In a significant move by the Central Board of Direct Taxes (CBDT), a new circular has been issued which could be a sigh of relief for many trusts and institutions. On March 5, 2024, the CBDT released Circular No. 02/2024, addressing a key concern for the assessment year 2023-24. This brief article aims to decode the circular in a straightforward, point-wise manner for the benefit of our readers.
Background
What is it about? The circular pertains to trusts and institutions that mistakenly submitted the wrong audit report forms for the assessment year (A.Y.) 2023-24. It offers them a chance to correct their submissions.
Key Dates: The deadline for rectification is set for March 31, 2024.
Eligibility for Tax Exemption
Who does it apply to? The circular is relevant for certain funds, trusts, educational institutions, hospitals, etc., which enjoy tax-exempt status under specific clauses of section 10 of the Income-tax Act, 1961.
Condition for exemption: One main rule for keeping this tax-exempt status is that these entities must audit their accounts and submit a report if their income exceeds a certain threshold.
Audit Report Forms
The Forms: Two forms are mentioned - Form No. 10B and Form No. 10BB. Each form applies to different situations based on the income, foreign contributions, or overseas expenditures of the trust or institution.
Recent Changes: The use of these forms (Form No. 10B and Form No. 10BB) started with the A.Y. 2023-24, based on new rules effective from April 1, 2023.
The Issue at Hand
The Problem: It's been observed that many trusts and institutions filed their audit reports using the wrong form for A.Y. 2023-24. Some used Form No. 10B when they should have used Form No. 10BB, and vice versa.
The Implication: Filing the wrong form could lead to a loss of tax-exempt status because correctly submitting the audit report is a condition for maintaining this exemption.
The Solution
CBDT's Response: Recognizing the confusion and potential hardship, the CBDT has allowed affected trusts and institutions to rectify their mistake. They can resubmit the correct audit report form (either Form No. 10B or Form No. 10BB, as applicable) by March 31, 2024.
Who Can Rectify: This opportunity is open to entities that initially submitted the incorrect form on or before the original deadline of October 31, 2023.
Conclusion
This move by the CBDT is a welcome one, as it shows understanding and flexibility towards the genuine mistakes made by trusts and institutions in adapting to the new reporting requirements. It is crucial for affected entities to take note of this circular and ensure they comply with the revised submission deadline to maintain their tax-exempt status. If you're part of a trust or institution that's affected, consider this your reminder to act swiftly and consult with a tax professional to ensure your submission is correct this time around.
