Section-12AA of Income tax act

 

Introduction

 

NGO is a Non-Governmental Organization wherein a voluntary group of people with a common interest performs a variety of humanitarian deeds. The central aim of an NGO is to seek help of the Government and resolve public issues with its association. There are various types of NGO’s, namely Section 8 Company, Trusts and Society that works for the welfare of our nation. Such organizations can avail various rewards like Income Tax exemption by registering under Section 12AA. This write-up will provide complete knowledge about Documents Required for 12AA registration, eligibility, advantages, procedure etc.

What is 12AA Registration?  

As per Section 12AA of Income Tax Act, 1961, any Registered NGO is exempted from paying Income Tax on the surplus income, which is known as 12AA Registration.

It is the preliminary step that an NGO needs to take after its Incorporation to relish benefits from  Income Tax department. Once registered, the NGO gets a 12AA Certificate that helps it to accumulate funds from the Government and international sources. Moreover, 12AA Certificate also serves as a legal proof of NGO’s existence.

​

Benefits of 12AA Registration

• The fund which you are planning to use for the charitable or religious purpose will be regarded as income application. In layman term, income application is considered as an expense which is incurred by the trust on charity or on religious purpose.

• The final income received will be exempted from tax

• Organization or person who is registered under this section can take the advantage of accumulation of income which cannot exceed 15% for the charitable or religious purposes.

• Section 11(2) consider accumulation of income as application of income hence it is not included in the total income.

• NGOs enjoy the benefit of receiving multiple permits from government and other agencies. There are agencies that provide financial support to NGOs and these agencies usually prefer to make grant to 12AA registered NGO’s.

• Registration done under Section 12AA is a onetime 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 as a benefit avail by the NGOs.

 

Documents Required for 12AA Registration

​

• 12AA registration applicant needs to submit the following documents along with Form 10A:

• Instrument’s self-certified copy which was used in the process of creating 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 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 maximum three preceding financial year.

• Note on activities which entity perform

• There a few cases which may force Income Tax Department to cancel the registration issued under this section. Though once the assessee has resolved the issue he can file for the subsequent application. In such a scenario it is essential for the applicant to submit a self-certified copy of the existing order issuing registration.

• In case assessee application has been dismissed, he needs to attach a self-certified copy of the order of rejection with the application.

 

Eligibility for 12AA Registration

​

In order to register under Section 12AA, an organization has to meet the conditions mentioned below:  

• The NGO has to pursue all the charitable activities which are defined in the Income Tax Act. The term charitable implies to the welfare of poor, enhancing education, medical development and other activities to preserve the environment. 

• The primary criteria to reject or accept the NGO Application is by checking whether the organization has any personal profit-generating motive or not. 12AA Registration Certificate shall only be granted to the NGO which has no profit motive.

• If the assessee carries out any activities of trade or commerce, then the facility of Income Tax exemption shall not be provided. In such a case, the Registration will only be granted if the receipts from the trade activities are less than 20% of the total receipts of the assessee.

• 12AA Registration under the Income Tax Act, 1961 is not applicable for Family or Private Trusts. Thus, the assessee has to be the benefactor of the public.

 

Registration Procedure for Obtaining 12AA Registration

​

• Once you have submitted the application 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 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 12AA Registration

 

Where a trust or an establishment has been allowed registration under Section 12AA(1)(b) or has acquired registration whenever under Section 12A as it remained before the correction by the Finance (No. 2) Act, 1996, the Principal Commissioner or the Commissioner of Income-tax can drop the registration under the accompanying two sub-sections:

 

Cancellation Of Registration of Trust Or Institution Under Section 12AA(3)

the Principal Commissioner or Commissioner in the wake of giving reasonable chance of being heard to the concerned trust or foundation, pass a request under Section 12AA(3) in written cancelling 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)

so as to defend the provisions related to cancellation of registration of a 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 advantage of a specific religious community or caste (in the event that it is set up after beginning of the Income-tax Act);

• any salary or property of the trust is applied for advantage of determined people like 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.

 

DISCLAIMER- These materials are public information and have been prepared solely for educational purposes. These materials reflect only the personal views of the author and are not individual legal advice.

It is understood that each case is fact specific and that the appropriate solution in any case will vary. Finally, the owner will not be accountable for any loses injuries or damages from the exposures or usage of this information

​