Section 12A of the income tax act exempts NGOs and charitable trusts from paying taxes. Most NGOs and trusts work for the welfare of the society, and hence section 12AA relieves them from paying taxes if they don't earn any profits. After the formation of an NGO or a charitable trust, they must obtain a 12AA certificate to be eligible for tax exemption.
Did you know?
Sec 12AA makes non-profit organisations, including religious trusts, eligible for tax exemption if they don't earn any profit.
What Is Section 12AA of the Income Tax Act?
Every non-profit, including NGOs, charitable trusts and religious trusts, are eligible for the provision of tax exemption. All these organisations must register under section 12A of the Income Tax Act to claim their tax exemption. Organisations can claim their tax under sections 11 and 12 of the Income Tax Act. Section 12AA of the Income Tax Act was introduced to ease the taxes on non-profits because they don't work for profit but for the welfare of society. The government introduced this exemption to appreciate the selfless deeds of these organisations and made a provision for tax exemptions.
However, if any non-profit fails to register itself under section 12AA of the Income Tax Act, its monetary receipts and all financial transactions will be taxable. The 12AA certificate is not accessible to any family or private trusts, making all their financial transactions taxable.
Also Read: Exempt Income Under Section 10 of Income Tax
How Can You Become Eligible for the 12AA Certificate?
The income tax department is responsible for setting up the eligibility criteria for the registration of the 12AA certificate. Under this criteria, all the incorporated trusts, Section 8 companies who work for public and society welfare without earning a profit can register under section 12AA of the Income Tax Act. The organisations can be of any nature, like religious, welfare, or charitable. They are all eligible for the 12AA registration. Trusts that fall under family or private companies do not qualify for the 12AA certificate. An organisation must fill out the 10A form online once it is eligible for the 12AA registration. The applicant must have a digital signature to file the 10A, and it can also be filed through an electronic verification code by the applicant.
The applicant should address the application to the Commissioner of Income Tax. Attach all the necessary documents to complete your application and get a 12AA certificate.
The Documents Required for the 12AA Registration
The applicant requires other necessary documents with the 12AA application form. When an organisation wants to apply for the 12AA registration, the below documents must be presented:
- A copy of the registration is obtained from the Registrar of Companies or any public trust.
- A self-certified copy of trust establishment.
- Documents supporting the establishment of the trust.
- Self-attested documents of the annual accounts.
- A detailed note with trust activities.
- A self-certified document proving a grant for 12AA registration under section 12A or 12AA.
- Self-certified application copy of the rejection order for registration grant.
Along with filing the form 10A, these are some essential documents that any organisation needs to register for the 12AA certificate.
The Process to File Form 10A on the New E-Filing Portal
In addition to the documents mentioned earlier, the non-profits can file form 10A with the help of an online portal as well. You can access a different online portal created by the income tax department for income tax forms.
- The first step is to open the e-filing platform and click on the submit/return forms option.
- Next, log in by creating a username and password.
- Now, go to the Forms section and select 10A from the menu. Also, choose the year of assessment and submission mode.
- Click on 'Prepare and Submit Online' and fill out the application.
- After completing the application, you will be asked for other required documents by the income tax commissioner.
- After the organisation gets a 12AA certificate, it is valid for the organisation's lifetime. No renewal for the 12AA certificate is required.
The steps for 12AA registration are shown below:
Go to the official website of the income tax department.
Log in with your username and password.
On the menu, select e-file > income tax forms> file income tax form.
Select 'Tax exemption and reliefs'.
Fill in the assessment year for which you want to file tax exemption.
After clicking the continue button, a screen with 'apply for 10A' appears.
Fill in the details of the form. Make sure you save every section of the form, as form 10A consists of 8 sections.
To complete your registration for 12AA, click on the submit button.
What Are the New Amendments under 12AA of the Income Tax Act?
The government has made some new changes in section 12AA. We will look at what are the changes here.
- If any organisation registered under section 12A of the income tax act receives a monetary amount, it will not be eligible for income application for charitable or religious purposes.
- Any donations of a permanent nature like corpus donations are not applicable for an application of income for any non-profits under 12A of the income tax act.
- Suppose an organisation registered under section 12AA undergoes specific modifications that don't follow the registration guidelines. In that case, the organisation will have to apply for a new registration within a month from the date of the modifications.
- The property amount concerning the receiving of property by a person from any trust will be considered taxable under the heading' income from other sources.'
If a person receives property from a university, foundation or hospital or any firm registered under 12AA of the income tax act, then it is not applicable for clause 56. The government has set a limit of ₹2000 for the tax deduction. Under Section 80G, donations exceeding ₹2000 will not be applicable for deduction when paid by any other mode than cash. Earlier, the set limit was ₹10,000.
Every organisation registered under the 12AA section of the income tax act is eligible for tax exemption and receives essential benefits from the income tax department. The government has made provisions for different grants for any and every organisation registered under section 12AA of the income tax act.
What Are the Benefits Under Section 12A of the Income Tax Act?
- The donor is eligible to receive a tax exemption if they make the donation to a non-profit and the donation is registered with Section 80G.
- If a donor donates some part of their income to an NGO or trust, they are eligible for tax exemption on the donation amount.
- Organisations registered under section 12A of the income tax act are eligible to receive several benefits per registration 80G.
- By registering under section 80G, trusts encourage the donors to make sizeable donations because of their increased value and respect.
- Organisations registered under section 12A of the income tax act have easy access to government funds and grants.
- For the donor to receive a tax exemption, they should donate only 50% of their total income.
Section 12AA of the income tax act enables organisations to file for tax exemptions. The trusts and organisations working for public welfare and not earning profits are eligible to pay taxes. Once an organisation registers under section 12AA of the income tax act and obtains a 12AA certificate, they are obliged to continue to work for the welfare of society as per the rules of the Indian government.
Any non-profit, charitable trusts, religious trusts or NGOs can obtain a 12AA certificate and register under section 12AA of the income tax act. All these organisations work for public welfare and don't earn any profits. Section 12AA of the income tax act exempts these organisations from paying taxes, and you are exempt from paying taxes once you register your organisation under sec 12AA.
Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.