Significant changes to Section 12AB of the Income Tax Act, 1961

The Finance Act, 2025 has brought about significant changes to Section 12AB of the Income Tax Act, 1961, primarily aimed at rationalizing provisions for charitable trusts and institutions and easing their compliance burden. Here are the key changes:

Extension of Registration Period for Smaller Trusts:

Previously, trusts and institutions were granted registration for five years (or provisional registration for three years).
The Finance Act, 2025 extends this period from five years to ten years for eligible small trusts and institutions.
Eligibility: This extension applies if the total income of the trust or institution, without giving effect to the provisions of Sections 11 and 12, does not exceed ₹5 crores during each of the two previous years preceding the year of application for renewal or fresh registration.
Effective Date: This change applies from April 1, 2025 (Assessment Year 2025-26).
Impact: This is a significant relief for smaller charitable organizations, as it reduces the frequency of re-registration applications and associated compliance efforts.

Rationalization of "Specified Violation" for Cancellation of Registration:

Feature	Before Amendment (Prior to Finance Act, 2025)	After Amendment (Finance Act, 2025)
Section	Explanation to Section 12AB(4), clause (g)	Explanation to Section 12AB(4), clause (g) (amended)
Definition of "Specified Violation"	Included cases where "the application referred to in clause (ac) of sub-section (1) of section 12A is not complete or it contains false or incorrect information."	Includes cases where "the application referred to in clause (ac) of sub-section (1) of section 12A contains false or incorrect information."
Grounds for Cancellation	Registration could be cancelled if the application for registration was incomplete OR contained false/incorrect information. Even minor omissions or incomplete details could lead to cancellation.	Registration can only be cancelled if the application for registration contains false or incorrect information. Incomplete applic-ations, in themselves, will no longer be a ground for cancellation.
Impact	High risk of cancellation for charitable organizations due to administrative oversights, minor errors, or incomplete data in the application. Severe consequences including taxation of accreted income.	Reduced compliance burden and risk of cancellation for genuine charitable organizations. Protects them from penalties for inadvertent administrative errors.