Section 12A of Income Tax Act - Registration & Eligibility
Start searching for stocks
Start searching for blogs
Start searching for circulars
Start searching for news
Start searching for articles
Become a Partner
Open Demat Account
Mutual Funds Saving Schemes Equity Funds Hybrid Funds Tax FD Interest Rates Aadhaar Card Stocks Debt Funds Capital Gains RD Interest Rates Pan Card IPO See more

Introduction

Under Section 12A of the Income Tax Act, 1961, non-profit organizations such as charitable trusts, welfare societies, NGOs, and religious institutions are eligible for tax exemptions. This provision was introduced to support the operations of such entities that work towards social welfare rather than profit generation. Through Section 12A, these organizations can claim exemptions on income under Section 11 and Section 12 of the Income Tax Act.

If a non-profit entity fails to register under Section 12A, all its income and financial transactions will be considered taxable. This makes it essential for non-profit organizations to fully understand the requirements, eligibility criteria, and documentation needed for registration under Section 12A.

Eligibility Criteria for Section 12A Registration

To be eligible for registration under Section 12A of the Income Tax Act, entities must fall into specific categories defined by the Income Tax Department of India. The following types of organizations are generally eligible for registration:

  • Incorporated Trusts
  • Section 8 Companies
  • Public Charitable Trusts

Note: Private or family-owned trusts and charities do not qualify for Section 12A registration.

Eligible entities must complete an online registration process by filing Form 10A. A digital signature or Electronic Verification Code (EVC) is necessary to file the form successfully.

Steps to File Form 10A Online

Here’s how you can file Form 10A for Section 12A registration online:

  1. Log in to the Income Tax Department’s e-filing portal.
  2. Navigate to the left side of the page and select the ‘Submit Returns/Forms’ option.
  3. Use your user ID and password to log in.
  4. Under the ‘e-file’ menu, select ‘Income Tax Forms’ from the drop-down.
  5. Choose Form 10A under the ‘Form Name’ section.
  6. Select the Assessment Year and Submission Year.
  7. Provide the required details and verify them.
  8. Click ‘Submit’.

Simply submitting the form does not guarantee registration under Section 12A. The application will be reviewed by the commissioner, and necessary documents must be provided for verification.

You may also want to know Section 193 of Income Tax Act

Documents Required for 12A Income Tax Act Registration

To complete the registration process under Section 12A, applicants need to submit the following self-certified copy of themselves and documents along with it:

  • Document of establishment: Proof of the formation of the trust or organization.
  • Proof of creation: Certificate or evidence confirming the trust’s or organization’s creation.
  • Registration certificates: Registration with the Registrar of Companies (RoC), Registrar of Public Trusts, or Registrar of Firms and Societies.
  • Annual accounts: A copy of the financial accounts of the trust or institution.
  • List of activities: A detailed list of the trust or institution’s activities.
  • Previous orders: Any prior orders granting or rejecting registration under Section 12A or Section 12AA.

How to Obtain Section 12A Registration?

Once you’ve collected the necessary documents, follow these steps to apply for Section 12A registration:

  1. Apply online through Form 10A.
  2. The commissioner may request additional documents.
  3. If the commissioner is satisfied with the submission, an order for registration will be issued.
  4. If the commissioner is not satisfied, the application may be rejected in writing.

The registration process generally takes 1-3 months, depending on the complexity and the jurisdictional commissioner’s office. Under Section 12AA(2), the commissioner is required to approve or reject the application within 6 months from the end of the month in which the application was received.

Lifetime Validity of 12A Registration

Once registered, the 12A registration is valid for the lifetime of the trust or organization, provided no significant changes occur in its objectives. In exceptional circumstances, the commissioner may choose to cancel the registration.

Difference Between Section 12A and 12AA of the Income Tax Act

Section 12A and Section 12AA of the Income Tax Act, 1961, about the tax benefits and registration process for trusts, non-profit organizations, and other entities established for charitable or religious purposes. Both these sections are crucial for entities aiming to claim tax exemptions on their income. Here’s a detailed explanation of the differences between the two:

1. Purpose

Section 12A: Section 12A outlines the conditions for tax exemption eligibility for trusts or organizations. It serves as the foundational step that enables them to seek exemptions under various provisions of the Income Tax Act.

Section 12AA: Section 12AA provides the detailed procedure for the registration of trusts or organizations under Section 12A. This registration is mandatory to claim exemptions under the Act.

2. Scope

Section 12A: Focuses on laying the framework for tax exemption eligibility. It specifies the need for registration and compliance with procedural norms for an organization to qualify as a charitable institution.

Section 12AA: Deals exclusively with the procedural aspect of registering the trust or institution, ensuring it meets the criteria to be recognized under the tax exemption framework.

3. Registration Process

Section 12A: It was initially the section under which registration applications were made, but over time, Section 12AA was introduced to streamline and elaborate on the registration process.

Section 12AA: Specifies the process for registration, including:

  • Applying with the jurisdictional Commissioner of Income Tax (CIT).
  • Assessment by the CIT to verify if the trust’s activities are genuinely charitable or religious.
  • Issuance of a registration certificate if all conditions are satisfied.

4. Applicability

Section 12A: Applicable to trusts and institutions seeking tax exemptions based on their charitable or religious purposes.

Section 12AA: Focused on new entities registering for the first time or existing ones seeking to renew their registrations.

5. Tax Exemption Benefits

Section 12A: If a trust or institution is registered under Section 12A (or 12AA after its introduction), the income generated is eligible for tax exemption provided it is utilized for charitable or religious purposes.

Section 12AA: Establishes the eligibility for tax exemption through the registration process, acting as the gateway to claim benefits under Section 12A.

6. Validity of Registration

Section 12A: Initially, Section 12A registration was granted perpetually, but the introduction of Section 12AA brought periodic renewals and further scrutiny.

Section 12AA: Post-2020 amendments, registrations granted under Section 12AA require periodic renewal, ensuring that the entity continues to meet the charitable objectives and maintains compliance.

You may also want to know GST on Food and Restaurants

Conclusion

Section 12A of the Income Tax Act, 1961 offers an essential benefit to charitable and non-profit organizations by allowing them to claim tax exemptions on their income. By registering under this provision, such entities can not only reduce their tax liability but also enhance their reputation and eligibility for various grants and funding.

The process for registration under Section 12A is straightforward but requires the submission of the correct documents and compliance with eligibility requirements. Once registered, the benefits are long-lasting and can significantly help an organization in fulfilling its charitable objectives.

Frequently Asked Questions

Section 12A allows non-profit organizations to claim tax exemptions on income generated through charitable activities. This provision is critical for trusts, NGOs, and other welfare entities that seek to reduce their tax liability.

Public charitable trusts, Section 8 companies, and non-profit institutions involved in social welfare are eligible. Private and family-owned trusts, however, do not qualify.

Some of the key documents include proof of establishment, registration certificates, annual accounts, and a detailed list of activities carried out by the trust or organization.

Once granted, the registration under Section 12A is valid for the lifetime of the trust or organization unless canceled under exceptional circumstances by the commissioner.

No. Without registration under Section 12A, the trust or organization’s income becomes taxable, negating the benefits of charitable status under the Income Tax Act.

Section 12A pertains to the applicability of tax exemptions under Section 11 and Section 12, whereas Section 12AA outlines the procedural requirements for obtaining registration.

No, Section 12A registration does not require renewal and is valid for the lifetime of the organization unless canceled by the commissioner.

Explore our feature-rich web trading platform

Get the link to download the App

Download Jainam Mobile App
google play app store
trading_platform
qr-code