Section 12A Income Tax Act

Under Section 12A of the Income Tax Act, 1961, non-profit organisations like charitable trusts, welfare societies, NGOs, religious institutions, etc. are entitled to tax exemptions.

This tax relief was introduced, keeping in consideration that non-profit entities work for social welfare and not for generating profit. Owing to their selfless contribution towards the society, they are exempted from taxes that come under the purview of Section 11 and Section 12. 

Nevertheless, to claim such tax benefits individuals need to get registered as per the norms of Section 12A of ITA. In case a non-profit organisation fails to register under 12A, all their future financial transactions and receipts will be deemed taxable. 

All these make it essential for non-profit entities to become familiar with the components of Section 12A Income Tax Act in detail. They should also find out more about the eligibility requirements and documents, among others. 

Eligibility Criteria 

The Income Tax Department of India sets eligibility criteria for registering under Section 12A. Ideally, these following entities who are engaged with social welfare are considered eligible to register under 12A –

• Incorporated Trusts
• Section 8 companies and trusts

However, private or family-owned trusts and charities cannot qualify for this Act. Organisations and Trusts that are eligible to register under Section 12A of the Income Tax Act are required to fill a form under 10A online. 

One must note that applicants are required to provide a digital signature to file form 10A. Alternatively, applicants can also file this form online through an electronic verification code. 

Steps to File 10A Form Online 

By following these steps, one can easily file Form 10A online –

Step 1 – Log onto the Income Tax Department’s e-filing platform.

Step 2 – Navigate to the page’s left side.

Step 3 – Click on the ‘Submit Returns/Forms’ option.

Step 4 – Use credentials like user ID and password to log in to the account.

Step 5 – Click on ‘e-file’ bar and select the ‘Income Tax Forms’ from the drop-down menu.

Step 6 – From the field ‘Form Name’ select Form 10A.

Step 7 – Select relevant ‘Assessment Year’ and ‘Submission Year’.

Step 8 – Provide the required details and verify it.

Step 9 – Click on the ‘Submit’ option.

One must note that just filing the Form 10A does not guarantee registration under Section 12A Income Tax Act as the application has to be verified by the commissioner. Applicants are required to submit necessary documents to complete the verification process. 

12A Income Tax Act Registration – Documents Required

Besides 12A Form, applicants need to submit a set of other vital documents. Here is a list of self-certified documents required to be shared by the societies, trusts and firms –

1. A document stating the establishment of the trust or organisation. 
2. A document that serves as proof of the creation or establishment of a trust or institution.
3. Registration with the - RoC or Registrar of Companies, Registrar of Public Trusts or Registrar of Firms and Societies.
4. Documents that serve as proof of adoption or alteration of objects.
5. Trusts or institutions’ annual accounts.
6. An existing order granting permission for registration under either Section 12A or Section 12AA.
7. A list that highlights the activities of the trust or institution.
8. An order that rejects the application granting registration under either Section 12A or Section 12A.

Once non-profit entities become aware of the required eligibility and documents for Section 12A Income Tax registration, they should proceed to find out about the registration process. 

Steps to Obtain 12A Registration

These pointers below highlight how to obtain 12A registration –

Step 1 – Apply in the required format online.

Step 2 – The commission may direct applicants to submit additional documents.

Step 3 – Once the commission is satisfied with the information availed, an order will be passed in writing, registering the organisation or trust in question.

In case the commissioner is not satisfied with the information received, he/she may convey the refusal to register the entity in writing.

The registration application under Section 12AA is filed under the jurisdictional commission of the Income Tax Department. Ideally, it takes 1-3 months to conclude the 12A registration process.   

Also, Section 12AA(2) states that both approval or rejection order passed by the commissioner should be conveyed before 6 months (computed from the month-end in which the application in question was received). 

One must also note that when a trust is registered, the registration comes with lifetime validity. It means as long as the trust is active, there is no need to renew it. However, under exceptional circumstances, the commissioner may cancel it.

Difference Between 12A and 12AA of Income Tax

The primary difference between Section 12A and Section 12AA is that the former provides clauses for the applicability of both Section 11 and 12. On the other hand, Section 12AA of Income Tax Act enumerates how to get registered under Section 12AA.

The collective advantage of Section 12A and Section 12AA Registration are as follows –

• Income is exempted from taxes.
• Provides an upper-hand in FCRA registration.
• Allows being prioritized when it comes to availing grants from the government, abroad or other agencies. 
• Entities registered under Section 15A can avail benefits for income aggregating to or below 15% for religious or charitable activities.
• Expenses incurred for charitable and religious activities or income application will not be included in total income and in turn, will be exempted from tax.