The Union Budget 2017-18 has proposed a slew of changes including mandatory filing of returns and provisions to prevent misuse of funds and conduct of search operations. The step has been taken due tomany instances of misuse of funds which are owned by corporate entities. The Budget has also proposed to restrict contributions by an exempt trust from its income to another exempt entity or trust with a specific direction that it will become a part of the latter’s corpus.

Similarly, the Bill has also proposed that a trust or institution will have to seek fresh registration from the Central Board of Direct Taxes to claim tax exemption in case of any modification in its objective or purpose. Trusts will also be expected to file their return of income and within the prescribed deadline of July 31 or September 30, failing which they would lose exemption from capital gains tax under Section 11. In a follow up to last Budget’s announcement of an “exit tax” on charitable trusts that convert to for-profit entities, the Finance Bill has also clarified that for computing capital gains at the transfer of such asset of the trust or institution, the “cost of acquisition” would be the fair market value of the asset taken into account for computation of the exit tax.

My Take

While these changes are intended to improve tax administration and to prevent misuse of income tax exemption allowed to charitable trusts, however at the same time, this also gives significant additional power to tax authorities and increases compliance burden of trusts

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