021 has brought in the forms for a new scheme for trusts which comes into effect from 1 April 2021.

Section- 10[(23C)(iii ad)] provides that income received by any university or other educational institution existing solely for educational purposes and not for profits, shall be exempted if the aggregate annual receipts of such university or educational institution do not exceed the prescribed amount of annual receiptsof 1 crore.
Section 10[(23C)(iii ae)] provides that income received by any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for profit-making, shall be exempted if the aggregate annual receipts of such institution do not exceed the prescribed amount of annual receiptsof 1 crore.


Increase in threshold limit after amendment.

The above threshold limit of Rs. 1 crore has been increased to Rs. 5 crores. This means that the income of educational and medical institutions will now be exempted up to an aggregate annual receipt of Rs. 5 crores. Such institutions will now be required to obtain necessary approvals under Income Tax Act only when their receipts exceed Rs. 5 crores.



Educational Institutions/medical Institution with annual receipts exceeding Rs. 5 crore:

Exemption in the case of an educational institution having receipts exceeding Rs. 5 crore is governed by Section 10[(23C) (vi)] which states that income earned by any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iii ab) or sub-clause (iii ad), shall be exempted if they are approved by the prescribed authority. Thus, where the aggregate receipts of the institution exceed Rs. 1 crore, the institution needs separate approval for claiming the exemption u/s 10(23C).

Finance Act, 2020 has replaced the existing registration process with a completly new process which involves the filing of online application for registration and grant of approval under section 10(23C) of the Act.

Fund or trust or institution or university or other educational institution or hospital or other medical institution under clause (i) or clause (ii) or clause (iii) or clause (iv) of the first provision to clause (23C) of Section 10 (‘Non-profitable entities’), would be required to file application under substituted Rule 2C of Income-tax Rules, 1962 as amended by the Income-tax (6th Amendment) Rules, 2021.
Under the amended process, approval shall be granted for a period of 5 years, and the Non-profitable entities will be required to re-apply for registration in the manner and the period as prescribed in the provision of the Act.
Existing Non-profitable entity which is already approved under the erstwhile provisions of the Act is also required to make an application for registration in the prescribed form within 3 months from 1stApril 2021, however, no enquiries shall be made in such case for grant of registration.


The fund, trust or institution covered under section 10[(23C) (iv)], (v), (vi) and (vi a) should satisfy the following additional conditions to claim exemption under this section:

At the time of making the application under form no. 56 or 56D, it should furnish all such documents including audited annual accounts and certain specific information which the central government or the prescribed authority consider necessary to satisfy themselves about the genuineness of the activities of the fund, trust, institute, etc. The authorities may make any enquiries which they deem fit and necessary on this behalf.
(a.) all its income should be applied, or accumulated for application, fully and exclusively to the objects and cause for which it was established and if there is a case where more than 15% of its income has been accumulated, the period of the accumulation of the amount exceeding 15% of its income shall in no case exceed 5 years; and
(b.) it should not invest or deposit its funds for any period during the previous year otherwise than in any one or more of forms or mode specified in section: 11(5). However, the following are the exceptions to the above requirement of funds to be invested as per provisions of section 11(5).
where assets held form part of the corpus of the fund, trust or institution or any university or other educational institution or any hospital or other medical institution as of 1.6.1973;
where the asset, being equity shares of a public company, held by any university or other educational institution or any hospital or other medical institution which form part of its corpus as on 1.6.1998.
where assets (being debentures issued by, or on behalf of, any company or corporation), were acquired by the fund, trust or institution or any university or other medical institution before 1.3.1983;
where there is an accretion to the shares, forming part of the corpus mentioned in sub-clause (i) and (ii) above, by way of bonus shares allotted it;
where voluntary contributions are received and maintained in the form of jewellery, furniture, or any other article as the Board may, by notification in the official gazette, specify;
where a voluntary contribution is received in kind, it has not been held in a mode other than 11(5) after the expiry of one year from the end of the previous year in which such asset is acquired.


Registration

An application for fresh registration under section 10(23C) will be given to Principal Commissioner or Commissioner. A provisional registration for 3 years will be given to the organizations. The registration once granted shall be valid for three years from the Assessment Year from which the registration is sought. Application for renewal of such new registration needs to be submitted

At least six months before the expiry of the validity period or.
Within 6 months from commencement of activities, whichever is earlier.
The provisional registration so granted shall be valid for 3 years and hence needs to be renewed at the end of the above-mentioned timelines. The registration so renewed shall be valid only for 5 years and needs to be renewed at the end of each 5 years


Migration of existing registrations

All registered NGOs are required to apply for re-validation in Form No. 10A, Registrations so re-validated will be valid only for 5 years. The application for the renewal of registration, after five years, needs to be submitted at least six months before the expiry of the validity period. The renewal application will be submitted in Form No. 10AB.

Where an organization’s registration has become non-operative due to simultaneous exemptions in various other sections [10(23C)] in that case it has to reapply under section 12AB. The registration will be given for 5 years, has to be renewed every five years. The application is to be submitted at least 60 months before the expiry of registration.


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