The registration of a charitable or religious trust under Sections 12A/12AA/12AB of the Income Tax Act, 1961, can be cancelled by the Commissioner of Income Tax (CIT) under specific circumstances. Below are the grounds, procedure, and consequences of cancellation:
1. Grounds for Cancellation of Registration
The CIT may cancel registration if:
(A) Non-Genuine Activities (Section 12AA(3))
- The trust’s activities are not genuine(e.g., fake charity, money laundering).
- The trust deviates from its stated objectives(e.g., using funds for non-charitable purposes).
(B) Violation of Section 13 (Section 12AA(4))
- Private benefitto trustees, founders, or relatives.
- Investments in prohibited modes(not complying with Section 11(5)).
- Income not used for public benefit(e.g., favoring a specific religious community).
(C) Non-Compliance with IT Act
- Failure to file ITR-7 or audit reports (Form 10B).
- Misuse of funds(e.g., diversion for personal use).
2. Procedure for Cancellation
- Show Cause Notice (SCN)
- CIT issues a notice, giving the trust a reasonable opportunity to respond.
- Hearing & Submission of Documents
- The trust must submit evidence(audit reports, activity proofs) to justify its operations.
- Final Order
- CIT passes a written cancellation orderif unsatisfied.
- The trust can challenge the orderin High Court via writ petition (no appeal to ITAT).
3. Consequences of Cancellation
- Loss of tax exemption(income becomes taxable at 30% under Section 115BBI).
- Donors lose 80G benefits.
- Penaltiesmay apply for past violations.
4. How to Avoid Cancellation?
✅ Maintain proper books & audits.
✅ Invest funds as per Section 11(5).
✅ Ensure 85% income is spent on charity.
✅ No private benefits to trustees.
Recent Update (Budget 2025)
- Incomplete applicationsfor registration will not be treated as violations.
- Provisional registrations (12AB)must be renewed before expiry.
