You make donations because it’s your internal wish that compels you to do so. After all, there is a great pleasure in giving than receiving. Selfless giving is something that most of us feel is the religious belief of many communities. But it will be an add-on for the donators if they can avail the tax deductions on donations. And this is possible if your NGOs have 12A and 80G registration.
Obtaining 12A registration for your NGO (Non-Governmental organization) will grant the donors to avail of the tax deductions while donating. It is the most initial steps that the NGOs must have before commencing their service for non-profit entities such as Charitable Trusts, NPO (Non-Profit Organization), welfare societies, and religious institutions, etc. This provision of tax exemption does not benefit the organization, but it also helps the donors associated with the organization. Earlier the registration under 12A was one time registration and if once the registration is approved then it will be valid till its cancellation. But with effect from 1st April 2021, the registration shall be given for a time period of 5 years only and the organisation will have to apply for the renewal after every 5 years.
New Registration process under Section 12A
The Finance Minister presented the Union Budget 2020 where it was planned to make significant amendments for giving exemptions to the Charitable, Institutions or Religious Trusts, etc. It is proposed under the new tax regime to amend Sections 10(23C), 11, 12A, 12AA and Section 80G of the Income Tax Act, 1961 and at the same time proposed to introduce in place a new Section 12AB.
These amendments shall have its effect from June 01, 2020. Eventually, the amendments were introduced by the Taxation (Relaxation and Amendment of Certain Provisions) Act,2020 which further has extended the new registration under Section 12AB of Income Tax Act and other Sections to April 1, 2021.
- The said budget also includes digitization of the registration process for Charitable Trusts.
- This amendment even applies to the existing charitable institutions to apply for fresh registration under new provisions of Section 12AB of IT Act.
- All the existing Institutions and Charitable Trust or one’s registered under the sections 10(23C), Section 12A, Section 12AA, Section 80G shall have to register themselves under the new Section 12AB to claim exemption u/s 10 or 11, as according to the case.
- An application for fresh registration under section 12A will be given to the Commissioner or Principal Commissioner in accordance with the provision of section 12AB.
- The organizations shall be given a provisional registration for 3 years. After the registration is granted it shall be valid for three years. In case of renewal of the application, new registration needs to be submitted within 6 months from commencement of activities or six months before the expiry of validity period whichever is earlier.
- The validity of registration shall be for 5 years and it needs to be renewed after every 5 years of time.
- In cases of new registration – the application shall be submitted one month before the commencement of the previous year which is relevant to the assessment year of registration. Hence, new NGO shall not be entitled to the registration benefit under section 12AB in its operation of first year.
Migration of existing registrations
Within three months from 1st April 2021, it is mandatory for all the registered NGOs to apply for re-validation. The time period for the validity of the re-validated registration shall be for 5 years.
What is 12A Registration?
12A Registration is the kind of registration under the Income Tax Act, 1961 that is migrated to be registered under 12AB and allows a tax deduction for the people making donations in your NGO. Further, this will help the donators to get either 50% or 100% exemption in a tax deduction.
What are the benefits of 12A Registration?
Following are the benefits an NGO can avail under the 12A Registration –
- One of the key benefits of having 12A registration is tax exemption. The donations offered by the donators will be treated as the source of income for these NGOs. And whenever these NGOs show this expenditure, there will be a tax exemption for them.
- The organizations registered under section 12 A will receive government and grants from the various private sector and other agencies.
- All the organization which is registered under 12A are also eligible for the government and private sector grants.
- The persons who keep their income not more than 15% for charitable or religious purposes will avail of the benefits.
- 12A registration has lifetime validity and is active till the date of the cancellation of registration.
- There is a benefit of FCRA Registration.
What is the eligibility for the 12A Registration?
Religious Trusts, Societies, Charitable Trusts, and Section 8 Companies under the NGOs which do not make transactions for their financial transactions have the right to obtain the 12A Registration while private or family trusts are not allowed tax exemptions. Also, they cannot apply for 12A registrations. After the establishment of these trust and organization, they need to register under section 12A. If any NPO is not 12A registered, then their financial transactions will be taxable.
What are the Documents required for obtaining the 12A Certificate?
The important vital documents that are required by the trusts, societies, and organizations for registering under section 12A are as follow:
- Form 10A
- Financial statements of 3 consecutive years.
- PAN Card of the Organization.
- Incorporation Certificate
- Trust Deed in case the NGO is trust.
- MOA (Memorandum of Association) and AOA (Articles of Association) of the company.
- A certified copy of the instrument under which your trust is established.
- A document with the complete details of the activities performed by the NGO.
- A certified copy of the documents stating the establishment of the institution.
- A certified copy of the registration with ROC (Registrar of Companies) or firms and societies.
- Self-attested copy of the annual account of the trust or society.
- A certified copy of the document having existing order granting registration (under Section 12A or section 12AA).
- A certified copy of the application rejection orders for the grant of registration.
- The procedure of claiming exemption the NGO should formulate an application to the Commissioner or Principle Commissioner of Income Tax in Form 10A.
- It has also been given that Form No. 10A shall be electronically furnished under digital signature (DSC), and if the return of income is obligatory to be given under digital signature or via electronic verification code (EVC).
The following documents are obligatory to be submitted:
- Where the institution is established or the trust is created under an instrument, then the self-certified copy of the instrument that is establishing the institution or creating the trust;
- Where the institution is established or any trust is created otherwise than an instrument, in that case self-certified copy of the document proofing the establishment of institution or the creation of the trust, or
- Registration’s self-certified copy with the Registrar of Firms or Registrar of Companies, Societies or Registrar of Public Trusts etc.
- Copy of the Self-certified document proving modification or adoption of the objects, if any;
- Where the institution or trust was in existence during any year or prior to the financial year when the registration application is made, in that case the self-certified copies of annual accounts of the institution or trust relating to such prior year
- Self-certified copy of the order already existing that has granted registration under section 12A or section 12AA, as the case may be; and
- Self-certified copy of rejection order of application for granting registration under section 12A or section 12AA,as the case may be, if any.
Cancellation of Registration granted u/s 12A
The Registration given u/s 12A can be cancelled in the following circumstances:
- When the activities of the trust or institution are not real or genuine.
- When the activities are not according to the object of the institution or the trust.
- The income of the trust does not carry on or serve the purpose for the advantage of general public.
- It is for the advantage of any specific religious society or caste.
- When any property of trust and the income is useful for the benefit of particular persons like an author of trust, trustees etc.
- When the funds are invested in modes that are prohibited.
Trusts, Societies, and NGOs (Non-government organizations) who operate for the social welfare of the society must obtain the 12A registration so that they can attract the donators for this noble cause. Also, Further, the organizations having the 12A registration also provides a sigh of relief for the donations as they enjoy the exemptions for their contributions to society.
Read our article:How to Get 80g Registration for Trust?