Budget 2024-25: FM proposes Merging of 2 Tax Exemption Regimes to One for Charities [Read Bill]

The Union Finance Minister Nirmala Sitharaman presented the full budget at 11 AM on 23rd of July 2024. The  Budget 2024 announced the simplification of taxes for charities and TDS.

At present there exists two significant tax exemption frameworks for charity in India and the budget 2024 aims at consolidating them into one, this would smoothen the process for charitable organizations.

Initiating tax simplification process the Finance Minister proposed the merging of  2 tax exemption regimes for charities into one.The 5 percent rates on many payments is being merged into 2 percent TDS rate, and the 20 percent TDS rate on repurchase of units by mutual funds or UTI is being withdrawn.TDS rate on e-commerce operations is proposed to be reduced from 1 to 0.1 percent.

The Act puts in place two main regimes for trusts or funds or institutions to claim exemption. The first is contained in the provisions of sub-clause(s) (iv), (v), (vi) or (via) of clause (23C) of section 10. The second is contained in the provisions of 30 sections 11 to 13 of the Act.

The regimes also lay down the procedure for filing applications for registration/approval and their conditions which have been aligned over the years via various Finance Acts.

 Inorder to simplify the procedure it is prayed that the first regime shall be lapsed, and funds, institutions or trusts shall be gradually transited to second regime. It is therefore proposed that;

• Applications seeking approval or provisional approval under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10, and filed on or after 1st October, 2024, shall not be considered.

• Applications filed under these sub-clauses before 1st October, 2024, and which are pending would be processed and considered under the provisions of the first regime itself.  

• Approved trusts, funds or institutions would continue to get the benefit of exemption, as per the provisions of sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10, till the validity of the said approval. 

• They would be eligible to apply for registration, subsequently, under the second regime. Amendments have accordingly been proposed in section 12A. Certain eligible modes of investment, under the first regime shall be protected in the second regime, by way of amendment in section 13.

The Finance Minister further proposed to decriminalize the delay for payment of TDS upto the due date of filing the statement of TDS. And also provide a standard operating procedure for TDS defaults and simplify and rationalize the compounding guidelines for such defaults.

The FM also said that an assessment can be reopened beyond three years from the end of the assessment year only if the escaped income is ₹ 50 lakh or more, up to a maximum period of five years from the end of the assessment year.

The Ministry of Finance in its previous years introduced simplified tax regimes without exemptions and deductions for corporate tax and personal income tax, and has now come up with a comprehensive review of the Income-tax Act, 1961 with an intent to make the Act concise, easy to read and understand, thus reducing disputes and litigation.  The merging of 2 tax exemptions will reduce tax uncertainty thus diminishing contentions and provide certainty to taxpayers.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates