In India, the income tax laws provide a framework for income that is earned through various sources. While the assessees do not have to pay tax for their entire earned income, a certain amount is taxable, but there are exemptions that allow them to reduce their total tax liability. One such exemption can be availed by contributing towards NGOs or charitable trusts. However, donating to just any charitable organization would not help them avail the tax exemption. This is where 12A comes into play. Donating to a Non-Profit Organization that has acquired a 12A registration certificate can help donors reduce their tax liability. So how does 12A registration help NGOs and charitable trusts? Keep reading this blog to understand 12A registration.
What is 12A in the Content of Income Tax
In the Income Tax Act of India, Section 12A is a framework that offers tax exemption for charitable and religious organizations. This section plays an important role in the registration of entities that are established for the good of the public. These entities include societies, charitable trusts, companies under Section 8, religious institutions, and NGO’s, which are all Non-Profit Organizations. Section 12A states that the above-mentioned organizations are exempted from income tax, for income that is used for religious or charitable purposes. This Section of the Income Tax Act helps these entities direct all their funds for their programs and missions.
Tax Benefits For NGOs And Charitable Organizations With 12A Registration
Tax exemption from income tax is one of the main advantages of 12A registration for an NGO. Other benefits include:
- Eligibility for Government Grants: For NGOs and charitable organizations, financial support is very important for their operations because they are not focused on profits like traditional businesses. A 12A registration helps these entities get funding and grants from state and central governments.
- Credibility and Trust: Charitable trusts and NGOs that are registered under Section 12A of the Income Tax Act can increase their credibility. This is because stakeholders, investors, and even donors are aware that the organization that they are donating to operates within the legal framework, which increases trust and helps the entities attract more donations.
- Tax Exemption of Income: If an NGO is registered under Section 12A, the income earned from donations and contributions is exempt from income tax. This helps charitable organizations and NGOs reduce overall tax liability and allocate the funds for their programs to the upliftment of the society and environment.
- Tax Benefits for Donors: 12A registration not only helps entities like NGOs and charitable trusts reduce their tax liability but it is also beneficial for donors who contribute to these entities. Donors can be individuals, companies, NRIs, etc., who can avail tax deductions for their total income by donating to these organizations.
How to Register for 12A
To get registered under Section 12A of the Income Tax Act, there are certain requirements and processes. It includes applying online, documents submission, getting approvals, and receiving the confirmed status of the 12A certification. Here is a more detailed process:
Eligibility
- One of the eligibility for 12A registration is that the entity applying for registration should meet the definition of charitable purposes under the Income Tax Act. NGOs or trusts that meet the charitable purpose of relief to the poor, medical relief, education, and activities that have the objective of preserving the environment are eligible for registration.
- The next criterion is to check if the organization has any profit motive in their activities. Registration will be provided if the organization does not have any profit motive.
- Any activities of the NGO that are related to trade or commerce are not eligible for registration under Section 12A. But registration is granted only if the receipts from trade or commerce activities are less than 20% of the total receipts.
- Private or Family Trusts are not eligible for registration under Section 12A.
Documents
- Copy of registration with the applicable body like the Registrar of Companies (ROC).
- KYC details of members of the NGO
- Details of the PAN card of the charitable trust
- Copy of a registered office’s utility bill along with a no-objection certificate (NOC)
- Self-certified copy of the trust.
- Note providing full details of their activities
- The self-certified document, highlighting the application for registration under Section 12A
- Suitable proofs that support the establishment of the trust and the charitable activities.
- Self-attested copies of the annual financial account of the NGO
Process
An NGO or a charitable trust needs to make an application to the Commissioner or the Principle Commissioner of Income Tax.
This application can be made online with Form 10A.
Enter the right details like Assessment Year and other required information.
Attach all the documents required and submit the application with a digital signature certificate or electronic verification code.
Wait for the application to be reviewed and verified.
Conclusion
In conclusion, 12A registration helps organizations like NGOs and charitable trusts by exempting their income from donations and contributions from income tax. They also receive a tax rebate of 15% on their income, which is to be used for charitable purposes.
