12A Registration in India

Have you ever come across the term “12A registration” in the Indian context? If not, let us enlighten you! This registration is crucial for NGOs or non-profit organizations in India as it exempts them from taxes. Yes, you read that right – no taxes! Imagine how much of a relief that is for organizations that work towards the betterment of society. But what exactly is 12A registration, and how does one acquire it? In this blog post, we will cover all aspects of 12A registration in India, from its definition to the process of getting it, so read on for a comprehensive guide.

1. Overview of 12A Registration for Non-Profit Organizations

Non-profit organizations like trusts and NGOs have the option to select the form of constitution such as trust, society and section 8 company. However, in order to claim exemptions under section 11 & 12 of Income Tax Act 1961, it is mandatory for all NGOs to get registration under section 12A of the act. This registration is a one-time registration, which grants exemption from payment of income tax. The registration is necessary to claim exemption under Income Tax Act, irrespective of the registration under their respective acts. Previously, registration under 12A was given for a lifetime, but from 1st April 2021, all new registration will be valid for 5 years only, and needs to be renewed after each 5 years. The procedure for obtaining 12A registration has been made exclusively online with the submission of Form 10A.

The benefits of Section 12A registration are manifold. NGOs which have obtained 12A registration can enjoy exemption from paying income tax on their surplus income. The income received will be free from the charge of Income Tax, and the fund used for charitable or religious purposes is considered as the application of the income. NGOs are entitled to receive grants as funds from domestic and international sources. These agencies are entitled to provide grants to NGOs which have obtained registration under this section. Additionally, the registration, which is granted under Section 12A, shall be treated as a one-time registration, and once made the registration will be active until the date of cancellation. There is no requirement to renew the registration periodically. Hence the registration benefits can be claimed by NGOs as and when the requirement arises.

To qualify for registration under Section 12A, the organization should meet the definition of charitable purpose as defined in the Income Tax Act. Charitable purpose means relief to the poor, education, medical relief, and activities undertaken with the objective of preserving the environment. Form 10A is a form which should be filed by entities which wish to make a registration under Section 12A. The primary qualifying criterion will be to check whether there is any profit motive involved in the activities carried on by the assessee. In the absence of a profit motive, registration shall be granted.

2. Purpose of 12A Registration

The 12A registration is a one-time registration granted by the Income Tax Department to trusts and other not-for-profit organizations in India. The primary purpose of obtaining this registration is to be exempt from the payment of income tax. This registration facility is available for all non-profit entities, and trusts and NGOs that have obtained it enjoy exemption from paying income tax on their surplus income. Being aware of Section 12A of the Income Tax Act is essential for all not-for-profit organizations. The registration benefits can be claimed by NGOs as and when the requirement arises, as the registration is treated as a one-time registration until the date of cancellation. NGOs are entitled to receive grants as funds from domestic and international sources, and agencies are entitled to provide grants to NGOs that have obtained registration under this section.

In order to qualify for registration under Section 12A, the organization should meet the definition of charitable purposes as defined in the Income Tax Act. Charitable purposes involve activities related to relief to the poor, education, medical relief, and activities undertaken with the objective of preserving the environment. Pursuing any other objective of public utility will also qualify for a charitable purpose. The absence of a profit motive is the primary qualifying criterion that needs to be checked in activities carried on by the assessee. In the absence of a profit motive, registration is granted. However, if the assessee carries on activities related to trade or commerce, then the facilitation granted under this section is restricted. In such cases, registration is granted exclusively if the receipts from the trade activity are less than twenty per cent of the total receipts of the assessee. It is imperative to understand that 12A registration is not applicable for Private or Family Trusts.

Obtaining 12A registration comes with many benefits, such as exemption from income tax, receiving grants as funds from domestic and international sources, and accumulating or setting aside income. The income used for charitable or religious purposes is considered the application of income, which refers to the expenses used for charitable or religious purposes. NGOs can also avail benefits of accumulating or setting aside income. However, the income set aside should not be more than 15% of the amount applied towards charitable or other non-commercial purposes, and the accumulation of income shall not be included in the assessee’s total income.

3. Benefits of 12A Registration

Registration under Section 12A of the Income Tax Act 1961 is a crucial step for NGOs in India. This registration enables NGOs to enjoy tax exemptions, which is beneficial in getting funds from the government or international organisations. A pre-condition for claiming these exemptions, Section 12A registration allows NGOs to get their income exempted from tax under Section 80A of the Income Tax Act. A certified application under Section 12A is vital documentation in proving an NGO’s existence and social objectives.

The benefits of Section 12A registration extend to income tax exemptions, with all an NGO’s income being tax-exempt. It also makes an NGO eligible for grants from any domestic or international governmental agency. Moreover, an NGO is liable to avail the benefits under FCRA registration.

Section 12A registration also helps to enhance the credibility and reliability of the NGO. It serves as a promising prospect under the bylaws of society and incentivises donors with the tax advantage of lowering their taxable income. Registration under Section 12A is a condition precedent for availing benefit under Section 11 and 12 of the Income Tax Act. In addition, it is not uncommon for NGOs to receive grants and financial funding from various agencies that generally make grants only to 12A registered NGOs.

It is essential to note that registration under Section 12A does not imply simultaneous approval under Section 80G. Section 80G approval has to be applied for separately. The main benefit of NGO registration under Section 80G is that donors to a registered NGO are entitled to reduce the amount they donate from their total taxable income.

In conclusion, Section 12A registration for NGOs in India has become all the more important given the recent Finance Act 2014’s amendments. The benefits under Section 11 and 12 can now apply to trusts or institutions for all the pending assessments on the date of such registration, subject to certain conditions. Thus, it is a crucial step for NGOs wishing to carry out charitable work in India.

4. Criteria for Qualifying for 12A Registration

To for the 12A registration under the Income Tax Act, non-profit organizations must meet certain eligibility criteria. These entities must be engaged in social welfare activities such as charitable trusts, welfare societies, NGOs, and religious institutions. However, private or family-owned trusts and charities are ineligible for this registration. The primary qualifying criterion is that the activities carried out by the organization should not be motivated by profit. The objective should be to benefit the public genuinely. To be considered eligible for registration, the organization should meet the definition of charitable purpose as defined in the Income Tax Act, which includes activities aimed at providing relief to the poor, education, medical relief, preserving the environment, and pursuing any other objective of public utility.

The Income Tax Department of India requires non-profit organizations to fill out Form 10A online and provide a digital signature or an electronic verification code. It is essential to note that filing this form alone does not guarantee registration. The commissioner verifies the applications and requires necessary documents for the verification process. Therefore, applicants must submit self-certified documents that attest to the establishment of the trust or organization, proof of creation, alteration of objects, registration with the Registrar of Companies or Registrar of Public Trusts, and annual accounts, among others.

Organizations that obtain the 12A registration enjoy multiple benefits, such as exemptions from income tax on their surplus income. The surplus income used for charitable or religious purposes is considered as income application and calculated regarding taxable income. NGOs can receive grants from domestic and international sources, and the registration is treated as a one-time registration valid until cancellation. The organization can accumulate or set aside 15% of the total amount applied towards non-commercial purposes for availing benefits. Therefore, it is necessary for non-profit organizations to become familiar with the eligibility requirements and documents and the registration process for obtaining the 12A registration.

5. Procedure for Obtaining 12A Registration

To 12A registration, a non-profit organization must meet the definition of a charitable purpose as defined in the Income Tax Act, such as relief to the poor, education, medical relief, preservation of the environment, and public utility. It is necessary to apply for this registration immediately after incorporation, as it is a one-time registration and provides exemption from paying income tax on surplus income. The procedure for obtaining 12A registration involves filing Form 10A online, which should be done with a digital signature of the founder or author of the trust. Keep in mind that 12A registration is not applicable for private or family trusts, and if an organization carries out activities related to trade or commerce, the facility granted under this section is restricted.

Section 12A Registration provides benefits such as exemption from paying income tax, the ability to accumulate or set aside income, and the entitlement to receive grants from domestic and international sources. The registered organization’s activities must be genuinely for the benefit of the public, with no profit motive involved. The income received will be free from the charge of Income Tax, and the fund used for charitable or religious purposes will be considered the income application. NGOs that have obtained 12A registration can avail themselves of the registration benefits as and when required, with no requirement to renew it periodically as it is a one-time registration that holds good until cancellation.

From April 1, 2021, new registration under Section 12A will be given for 5 years only, after which the organisation has to apply for renewal. An application for fresh registration under Section 12A will be given to the Principal Commissioner or Commissioner, and a provisional registration for 3 years will be provided. The registration once granted shall be valid for three years from the Assessment Year from which the registration is sought, and the application for renewal needs to be submitted at least six months prior to the expiry of validity period. Existing registered NGOs are required to apply for re-validation within three months from April 1, 2021, in Form No. 10A, which shall be valid for 5 years. The procedure depends on the type of registration and the changes made to the objectives clause of the organization.

6. Online Filing and Digital Signature Requirements

NGOs and other not-for-profit organizations can obtain 12A registration to be exempted from paying income tax. This one-time registration is generally applied for immediately after incorporation, and it enables NGOs and trusts to enjoy exemption on their surplus income. The facility of Section 12A Registration is available for all non-profit entities. It is important to note that the funds used for charitable or religious purposes are considered to be the application of income, and the income application is used to calculate the taxable income of the entity.

NGOs can alsoNGOs and other not-for-profit organizations in India can apply for 12A registration to be exempted from paying income tax on their surplus income. This one-time registration is granted by the Income Tax Department and can be applied for immediately after incorporation. To qualify for registration, the organization should meet the definition of charitable purpose as defined in the Income Tax Act. The registration benefits can be claimed by the NGOs as and when the requirement arises, and there is no need to renew the registration periodically.

The process for applying for Section 12A registration has been made exclusively online. Entities need to file Form 10A to make an application under Section 12A. For making an application, the digital signature of the founder or author of the trust should be affixed. Hence, digital signature requirements must be fulfilled before applying for registration.

The online filing process has eased the registration process significantly, and applicants can fill the form in a hassle-free manner. The online platform also helps organizations to track the status of their application quickly. The process for online filing is possible only with an active Digital Signature Certificate (DSC), which is issued by the Controller of Certifying Authorities.

A DSC is a secure digital key used to sign electronic documents. It contains information about the holder’s name, pin, public key, and expiration date. A DSC ensures authenticity and integrity while filing online applications. Hence, obtaining a DSC is mandatory for entities looking to make an application under Section 12A.

Overall, online filing and digital signature requirements have made the registration process quicker and more accessible. NGOs and other not-for-profit organizations can take advantage of these technologies to obtain their 12A registration and enjoy the tax benefits associated with it.

7. Renewal Requirements for 12A Registration

To be exempted from the payment of income tax, trusts and other not-for-profit organizations in India need to obtain 12A registration. This one-time registration is granted by the Income Tax Department, and it is generally applied for immediately after incorporation. To continue enjoying the benefits of 12A registration, renewal is required periodically. Unlike the initial application process, renewal can be an offline process.

To be eligible for the renewal of 12A registration, a trust or not-for-profit organization needs to meet the definition of charitable purposes, as defined in the Income Tax Act. The renewal process requires the submission of certain documents, such as the application in Form 10A and copies of the trust deed, PAN card, and the address proof of the entity. Additionally, any amendments made to the trust deed or other significant changes should also be reported to the Income Tax Department within a month of such changes.

It is essential to note that the renewal process for 12A registration is not as stringent as the initial registration process. However, any discrepancies in adhering to the conditions of the approval or registration can result in the rejection of the renewal application. Additionally, the Income Tax Department may conduct an inquiry or audit on the organization’s activities to ensure that the funds are being utilized solely for the charitable purposes.

Renewal is a critical process to maintain the benefits of 12A registration. If a trust or not-for-profit organization fails to renew in time or renews beyond the expiry date, it would require a fresh application for registration. Therefore, all registered entities should be aware of the expiry period and initiate the renewal process in advance to avoid any consequences. Renewal enables organizations to continue their charitable work and avail of the benefits granted by Section 12A of the Income Tax Act.

8. Documents required for 12A Registration in India

To register under the provisions of Section 12A of the Income Tax Act, a non-profit organization has to submit certain documents. These documents are crucial for the grant of registration by the Income Tax Department. The foremost document required for 12A registration is the trust deed or the memorandum of the non-profit organisation. This document contains information about the objectives of the organisation, rules and regulations governing its operations, and details about the trustees or board members. The trust deed should also include clauses that indicate that the operations of the organisation are for charitable purposes only.

Apart from the trust deed, the organisation needs to submit a copy of the registration certificate issued by the Registrar of Societies or any other recognised authority. Also, proof of the organisation’s existence, such as a water bill, electricity bill, or property tax receipt, should be submitted along with address proof. The Income Tax Department will verify the organisation’s existence and its operations based on these documents. The organisation also needs to submit a copy of the PAN card, bank statement, and audited financial statements for the previous three years.

Additionally, if the organisation has applied for any grants or donations, it should present a copy of the receipt, so that the Income Tax Department can verify the utilisation of the funds. The organisation also needs to provide an affidavit stating that the activities have been carried out without any profit motive and that the income and assets will be used solely for charitable purposes. Finally, the organisation needs to submit Form 10A, the application form for 12A registration. The form needs to be filled online and requires digital signature of the founder or author of the organisation. By submitting these documents, the non-profit organisation can apply for 12A registration, which is essential for availing the benefits related to income tax exemptions.

9. Frequently Asked Questions about 12A Registration in India

What is Section 12A and Section 12AA?

Section 12A of the Income-tax Act 1961 (ITA) provides for the registration of trusts, NGOs, welfare societies, religious institutions, and Section 8 companies to claim complete tax exemptions under Sections 11 and 12 of the ITA. Section 12AA provides for online registration of trusts. NGOs are diverse groups of organizations engaged in a wide range of activities and take different forms in different parts of the globe. Some may have charitable status while others may be registered for tax exemption based on recognition of social purposes.

What is the difference between Section 12AA and newly introduced Section 12AB?

The newly introduced Section 12AB mandates that NGOs registered under Section 12AA must reapply to obtain new registration. These benefits are available for a period of five years, and in case of new registration, provisional registration is provided for a period of three years. NGOs are required to provide evidence of activities undertaken by them during the five years or three years in order to renew their registration. Details of overseas contributions/donations are required to be disclosed, and donor-wise details must be maintained and furnished in a press release. NGOs are required to maintain a complete record of their donors.

What are the benefits of 12A registration for NGOs?

NGOs that register under Section 12A can claim complete tax exemptions under Sections 11 and 12 of the ITA. They can receive a tax rebate of 15% on their income provided they plough back such money into charity or welfare activities. They must register under Section 12A to receive grants from the Central or State governments.

What happens if an NGO is not registered under Section 12A?

If an NGO engaged in welfare activities is not registered under Section 12A of the ITA, its receipts or financial dealings will come under the tax purview. Any amount received as a donation will not be exempted from tax but will be liable to pay tax as prescribed in the IT Act on the total amount received.

What are the time limits for registration under Section 12A and Section 12AB?

Sub-clause of clause (ac) of Section 12A (1) provides a time limit for filing an application for registration. Trusts or institutions already registered under Section 12A or 12AA must migrate to Section 12AB by April 2021.

What are the amendments made in the Finance Act 2022 and 2020?

The Finance Act 2022 proposes to amend the provisions of Section 12A. If the total income of the trusts, NGOs or welfare institutions exceeds the basic exemption limit, they are required to maintain books of accounts and other documents in such form and manner and place as may be prescribed as per the income tax rules. If incomes are not entirely applied towards charitable activities in a particular year, such funds not applied become taxable in that year. Trusts/institutions need to ensure that expenses pertaining to or accrued in the current year be paid by March 31, 2022, in order to treat such expenses as application of income in the current year. Specified incomes would be taxable at a flat rate of 30% without reduction of any expenditure/allowances or set off of losses.

What are the benefits under Section 80G for NGOs registered under Section 12AA?

NGOs registered under Section 12AA can apply for registration under Section 80G to avail of various privileges available within the context of tax exemption. They can enjoy the benefits of tax exemptions for a period of five years, and their donors can avail of benefits under Section 80G. NGOs must maintain a complete record of their donors.

What are the consequences of not complying with the provisions of Section 12A?

If NGOs fail to comply with the provisions of Section 12A, their receipts or financial dealings will be subject to tax. Any amount received as a donation will not be exempted from tax but will be liable to pay tax as prescribed in the IT Act on the total amount received. NGOs must comply with the provisions of Section 12A to claim complete tax exemptions under Sections 11 and 12 of the ITA.

When should NGOs register under Section 12AA?

NGOs should register under Section 12AA to claim complete tax exemptions under Sections 11 and 12 of the ITA. They must reapply for new registration under Section 12AB before December 31, 2020, and provide evidence of activities undertaken by them during the five years or three years in order to renew their registration. They must also disclose details of overseas contributions/donations and maintain donor-wise details.