Charitable trusts having a tough time under new regulations, seek more time
New Delhi, Sep 13, 2023
Lakhs of charitable trusts operating from modest offices with uninterested trustees are facing the challenge of reporting their details online by September end, The Economic Times (ET) has reported. Employees at these trusts are struggling to figure out a way to report large volumes of data.
The government has asked these trusts to share the identities of relatives of trustees, settlors, and substantial contributors, along with information about electronic and other modes of payments. Moreover, they need to detail donations made by foreigners separately, even if they made their donations in rupees, the report said.
Challenge for trusts
While large trusts belonging to rich sports bodies and multi-speciality hospitals have the arrangements to meet these regulations, most trusts, that volunteers and part-time employees manage are having a tough time dealing with the new regulations that came into force this year, the ET report added.
What do the experts say?
Partner at a CA firm, Gautam Nayak told ET, "The new detailed audit reports for charitable trusts are too complex and burdensome. Most genuine trusts will find it difficult, if not impossible, to furnish all the required details, given their limited resources. Some of the reporting requirements are more burdensome than those for businesses in tax audit reports."
Even a small mistake in reporting can result in a loss of exemption for the trusts, Nayak added.
The Chamber of Tax Consultants and the Bombay Chartered Accountants' Society have requested the finance ministry to defer the new reporting forms (of 10B, 10BB). Failure to accurately report the number could lead to action against the auditor as well as their clients.
For example, if a trust spends in activities that are not under its objectives or fails to apply for renewal of licence at least six months in advance, the trust will run the risk of losing its registration, the report said. The disclosure standards are more stringent for trusts with a gross income of Rs five crore or above.
What are exemptions for charitable trusts?
India's income tax laws have been soft on charitable trusts and they have enjoyed preferential treatment since 1886. The new disclosure rules have been introduced at a time when the judiciary has said that a charitable trust should pass two tests before being granted any tax exemption, one, a trust is 'solely' devoted to the purpose it was established for and second, are its charges --- whether to impart education or provide health services reasonable mark-ups over the costs? These two factors have added further complexity, the ET report added.
The rationale behind new regulations
The new rules have been introduced to weed out bad actors. An industry expert told ET that many trusts are paying the price for money laundering and issuance of fake receipts by some trusts.
[The Business Standard]
