Exemption on Income Tax is the primary purpose of 12AA Registration. NGOs who are aware of these tax exemptions are taking benefits. All income of an establishment cannot be taxed at once after registration under section 12AA is completed.
Why is 12AA Registration Required?
Income tax exemption is the primary goal of registration under section 12AA. After 12AA registration, a business establishment's gross income will not be taxed at once by the government. Application form for registration under section 12AA is filed in form 10A. The application will be processed under section 12AA by the Commissioner of Income Tax Department, who has the authority over the institution. Tax exemptions benefits are available for all the NGOs, but only who are aware these exemptions are taking benefits, so it becomes essential for all the NGOs, trusts, and Non-Profit organizations to complete every step of 12AA registration.
What is Form 10A?
Form 10A is filed for the Application for 12AA registration under section 12AA of the Income Tax Act. All Non-profit organizations such as Religious Trusts, Charitable Trusts, Social Service Societies, and section 8 companies are qualified for 12AA under section 12AA. Form 10A filing with 12AA registration is an online procedure which requires the digital signature of the applicant.
Benefits of 12AA Registration
Eligibility Criteria for 12AA Registration
Any enterprise that wants to complete registration under section 12AA must be a non-profit organization defined by the Income Tax Act. The non-profit organization includes religious trusts, free education, social service societies, medical relief societies, environment societies, etc.
Before providing a registration certificate for completion of registration under section 12AA, government authorities check if there is any motive of profit is involved; if not, then the registration certificate will be provided by the authorities under section 12AA.
If the entity registering under section 12AA is conducting activities like trade or commerce, the benefits of this registration are limited compared to the no-profit organization. If an entity involved in commerce or trade activities, then the receipts must be less than 20% of the total revenues.
Registration under section 12AA, private or family trusts is not allowed.
Required documents for 12AA registration
Form 10A is submitted along with the following documents:
Instruments Self-Certified Copy
Certified copy of Instruments that were used in the process of establishing the institution will be submitted.
Proof of Creation
By the methods of drafting and registering an instrument, the foundation or trust may be made for any reason. Documents confirming the trust creation must be self-attested and submitted to the Income Tax Department through prescribed procedure.
Copy of Registration
Self-attested copy of the registration granted by the appropriate body like Registrars of Companies, Registrar of Firms & societies, or Registrar of Public trust must be submitted.
The objective of The Entity
Self-certified copy of the documents that provide a depth detail of the entity's objectives must be submitted.
Financial Report
Institutions or trusts financial reports of the last three fiscal years must be submitted.
Activities detail
Details of all the activities performed by the entity must be submitted.
Cancellation of Registration
In some cases, the authority cancels the 12AA because some formalities are not completed as per the Income Tax Department. After resolving the issue, the registration application can be filed again, but a self-attested copy must be submitted along that by the applicant.
12AA Registration Procedure
The first step is to fill the online application in the prescribed format by the applicant. Then the Commissioner of the Income Tax Department will ask for the submission of the additional documents as per the requirement. The other documents help in proving the authenticity of the activities of the firm.
If Commissioner found application is as per the prescribed norms, then the institution or trust will be registered under section 12AA. Commissioner passes an order, to begin with, the registration process.
The time limit of passing the order if the 12AA application is accepted or rejected is six months from the day application was received as per section 12AA(2)of the Income Tax Act.
The registration process takes a maximum of three months to complete. Once the registration is completed, there is no need for renewal as it is valid for a lifetime.
Cancellation of 12AA Registration
A trust or an establishment is allowed to do registration under Section 12AA(1)(b) or has attained certification under Section 12AA. According to the Finance Act, 1996, the Chief Commissioner or the Commissioner of Income-tax department can cancel the registration under the following sub-sections:
Cancellation of Registration Under Section 12AA(3)
The Chief Commissioner or Commissioner by giving a reasonable chance of being heard to the trust or an establishment can pass an order under Section 12AA(3) for cancellation of registration under two conditions:
When the activities of a trust or an establishment are not genuine, or;
When the activities are not conducted as per the objectives provided by the trust ora foundation.
Cancellation of Registration Under Section 12AA (4)
Section 12AA(4) was entrenched to give that where a trust or an establishment has been approved enrolment to protect the provisions connected to termination of registration of a trust. Section 13(1) is applicable if the activities are done in a way, that
It is for the benefit of a precise religious community or caste in any event that occurred after the Income Tax Act was enacted.
Salary or property of the trust is used for the advantage of the owner of the trust, trustees, and so on.; or
Assets of the trust are invested or used in restricted modes,
The Chief Commissioner or the Commissioner may pass an order in writing affirming the cancellation of the trust or establishment registration.
Registration will not be cancelled under Section 12AA(4) if the trust or establishment proves a sincere reason for doing the above-stated actions.
Conclusion
Income tax exemption is the primary goal of 12AA registration. Application form for 12AA registration is filed in form 10A. All Non-profit organizations such as Religious Trusts, Charitable Trusts, Social Service Societies, and section 8 companies are qualified for 12AA registration under section 12AA. If the entity registering under section 12AA is conducting activities like trade or commerce, the benefits of this registration are limited compared to the no-profit organization. The process is online for 12AA registration.