CA Dindayal Dhandaria explore the four key relief measures proposed under the Finance Bill, 2025 granting much-needed relief to charity institutions. Observing that, while these amendments are commendable, ambiguities remain, particularly regarding tracking cumulative donor contributions and eligibility of newly formed trusts for 10-year renewal, they emphasize that “Addressing these concerns through further clarifications would provide even greater certainty.” While signing off, the authors comment, “Just as devotees at Maha Kumbha Mela cherish the sacred blessings, charity institutions should welcome these reforms as drops of Amrit that ease their compliance burdens and enhance their stability"

Amendments Proposed by Finance Bill, 2025 Relating to Charity Institutions

The grand festival of Maha Kumbha Mela has captivated the world. This sacred Hindu pilgrimage traces its origins to the celestial event of Samudra Manthan, where a few drops of Amrit (the elixir of immortality) fell upon the earth at four places. In a similar vein, the Finance Bill, 2025 (“the Bill”) has been introduced, offering significant income tax relief by raising the exemption limit to Rs. 12 lakhs. Among its provisions, the Bill also grants much-needed relief to charity institutions. If one likens the Bill’s benefits to the distribution of Amrit, then indeed, a few drops have also fallen upon charity institutions, providing four key relief measures, which we shall now explore.

1. FIRST PLACE – EXTENSION OF REGISTRATION VALIDITY FROM 5 TO 10 YEARS:

Before the Finance Act, 2020 (FA 2020), charity institutions were granted perpetual registration unless cancelled. FA 2020 restructured the registration process, mandating that normal registrations be valid for five years, with a renewal requirement. Newly established charities were eligible for provisional registration for three years, without renewal, but they could apply for normal registration upon meeting specified conditions.

The Bill proposes a special category for smaller trusts, defined as those with a total income (before exemptions under Sections 11 and 12) not exceeding Rs. 5 crores in each of the two preceding years. These trusts will now be eligible for a 10-year registration renewal, instead of 5 years.

Illustration of the Amendment’s Impact:

• Existing Trusts (Pre-FA 2020): Those that transitioned to the new system under Section 12A(1)(ac) were granted 5-year registration, expiring in Assessment Year (AY) 2025-26. If classified as a smaller trust, their renewal (due by 30th September 2025) will now be for 10 years (AY 2026-27 to AY 2035-36) instead of 5 years.

• Newly Established Trusts (Post-FA 2020, Pre-2025): If a provisionally registered trust secured normal registration before 1st April 2025, it will qualify for 10-year renewal upon expiry. However, ambiguity exists for those applying after 1st April 2025, as they lack the required two-year income history.

Despite certain ambiguities, this amendment is a welcome step, reducing compliance burdens for smaller trusts and easing administrative oversight.

2. SECOND PLACE – ADDRESSING PRACTICAL CHALLENGES IN TRACKING “SUBSTANTIAL CONTRIBUTIONS”

Exemptions under Sections 11 and 12 of the Income Tax Act can be denied if a trust benefits a specified person, under Section 13(3). One such category includes individuals who have made substantial contributions exceeding Rs. 50,000 since inception of the Trust.

Clause (b) of section 13(3) contains the words “up to the end of the relevant previous year”.  Sans any starting date, these words mean that contributions received from a donor since inception of the trust (may be decades ago) are to be considered.

Maintaining donor-wise cumulative records over multiple years has posed significant challenges. Acknowledging this, the CBDT’s Circular No. 17/2023 dated October 9, 2023 provided temporary relief by limiting the requirement to contributors exceeding Rs. 50,000 in the previous year (i.e. Assessment Year 2023-24) alone.

By substituting clause (b) of section 13(3), the Bill proposes a structured revision:

• Substantial Contributor Classification: A person will be considered a specified person if their total contributions exceed:

° Rs. 1 lakh in the relevant previous year, or

° Rs. 10 lakh cumulatively across all preceding years.

Thus, the Bill proposes to prescribe two different kinds of monetary limits – one specific to the relevant previous year and another cumulative for all preceding years. 

While increasing the monetary limit is beneficial, the challenge of tracking cumulative contributions over multiple years persists. A permanent clarification akin to CBDT Circular No. 17/2023 is needed.

3. THIRD PLACE – EXCLUSION OF RELATIVES AND RELATED CONCERNS FROM SPECIFIED PERSONS

Previously, under Clauses (d) and (e) of Section 13(3), a donor’s relatives and associated concerns were also treated as specified persons, thereby restricting exemptions if they received any benefit from the trust. This created an undue compliance burden for trusts.

Recognizing this, the Bill by amending the above clauses, proposes to exclude relatives and related concerns from the specified category. This eliminates an impractical requirement and ensures that only direct substantial contributors are scrutinized, thereby simplifying compliance.

4. FOURTH PLACE – PROTECTION FROM REGISTRATION CANCELLATION FOR MINOR DEFAULTS

Under Section 12AB(4), the Principal Commissioner (PCIT) or Commissioner of Income Tax (CIT) could cancel a trust’s registration for specified violations. Among these, clause (g) included cases where a trust’s application for registration was incomplete or contained false or incorrect information.

The Bill proposes to remove “incomplete applications” from the scope of violations, ensuring that only false or incorrect information is grounds for cancellation. This amendment shields trusts from unnecessary cancellations due to minor errors, preventing unwarranted tax liabilities under Section 115TD.

CONCLUSION

The Finance Bill, 2025, offers much-needed relief to charity institutions through:

1. Extended registration validity for smaller trusts (from 5 years to 10 years).

2. Revised thresholds for substantial contributors, easing compliance.

3. Exclusion of relatives and related concerns from specified persons.

4. Protection from registration cancellation for minor application errors.

While these amendments are commendable, ambiguities remain, particularly regarding tracking cumulative donor contributions and eligibility of newly formed trusts for 10-year renewal. Addressing these concerns through further clarifications would provide even greater certainty.

The provisions of section 80G also need restructuring compatible with the proposed amendments.

Just as devotees at Maha Kumbha Mela cherish the sacred blessings, charity institutions should welcome these reforms as drops of Amrit that ease their compliance burdens and enhance their stability.

-o0o-