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12A Registration

12A registration is one time exemption obtained by mosts Trusts, right after incorporation to be exempted from paying income tax. Trusts and NGOs having 12A registration enjoy exemption from paying income tax on the surplus income of the Trust or NGO. Income tax exemption is available for all non-profit NGOs. Hence, it is important for all Trusts, NGOs and other Not-for-Profit organizations to be aware of Section 12A of Income Tax Act and obtain the same, soon after incorporation of the Trust or NGO. In this article, we look at the procedure for obtaining 12A registration in India.

The activity of an NGO is towards the society and is normally for public utility and charitable purpose. It is very difficult if not possible to arrange funds for such noble work. It is precisely because of this income of NGOs are normally exempted from Income Tax. However, there are certain rules and regulations and guidelines which an NGO must follow to get such exemption.

The most important rule relating to this is registration of the NGO under the Income Tax Act. Section 12A of the Income Tax Act deals with application for registration.

NGO can get exemption from tax on NGO’s income under section 12A. Income of an organization is exempted if NGO has 12-A registration. All income shall not be taxable after 12-A registration. This is one time registration. If the NGO is not registered, income tax is payable on surplus during the year.

This exemption is available for all non-profit NGOs. Unfortunately, many NGOs have not applied for this even after 10-15 years of working. This delay can be forgiven if you apply with sufficient reasons.

Applying for 12A Registration

haritable Trusts, Religious Trusts, Societies and Section 8 Companies claiming exemption under Section 11 and 12 of the Income Tax Act, must obtain 12A registration. Private or family trusts are not allowed such exemptions and cannot obtain 12A registration. To obtain 12A Registration, an application for registration of charitable or religious trust or institution under clause (aa) of sub-section (1) of section 12A of the Income-tax Act, 1961 must be made to the Commissioner of Income Tax along with the following documents:

Application for 12A Registration in Form 10A.
List of name and address of the Trustees.
Copy or Registration Certificate with Charity Commissioner or copy of application.
Notarized True Copy of the Trust Deed.
Copy of PAN Card of the Trust.
Copy of PAN Card of the Trustees.

Benefits of 12A Registration

1. Income will be exempted for taxation.
2. Benefits in taking grants from Govt./Abroad/ other Agencies.
3. Benefit in FCRA registration.


FAQ

1. What is section 12-A of Income Tax Act. ?
Ans. -
Income of an organization is exempted if NGO has 12-A registration. All income shall not be taxable after 12-A registration. This is one time registration.

2. What Is section 80-G of Income Tax Act. ?
Ans. -
If an organization has obtained certification under section 80-G of Income Tax Act then donors of that NGO can claim exemption from Income Tax. This is not one time registration. This needs to get renewed after validity period.

3. Q. When an organization can apply for registration under section 12A and BUG of Income Tax Act?
Ans. - Application for registration under section 12A and 80G can be applied just after registration of the NGO.

4. Where to apply for registration under section 12A and 80G of Income Tax Act?
Ans. -
Application for registration under section 12A and 8OG can be applied to the Commissioner of Income-tax (Exemption) having jurisdiction over the institution.

5. Can both the applicatlons under section 12A and 80G of Income Tax Act be applied together?
Ans. -
Yes ! Both applications can be applied together or it can also be applied separately also. If some organization is willing to apply both applications separately, then application for registration u/s 12A will be applied first. Getting 12A registration is must for applying application for registration
u/s 80G of Income Tax Act.

6. Generally what is the timeline for getting registration under section 12A and 80G of Income Tax Act?
Ans. -
If application for registration under section 12A and 80G will be applied through NGO Factory, it should take 3 to 4 months.

7. What is the procedure for getting registration under section 12A and 80G of Income Tax Act?
Ans. -Step-1:
Dully filled-in application will be submitted to the exemption section of the lncome Tax Department.
Step-2: NGO will receive notice for clarifications from Income Tax Department in 2-3 months after applying.
Step-3: Reply of notice will be submitted by the consultant along with all relevant desired documents to the Income Tax Departments.
Step-4: Consultant will personally visit the Income Tax Departments to follow-up the case on behalf of the applicant organization.
Step-5: Exemption Certificates will be issued.

8. What is the validity period of the registration under section 12A and 80G of Income Tax Act?
Ans. -
12A registration : Lifetime validity
80G registration : 1 to 3 years validity

9. What application forms are being used for applying for registration under section 12A and 80G of Income Tax Act?
Ans. -
12A registration : Form 10A
80G registration: Form 10G (For New Application and Renewal both)

10. What are the conditions on Section 80G?
Ans. -
There are few conditions to be fulfilled under the section 80G:
  • The NGO should not have any income which are not exempted, such as business income. lf, the NGO has business income then it should maintain separate books of accounts and should not divert donations received for the purpose of such business.
  • The bylaws or objectives of the NGOs should not contain any provision for spending the income or assets of the NGO for purposes other than charitable.
  • The NGO is not working for the benefit of particular religious community or caste.
  • The NGO maintains regular accounts of its receipts & expenditures.
  • The NGO is properly registered under the Societies Registration Act 1860 or under any law corresponding to that act or is registered under section 25 of the Companies Act 1956.

11. What is Tax Exemption limit on donations?
Ans. -
There is a limit on how much money can be exempted from the Income Tax.
  • If the amount of deduction to a charitable organisation or trust is more than 10% of the Gross Total Income computed under the Act (as reduced by income on which income-tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), then the amount in excess of 10% of Gross Total Income shall not qualify for deduction under section 80G.
  • The persons or organisation who donate under section 80G gets a deduction of 50% from their taxable income. Here at times a confusion creeps in, that the tax advantage under section 80G is 50%, but actually it is not so. 50% of the donation made is allowed to be deducted from the taxable income and consequently tax is calculated.
  • The ultimate benefit will depend on the tax rates applicable to the assessee. Let us take an illustration. Mr. X an individual and M/s. Y Pvt. Ltd., a Company both give donation of Rs.1,00,000/- to a NGO called Adarsh. The total income for the year 2003-2004 of both Mr. X and Ms. Y Pvt. Ltd. is Rs. 2,00,000/-. Now assuming that the rates are 30% for the individuals and 40% for the Companies without any minimum exemption limit.

Documents reguired for registration u/s 12A AND 80G:

1. Dully filled in Form - 10A for registration u/s 12A registration;
2. Dully filled in Form - 10G for registration u/s 80G registration;
3. Registration Certificate and MOA /Trust Deed (two copies - self attested by NGO head);
4. NOC from Landlord (where registered office is situated);
5. Copy of PAN card of NGO;
6. Electricity Bill / House tax Receipt /Water Bill (photocopy);
7. Evidence of welfare activities carried out & Progress Report since inception or last 3 years;
8. Books of Accounts, Balance Sheet & ITR (if any), since inception or last 3years;
9. List of donors along with their address and PAN;
10. List of governing body I board of trustees members with their contact details;
11. Original RC and MOA /Trust Deed for verification;
12. Authority letter in favor of NGO Factory;
13. Any other document I affidavit / undertaking I information asked by the Income Tax department

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