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Section 12A & 80G Registration

The charitable institutions are eligible for certain tax exemptions and benefits in India. The exemptions and benefits are dealt with under Sections 12A/12AA and 80G of the Income Tax Act, 1961. The institutions availing benefits under Section 12A and 80G had to revalidate their registrations under these two sections before August 2020 to continue to obtain the benefits.

The existing religious or charitable institutions or NGO’s had to re-apply to the Income Tax authorities for revalidation of the existing registrations. The charitable institutions cannot claim the benefits provided to them under 12A and 80G deductions without revalidation. This revalidation process focuses on whether the charitable activities of the institution or trust, or NGO are genuine or not. 

It is important to note that when registration is granted under section 12A, it does not mean that section 80G approval is to be given i.e. registration under section 12AA will not provide automatic approval under section 80G. Section 80G applies only to charitable trusts or institution. It does not apply to religious trust or institutions

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Everything about Section 12A License for Tax Exemption for a NGO

Cancellation of 12A

Registration granted u/s 12A can be cancelled in below circumstances:

I. The activities of such trust or institution are not genuine.

II. The activities are not being carried out in accordance with the objects of the trust or institution.

III. Trust’s income does not endure for the benefit of general public.

IV. It is for the benefit of any particular religious community or caste.

V. Any income or property of trust is applied for the benefit of specified persons like author of trust, trustees etc.

VI. Its funds are invested in prohibited modes.

“It is however provided that registration will not be cancelled if the trust institution proves that there was reasonable cause for carrying out activities in said manner.”

Registration of Trust under Section 12A

Trust, Society and Section 8 Company can seek registration u/s 12A to claim exemption under provisions of Income Tax Act’1961, if certain conditions are satisfied. Section 12A deals with registration of trust and section 12AA deals with procedure for registration of trust.

“It is important to note that notwithstanding the fact that trust, society and section 8 companies are registered as per their acts, the registration under section 12A is necessary to claim exemption under Income Tax Act.”

To whom application for registration is to be made?

The application for registration has to be filed with the jurisdictional commissioner of Income Tax.

Documents required for registration?

I. An application in form 10A has to be filled.

II. Documents evidencing creation of trust or the establishment.

III. Two copies of the accounts of trust, for not more than three years.

IV. In case of trust, copy of trust deed; in case of society, copy of registration certificate and copy of memorandum of association of society; in case of section 8 company, copy of certificate of incorporation and copy of MOA, AOA of company.

V. Copy of PAN Number of Trust.

Procedure for registration?

I. The commissioner on receipt an application for registration of a trust shall call for the documents and information as he thinks necessary to satisfy about the genuineness of the activities of trust.

II. He shall pass an order in writing after satisfying himself about the objects of trust.

III. If he is not satisfied, he shall pass an order in writing refusing to register the trust. Applicant shall be given opportunity of being heard before passing order of refusal.

IV. Order granting or refusing registration shall be passed before the expiry of six months from the end of month in which application was received under section 12A.

Renewal of registration?

Once the registration is granted to the trust, it will be hold good till the cancellation of registration. There is no provision which requires any renewal of registration.

Audit of Accounts

Audit is also prerequisite for claiming exemption under section 11 and 12, where the total income of the trust computed without giving effect to the provisions of section 11 and 12 exceeds Rs 2,50,000 in any previous year, then the accounts of the trust for that year should be audited by a Chartered Accountant.

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Note:

Finance Act 2017 amended section 80G so as to provide that no deduction shall be allowed under the section 80G in respect of donation of any sum exceeding Rs. 2000/- unless such some is paid by any mode other than cash. Earlier this limit was 10,000/-. However, government has taken this step in order to provide cash less economy and transparency.

Section 80G

Section 80G of the Income Tax Act’1961 provides deduction while computing the total income in the hands of donor.

The recipient of money or the donee gives a receipt of donation, based on which the donor is entitled to claim deduction provided, the donee institution is approved under section 80G of the Income Tax Act’1961.

The institution or fund should be established for charitable purposes in India.

Registration Procedure under section 80G

Rule 11AA provides procedure for seeking approval under section 80G.The application for approval of any institution shall be made in form no. 10G and it shall be made in triplicate.

Documents to be furnished

I. Copy of registration granted under section 12A.

II. Notes on the activities of institution since its inception.

III. Copies of accounts of the institution.

The commissioner may call for such further documents or information from the institution as he deem necessary to satisfy himself about the genuineness of the activities of such institution.

Where the commissioner is satisfied that all the conditions are fulfilled, he shall grant approval to the institution. When the commissioner is satisfied that conditions are not fulfilled. He shall reject the application for approval.

The time limit within which the commissioner shall pass an order either granting the approval or rejecting the application shall not exceed six months from the date on which such application was made.

Renewal of 80G

Prior to 01.10.2009, there was a requirement that before the expiry of the date as mentioned in the section 80G approval, renewal had to be sought for. However finance act 2009 made change in this regard. After such change, only those institutions require renewal whose expiry is due before 01.10.2009.

For the remaining cases, the perpetuity of approval has been provided until the commissioner withdraws the exemption. Therefore, there is no need for periodical renewal under present law.

Revalidation of 80G and 12A – Process and Procedure

The charitable institutions are eligible for certain tax exemptions and benefits in India. The exemptions and benefits are dealt with under Sections 12A/12AA and 80G of the Income Tax Act, 1961. The institutions availing benefits under Section 12A and 80G had to revalidate their registrations under these two sections before August 2020 to continue to obtain the benefits.

The existing religious or charitable institutions or NGO’s had to re-apply to the Income Tax authorities for revalidation of the existing registrations. The charitable institutions cannot claim the benefits provided to them under 12A and 80G deductions without revalidation. This revalidation process focuses on whether the charitable activities of the institution or trust, or NGO are genuine or not. 

The revalidation is necessary due to the changes made by way of amendment to the Finance Act, 2020, which mandates that the charitable institutions registered under Sections 12A/12AA and/or 80G of the Income Tax Act, 1961 are required to re-apply online for approval/registration by 31 August 2020. This amended provision came into force on 1 June 2020. 

However, due to the COVID-19 situation, the CBDT (Central Board of Direct Taxes) deferred the start date to 1 October 2020, and the charitable institutions had to re-apply for registration by 31 December 2020. On the 26 of March 2021, the CBDT notified the Income-Tax (6th Amendment) Rules, 2021 that states the procedure for fresh registration and the list of documents required for organisations registered under Section 12A/12AA/80G. 

The Income-Tax (6th Amendment) Rules, 2021, came into force on 1 April 2021.  Thus, the institutions and trusts with existing registrations under Section 12A/12AA or/and 80G should file the application for fresh registration within three months from 1 April 2021, i.e. before 30 June 2021, as per the Income-Tax (6th Amendment) Rules, 2021.

Section 12A of the Income Tax Act, 1961

Registration of trust or charitable institutions under section 12A/12AA certifies that the Income Tax authorities recognise the registered institution or trust as having been incorporated or established for a charitable purpose.

The effect of such recognition is that the respective institutions are exempted from paying income tax, subject to the satisfaction of certain other compliance requirements as per law.

Section 12A deals with institutions and trusts registered before 1996, and Section 12AA deals with institutions and trusts registered after 1996. The NGO’s have to obtain a 12A certification to avail tax benefits, regardless of whether they are constituted as a society, trust or not-for-profit company.

Section 80G of the Income Tax Act, 1961

Registration of trust or charitable institutions under Section 80G does not provide any direct benefits to them. The trust or charitable institutions register themselves under Section 80G to enable the donors who contribute to them to avail certain tax benefits on their contributions.

The registration under section 80G of charitable institutions is to incentivize their donors to make contributions. However, only the NGOs that have registered under both Section 12A and 80G are eligible for availing of government funding.

Procedure of Revalidation Under Section 12A and 80G 

In order to claim exemption, a charitable or religious trust or institution, including an NGO, should make an application to the Principal Commissioner of Income Tax or Commissioner of Income Tax online in Form 10A. The procedure of applying for revalidation/registration are mentioned below: 

  • Log in to the E-filing portal of the IT department. 
  • Go to the ‘Income Tax Forms’ under the e-File tab.
  • Choose the Form Name as ‘Form 10A’ and select the relevant Assessment Year from the drop-down list.
  • Choose the ‘Prepare and Submit Online’ option in the submission mode.
  • Fill in all the details required in the form and attach the applicable attachments.
  • Submit the form using EVC (Electronic Verification Code) or Digital Signatures as required during return filing.

The NGO’s applying for registration/revalidation as per the amended provisions of Section 80G are mandatorily required to provide the details of their Registration number with the DARPAN portal of Niti Aayog.

The registration under Section 12A and 80G are also mandatory when the organisations intend to receive or receive any grant or assistance from the Central Government or State Government.

Documents Required for Revalidation

The following are the documents that need to be submitted while applying for revalidation:

  • Self-certified copy of the incorporation document of Societies/Trust
  • Self-certified copy of the registration with the Registrar of Companies or Registrar of Societies or Registrar of Firms or Registrar of Public Trusts, as the case may be
  • Self-certified copy of registration under the FCRA [Foreign Contribution (Regulation) Act], 2010, if the applicant is registered under the respective Act.
  • Self-certified copy of the existing order of registration under section 12A/12AA/12AB, as the case may be
  • Copies of the annual accounts for a period not exceeding three years immediately prior to the year in which the application is made, in the case of existing entities
  • Where the income of the organisation includes the profits and gains of business or where a business undertaking is held by the organisation under the provisions of Section 11(4A), copies of the annual accounts and audit report under Section 44AB for three years immediately prior to the year in which the application is made
  • Self-certified copy of the documents showing/evidencing modification or adoption of the objects
  • Notes on the activities of the trust or institution
  • The details of the DARPAN registration, if the organisation is registered on the DARPAN portal

Issuance of Certificate of Revalidated Registration

After 1 April 2021, upon filing the application for revalidation, an order granting the revalidated registration is passed within three months. The revalidated registration under section 12A and/or 80G is valid for a period of five years, after which it needs to be revalidated again. The re-application after five years has to be made at least six months before the expiry of the validity period of the registration.

After receiving the revalidation application under 10A, the Principal Commissioner of Income Tax (PCIT) or Commissioner of Income Tax (CIT) will pass an order of granting approval in writing in Form No.10AC and issue a 16 digit Unique Registration Number (URN) to the applicants.

The PCIT/ CIT may reject the application after giving an opportunity of being heard or demand further documents from the applicant if needed. The rejection order is also passed in Form No.10AC. 

The applicants must submit the application for renewal after the initial five years of registration in Form No.10AB. Upon receiving the application under Form No.10AB, the PCIT/CIT will make the order of registration or cancellation of registration or rejection in Form No.10AD. 

The PCIT/CIT is entitled to demand from the applicant further documents to satisfy the genuineness of the activities of the institution or trust and the compliance of the requirements under any other law for the time being in force by the institution or trust that are material to achieve its objects.

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