12A registration is a one-time registration which is granted by the Income Tax Department to trusts and other not for profit organisations. The purpose of the registration is to be exempted from the payment of income tax. 12A registration is generally applied for immediately after incorporation. Section 8 Companies, Trusts and NGOs which have obtained 12A registration enjoy exemption from paying income tax on their surplus income. The 12A registration facility is available for all non-profit entities. Hence, it is necessary for all Trusts, NGOs and other Not-for-Profit organisations to be aware of Section 12A of the Income Tax Act. The purpose of the present article is to discuss the procedure for obtaining 12A registration.
Benefits of 12A Registration
The benefits of Section 12A Registration are the following:
- The fund used for charitable or religious purposes is considered to be the application of the income. The income application refers to the expenses used for charitable or religious purposes for calculating the taxable income of the not-for-profit organisation.
- The income received will be free from the charge of Income Tax.
- The person who is registered under Section 12A can avail benefits for accumulating or setting aside income. However, the income which is set aside should not be more than 15% of the amount applied towards charitable or other non-commercial purposes.
- The accumulation of income which is considered to be the income application shall not be included in the assessee’s total 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.
- The registration which is granted under Section 12A shall be treated as a one-time registration. Once the registration is 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 NGO as and when the requirement arises.
Eligibility for 12A Registration
- In order to qualify for registration under Section 12A, the organisation 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. The pursuit of any other objective of a public utility will also qualify for a charitable purpose.
- 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.
- If the assessee is carrying on activities related to trade or commerce, then the facility 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.
- Also, it may be noted that 12A Registration is not applicable for Private or Family Trusts. The activities of the assessee should be genuinely for the benefit of the public.
Form 10A is a form which should be filed by entities which wish to nake a registration under Section 12A. The process for applying for Section 12A registration and the process of Form 10A filing has been made exclusively online. The process of making online filing is possible only with a digital signature. For making an application under Section 12A, the digital signature of the founder or author of the trust should be affixed. To obtain registration under Section 12A, an application in Form 10A for registration of a charitable or religious trust or institution can be made. The application should compulsorily be made in the online mode. The application shall be addressed to the Commissioner of Income Tax along with the necessary documents.
Documents Required for 12A Registration
- A self-certified copy of the instrument which was used to create the trust or establish the institution shall be submitted.
- The institution or trust may have been created otherwise than by way of drafting and registering an instrument. In such cases, a self-certified copy of the document evidencing the creation of the trust, or establishment of the institution should be submitted to the Income Tax Department.
- It is necessary to submit a self-certified copy of the registration, which was made with the applicable body. The applicable body may be the Registrar of Companies, the Registrar of Firms and Societies or Registrar of Public Trusts.
- A self-certified copy of the documents which provide evidence for adoption or modification of the objectives of the entity shall be submitted.
- Annual financial statements for three preceding financial years
- Note on the activities conducted by the entity
- In certain cases, the Income Tax department may cancel the registration granted under this section. After rectifying the default, the assessee is allowed to make a subsequent application. In such cases, it is necessary to submit a self-certified copy of the existing order granting registration.
- The assessee may have previously applied for registration under this section. The application may have been rejected. In such cases, a self-certified copy of the order of rejection should be attached with the application.
Procedure for Obtaining 12A Registration
- The assessee is required to submit the application in the required format online. After the application has been submitted, the Commissioner may request the applicant to submit additional information or documents as needed. 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.
- The Commissioner may be satisfied with the application. In such cases, the Commissioner will pass a written order mentioning that the assessee is eligible to obtain registration under the section. The written order is forwarded to the assessee. On receipt of the order, the assessee can obtain the privilege of registration under the section.
- The commissioner may not be satisfied with the application. In such cases, the right is available with the Commissioner to reject the application. The assessee should be informed in writing of the reason for the rejection.