Procedure for registration under Section 12AA of the Income Tax Act 1961.
Updated: Oct 4, 2022
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Section 12AA of the Income Tax Act 1961, registration is done to receive an exemption from Income Tax. All income of the organization cannot be taxed once this registration is done. Form 10A is used to fill out the application form for 12AA registration. The Commissioner of the Income-tax Department who holds the jurisdiction over the institution is responsible to process your application for registration under section 12AA. Exemption on Income Tax is available for all NGOs but only those who are aware of it and can take benefit from it. Hence, to entertain the benefit of the exemption limit, it is necessary for all NGOs, Trusts, and other Not-for-Profit organizations to be aware of Section 12AA of the Income Tax Act.
Benefits of 12AA Registration
The fund which you are planning to use for charitable or religious purposes will be regarded as an income application. In layman's terms, income application is considered an expense that is incurred by the trust on charity or for religious purposes.
The final income received will be exempted from tax
An organization or person who is registered under this section can take the advantage of an accumulation of income that cannot exceed 15% for charitable or religious purposes.
Section 11(2) considers the accumulation of income as an application of income hence it is not included in the total income.
NGOs enjoy the benefit of receiving multiple permits from the government and other agencies. Some agencies provide financial support to NGOs and these agencies usually prefer to make a grant to 12AA registered NGOs.
Registration done under Section 12AA is a one-time process. Once the registration is done, it remains valid till the date of cancellation of the registration. 12AA registration does not need to be renewed hence it can be considered a benefit avail by the NGOs.
Documents Required for 12AA Registration
12AA registration applicant needs to submit the following documents along with Form 10A:
The instrument’s self-certified copy which was used in the process of creating a trust or establishing the institution shall be submitted.
The foundation or trust may have been made in any case than by method for drafting and registering an instrument. In such cases, a self-attested copy of the document confirming the creation of the trust, or foundation of the institution ought to be submitted to the Income Tax Department.
Provide a self-attested copy of the registration, which was made with the pertinent body. The relevant body might be the Registrar of Companies, the Registrar of Firms and Societies, or the Registrar of Public Trusts.
A self-certified copy of the document which serves as evidence at the time of adoption or during alteration of the objective of the entity shall be submitted.
Financial report of the trust/institution for a maximum of three preceding financial years.
Note on activities which entity perform
There are a few cases that may force Income Tax Department to cancel the registration issued under this section. Though once the assessment has resolved the issue he can file for the subsequent application. In such a scenario the applicant needs to submit a self-certified copy of the existing order issuing the registration.
In case the assesses application has been dismissed, he needs to attach a self-certified copy of the order of rejection with the application.
Eligibility Criteria for obtaining 12AA Registration
One of the primary criteria to receive registration under Section 12AA is that the purpose behind the existence of the organization is to do a charitable job as defined in the Income Tax Act. Indulging in charitable activities includes providing education, medical relief to the poor, and performing activities with the motive to prevent the environment.
Before giving any registration certificate under Section 12AA governmental authorities will check whether there is any profit motive involved in conducting the activities, if not, registration under Section 12AA is granted.
If the assessee is involved in activities like trade or commerce, then the services offered under this section remain includes limited. In such cases, registration is granted only to those applicants whose receipts from the trade activity are less than twenty percent of the total receipts of the assessee.
Private or Family Trust are not eligible to apply for Section 12AA registration.
Registration Procedure for Obtaining 12AA Registration
Once you have applied in the prescribed format available online, the Commissioner will ask you to submit additional documents as per the additional requirements. The request for further verification of the documents will help in proving the genuineness of the activities of the organization.
If the Commissioner is happy with the application, then he/she will register the Trust or Institution under Section 12AA, all the Commissioner has to do is pass an order for the registration process to begin.
The provision of Section 12AA(2) states that registering authority shall pass the order of granting or refusing registration before the expiry of six months from the end of the month in which the application was received.
All things considered 12AA registration is 1 to 3 months long in India. In any case, when a Trust acquires registration, it is legitimate for the lifetime of the Trust and there is no necessity for renewal.
Cancellation Of Registration Of Trust Or Institution Under Section 12AA(3)
the Principal Commissioner or Commissioner in the wake of giving a reasonable chance of being heard to the concerned trust or foundation passes a request under Section 12AA(3) in written canceling the registration under the accompanying two conditions:
the actions of a trust or foundation are not veritable, or;
the actions are not being done as per the objects of the trust or foundation.
Cancellation Of Registration Under Section 12AA (4)
to defend the provisions related to the cancellation of registration of trust, section 12AA(4) was embedded to give that where a trust or a foundation has been conceded enrollment, and in this way, it is seen that section 13(1) is applicable as its activities are being done in such a way, that
it is for the advantage of a specific religious community or caste (if it is set up after the beginning of the Income-tax Act);
any salary or property of the trust is applied for advantage of determined people like the owner of trust, trustees, and so on.; or
its assets are put resources into restricted modes,
at that point, the Principal Commissioner or the Commissioner may choose to pass an order in writing stating the cancellation of registration of such trust or institution.
In any case, registration will not be dropped under Section 12AA(4) if such trust or foundation proves that there was a genuine reason to conduct the above-mentioned, activities.