Under Income Tax Act 1961, “Section 12A” is the one time exemption granted to the Trusts and other Non-Profit Organizations (NGO’s) to claim full exemption from Income Tax. It is mandatory for a trust to get registration under Section 12A immediately after incorporation to avail exemptions under Income Tax. Hence it is important for trust, NGO’s and Section 8 companies to be aware of Section 12A and to get registered under Section 12A.
Eligibility for 12A Registration
- Only trusts and other charitable organizations and Section 8 companies formed to provide benefits to the public are eligible for section 12A registration.
- The benefit of 12A registration is not available to private or family trusts. The activities of the trusts should be beneficial to the public.
Benefits of 12A Registration
- The fund applied by the trusts for charitable purposes is considered as “Application of Income”. The Application of income refers to expenses used for charitable purposes when calculating the income of the trusts.
- The income received by the trusts from such activities will be exempted from income tax.
- The person who is registered under Section 12A can obtain a benefit of accumulating or setting aside of income, which should not be more than 15% of the amount spend towards charitable or other non commercial purposes.
- The accumulation of income that is considered to be income application under section 11(2) should not be included in total income.
- The registration obtained under section 12A is one time registration. Hence once obtained it will be active until the date of cancellation of such registration and there is no need for renewal of registration.
- An organization registered under section 12A is eligible for various government and private sector grants.
- Organizations registered under 12A are also eligible for availing benefits under section 80G. However, NGOs have to separately apply for 80G registration.
How to Apply for 12A Registration Online – Form 10A
In order to obtain 12A registration, the entities should file Form 10A. The process for applying 12A registration and Form 10A should be made online only with the digital signature of the signatory. If you are not required to own digital signature to file your income tax return online, you can file Form 10A electronically through electronic verification code. The application for Section 12A registration is officially filed with the jurisdictional Commissioner of Income Tax with the necessary documents.
Documents Required for 12A Registration
The following documents are required to be furnished along with application Form 10A:
- Where the trust is created, or the institution is established, under an instrument, self-certified copy of the instrument creating the trust or establishing the institution.
- Where the trust is created, or the institution is established, otherwise than under an instrument, self-certified copy of the document evidencing the creation of the trust, or establishment of the institution.
- Certified copy of registration with RoC/Registrar of Firms & Societies/Registrar of Public Trusts, whichever applicable.
- A self-certified copy of the documents which provide evidence for adoption or modification of the objectives of the entity shall be submitted.
- where the trust or institution has been in existence during any year or years prior to the financial year in which the application for registration is made, self certified copies of the annual accounts of the trust or institution relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up; note on the activities of the trust or institution.
- Certified copy of existing order granting registration under section 12A or section 12AA, if any.
- Self-certified copy of order of rejection of application for grant of registration under section 12Aor section 12AB, as the case may be, if any.
Procedure for Obtaining 12A Registration
Once, the application is submitted in the required format online, the Commissioner will request the applicant to submit additional information or documents, as the Commissioner sees fit. The Commissioner may make the request in case there is a need to satisfy the Income Tax Department about the genuineness of the activities undertaken by the trust.
If the commissioner satisfied with the application, he may pass a written order registering the trust under section 12A of the Income tax act. In case the commissioner is not satisfied, he can also pass the order refusing to register the Trust or institution. The assessee should be informed in writing of the reason for the rejection.
As per the provisions of Section 12AA(2), every order granting or refusing registration, shall be passed by the registering authority before the expiry of six months from the end of the month in which the application was received.
In short registering under the 12A section allows the NGO exemption from tax rates. Failing to do will make them applicable for ITR filling. Section 12A deals with registration of trust and section 12AA deals with procedure for registration of trust. Once a Trust obtains registration, it is valid for the lifetime of the Trust and there is no requirement for renewal.