12A registration is a one-time exemption, which is a permission granted to trusts, NGOs, and Section 8 companies by Income Tax Act, 1961. Organizations involved in charitable and non- profit activities do earn income and are required to pay taxes as standard rates if not registered under Section 12A.
This article discusses the procedure for getting registration of 12A.
What are the benefits of 12A registration in India?
The funds used for charitable purposes are considered to be the application of income; this refers to the expenses used for charitable purposes for calculating the taxable income of the NGOs;
The income received is exempted from paying tax;
The person can avail the benefit for setting aside income. The income set aside should not be more than 15% of the amount towards charitable purposes.
Once registration is done, it is valid for a lifetime until cancelled.
Who are eligible for 12A registration in India?
What are the documents necessary for 12A registration in India?
Documents Required for Registration of 12A-
A self-attested copy of the instrument which has to be used to create the trust should be submitted.
A self-attested copy of the document supporting the formation of the trust has to be submitted to the Income Tax Department.
A self-attested copy of the registration, which was done with the applicable body.
A self-attested copy of the documents to provide evidence for the adoption or modification of the objectives of the company.
Annual financial statements for three preceding fiscal years
The activities conducted by the company
In some instances, the Income Tax department may cancel the registration granted. After correcting the default, the assessee is allowed to make a subsequent application.
What is the process for 12A Registration in India?
The process for registering 12A-
The application is mandatory to be filed along with Form 10A and Rule 17A of the Income Tax Act, 1961 and submit it to the Commissioner of Income Tax.
Next step is to submit the necessary documents for 12A registration. The documents are-
List of trustees;
Address proof of trustees;
Pan of trustees;
Registration certificate;
MoA and AoA;
Pan of NGO.
Once the documents are submitted, the next stage is an inspection by a Tax Officer. During the investigation, Income Tax Department officials may ask for any additional materials.
On successful verification and auditing of documents, 12A certification is granted by the Income Tax Commissioner.
Whom application for registration under Section 12A has to be made?
The submission of application for registration has to be done with the Jurisdictional Principal Commissioner or Commissioner of Income Tax.
What are the circumstances for Cancellation of Registration granted?
Registration granted as per Section 12A can be cancelled in below circumstances:
If the activities of trust or institution are not genuine.
If the activities are not carried out as per the objectives of the trust.
Trust income does not withstand for the benefit of the general public.
The benefit to any particular religious community or caste.
Any income of the trust is for the benefit of specified persons.
Its funds are invested in forbidden modes.
“It is however said that registration will not be cancelled if the trust proves that there was reasonable cause for carrying out activities.”
What are the Terms and Guidelines for NGOs associated with 12A registration?
There are some terms and guidelines associated with Section 12A:
If NGOs are working for a particular community, then the NGO will be excluded from the tax exemption.
If the NGO or trust has their own business through which they have another income, then they are not eligible.
Cash donations accepted by the donors should be only Rs 2,000.
Amounts beyond Rs 2000 should be done through electronic transfer.
The trusts and NGOs should maintain account books and receipts regularly; otherwise, they will be non-eligible for the exemption.
The NGO should be registered under the Societies Registration Act,1860.
Conclusion
Section 12A registration helps NGOs to take exemption from paying taxes. Trust and organization which does not earn a profit are eligible under the act. There are numerous documents which are necessary to fill the form. Once the form is submitted, and the essential documents are verified, the registration is applicable for a lifetime. Charitable trusts, along with people who donate their incomes up to 50% can avail benefit under the Income Tax Act. In case of any query, contact Corpbiz.