• MERWIN RICHARD

Conditions for applicability of sections 11 and 12.

Updated: Sep 30

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Introduction

Once the Trust organization or NGO is established, they have to register as per Section 12A of the Income Tax Act for claim exemption under Section 11 and 12 of the Income Tax Act. Section 12A enables non-profit entities such as Charitable Trusts, Non-Profit organizations, Welfare Societies, Religious Institutions, etc. to claim full tax exemption as per Section 11 and 12 of the Income Tax Act, 1961. The non-profit entities do not work for profit, but rather for the welfare of the people and society, and are hence called non-profit organizations. As their work is considered a selfless act and they essentially do the work that the government ought to do, they are provided with tax exemptions. If any non-profitable trust or NGO has not registered for 12A, their financial receipts or transactions would be considered taxable. Private or family trusts are not allowed such exemptions and cannot obtain 12A registration.


The eligibility criteria for the registration of Section 12A are set by the department of income tax. As per the criteria the incorporated trusts, Section 8 companies, and societies that provide public welfare and do not earn a profit through them are considered eligible for Section 12A registration. The trusts or societies can be religious, welfare, and charitable to be eligible for the same. The trusts or societies which are private or only owned by the family are not eligible for Section 12A registration. Once the trust or the organization is eligible, they must fill out the 10A form through an online application. The digital signature is required for the applicant's trust or organization to file 10A. The 10A form can also be filed electronically through the electronic verification code.


Registration Documents Required Under Section 12A Income Tax Act

While registering for Section 12A, along with the 12A application form other key documents are required for the trusts, societies, and organizations. The documentation required is:

  1. Copy of registration with the registrar of companies or public trusts or firms and societies

  2. Self-certified copy of establishment of trust or organization

  3. Evidence supporting documents of the establishment of the trust or society

  4. Self-attested document copies of yearly account of the trust or society

  5. The trust or society should provide a note which has complete details of the activities

  6. The trust, society, or organization should provide a self-certified document having existing order granting registration under Section 12Aor Section 12AA

  7. They should also provide a self-certified copy of the application rejection order for the grant of registration.

What are the benefits under Section 12A?


The donor can receive tax exemption on the donated amount if the trust or NGO where the donation is done is being registered with Section 80G. When the donor donates from their income towards the trust or NGO, they can get a tax exemption on that amount. Section 12A registered trusts or NGOs can also receive multiple benefits under the registration of Section 80G. By registering for Section 80G, trust and NGOs tend to increase their value and respect due to which donors are more confident and able to donate large amounts to them. Donors feel a sense of humanity and satisfaction by donating to such renowned trusts or NGOs. The government funds and grants are easily available to such trusts and NGOs which are registered with Section 12A and Section 80G. The donor can donate only 50% of their total income to receive the tax exemption.


What are the terms and guidelines for NGOs and Charitable Organizations?


Even if the trusts and NGOs are registered, there are some terms and guidelines related to Section 12A and Section 80G. These are:

  • If charitable organizations registered as NGOs are working for a specific caste or community, then the NGO will be disqualified from the exemption of tax.

  • If the NGO or trust has other business through which they have other income then they are not eligible for the exemption.

  • The trusts and NGOs should only accept cash donations to an amount of Rs 2,000 from the donors.

  • Amounts exceeding Rs 2000 should be done through electronic transfer or cheque.

  • These trusts and NGOs should regularly maintain account books and receipts otherwise will be non-eligible for the exemption.

  • The NGO should also be registered under the Societies Registration Act of 1860 or Section 8 Company Registration Act of 2013.

The grants received from the government and other agencies are beneficial for such trusts and organizations. Such grants can be used for infrastructure development, basic facilities, health and hygiene, and the overall welfare of society. These are registered under Section 12A, which exempts them from paying income tax.

  • The charitable trust or NGO should spend more than 85% of its income on welfare or religious purposes to get tax exemptions.

  • They should be registered with Section 12A and Section 80G to gain exemption from tax on the generated income.

  • The main expenditure should be on education, medical, health and sanitation, and general relief of the needy. Other practices include conservation of the environment, history, and arts, improving standards of public utilities, and general awareness.

Sections 12A and 80G are the most appreciable Sections in the Income Tax Act which directly and indirectly provide a lot of benefits to society. The only requirement that trusts and NGOs should fulfill is that they should follow the guidelines provided in these Sections. Various trusts and NGOs which are registered under these Sections provide maximum overall benefits to the economic development of the country through their constant social welfare. It is necessary for trusts, NGOs, and societies involved in religious or social welfare work to get themselves registered under Section 12A of the Income Tax Act by the Department of Income Tax, Government of India.


Conclusion

We can understand that Section 12A helps a few non-profit organizations to get exempted from paying taxes. Trusts and organizations that don’t earn a profit through working are eligible under this act. Various documents are required for one to file the form under this section. However, once the form is filled and the necessary documents are verified, the registration is applicable for a lifetime. Charitable trusts and organizations along with people who donate their incomes up to 50% can benefit under this section of the Income Tax Act. All the registered organizations under this section need to continue to work for the welfare of this country as per the Government of India.

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