Many non-profit organisations in India, like charitable trusts, welfare societies, religious institutions, welfare societies, etc., work for the betterment and upliftment of people. These organisations work to address a social issue or a cause.
Therefore, such organisations are eligible for certain tax exemptions in India as they selflessly cater to the nation’s development and help maintain peace and harmony. However, such non-profit organisations need to undergo a one-time registration process under Section 12A of the Income Tax Act 1961.
Eligibility for 12A Registration
- The organisation should be an incorporated trust registered under the Societies Registration Act 1860or a Section 8 company under the Companies Registration Act 2013.
- Private or family-owned trusts are not eligible for 12A registration even if they are involved in charity.
- The organisation should spend more than 85% of its income on welfare and charity.
Steps to Register for Section 12A
You need to submit Form 10A online for getting registration under section 12A. Following is the process to submit Form 10A:
- Visit the new income tax portal
- Log on to the portal using the organisation’s PAN and password.
- Under the e-file tab, click onFile Income Tax Forms grouped under Income Tax Forms.
- Select on the tab named Persons not dependent on any Source of Income (Source of Income not relevant)
- Select Form 10A
- Fill the form and submit it after uploading all the relevant documents.
Remember that merely submitting the form doesn’t guarantee registration under Section 12 A. Once you submit form 10A, the local income tax office will conduct a verification process. The tax officials may visit your place and demand a few more documents as a part of the verification process.
Suppose the income tax commissioner is satisfied with the form 10A application and all the relevant documents. In that case, his office will pass the order in writing to register the trust or organisation under Section 12A.
Benefits of 12A Registration
- Saving Taxes
The primary benefit of section 12A registration is that the organisation can benefit from income tax exemption on income from different sources if the fund is used for charitable or religious purposes.
- Income Accumulation
The organisation or charitable trust can set aside a specific portion of its income without attracting income tax. However, such income should not be more than 15% of the amount spent on charitable or other non-commercial activities or purposes.
- Receiving Donations and Government Grants
Section 12A registration allows NGOs and trusts to receive government grants and overseas donations from reputable organisations like Rotary International or UNO.
- Registration under Section 80G
Section 12A paves the way for applying for registration under section 80G. While section 80G does not provide any direct benefit to organisations, it helps organisations get more donations as individuals are entitled to get tax benefits under section 80G.
While the registration process has become much simpler and hassle-free with the online application, the associated documentation and paperwork can be overwhelming for some organisations. Such organisations can consider availing the services of professionals to prepare the paperwork.
However, considering the benefits that one gets with section 12A, which is essentially a one-time registration process, every organisation associated with charity and public welfare should consider registering themselves under this section.
Section 12A can be seen as a way to thank charitable organisations by the government for their humanitarian services, and such organisations can do well by accepting this gesture.