Changes in Norms for Charitable Institutions- Exemptions under Section 80G and 12A / 12AA

Charitable purpose includes relief of the poor, education, medical relief, preservation of environment and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility. The tax norms in India have always been such for Charitable Institutions that provide certain kinds of exemptions under Section 80G and Section 12A the Income Tax Act.

Recently in Budget 2020 presented on 1st February 2020, FM Nirmala Sitharaman proposed some changes in the existing norms for exemptions under Section 80G and Section 12A. It was decided that all these amendments would be made effective w.e.f. 1st June 2020.

Latest Update

The new compliances under the mentioned Sections i.e under Section 10(23C), 12AB, 35(1)(ii)/(iia)/(iii) and 80G of the Income Tax were to be completed till 31st August, 2020 which was extended till 31st December 2020. Then again the same scheme was extended to 01.04.2021 and 30th June 2021 and 31st August respectively.

Now looking in to the current situation the CBDT has again extended the due date for the application under Section 10(23C), 12AB, 35(1)(ii)/(iia)/(iii) and 80G of the Act in Form No. 10A/ Form No.10AB, for registration/ provisional registration/ intimation/ approval/ provisional approval of Trusts/ Institutions/ Research Associations etc. has been extended till 31st March, 2022 and hence now all existing trust have to re-register themselves on or before 31.03.2022.

Section 12A

It is a registration done by an NGO to get an organization income exempted from Tax. All income shall not be taxable after Section 12A Registration. If an NGO does not get 12A Registration, income tax is payable on surplus during the year.

Section 80G

80G Registration under Section 80G of Income Tax Act provides benefits to the donor of an NGO. The donor gets financial benefits in his taxable amount of their income.

The proposed changes in the norms for Exemptions under Section 80G and Section 12A

• All the existing charitable and religious institutions already registered under Section 12A, Section 12AA, Section 10(23C) and Section 80G will be required to re-apply to the income tax authorities to re-validate their existing registrations.
• All Charitable trusts and exempt institution which are already registered under Section 80G, 12A or Section 12AA of Income Tax Act, 1961 will now be required to obtain Fresh Registration by December 31, 2020.
• All the existing registered trusts under the Section 12A or Section 12AA or Section 80G would move to new provision “Section 12AB” w.e.f 1st April 2021.
• The process will be online and the new online form will particularly focus on whether the charitable activities of the trust or institution are genuine.
• Once the online forms are ready there will be a window of three months within which application must be submitted. Trusts and institutions may do this on their own or through their auditors or practicing chartered accountants.
• After processing your application, your trust or institution’s registration under Section 12AA and 80G may be re-validated by income tax for a period of 5 years.
• Application for renewal after 5 years must be made at least six months prior to the expiry of the five years validity period.
• Newly established trusts and institutions applying to income tax for registration for the very first time will be given provisional registration for three years.
• The provisional registration will be valid for three years.
• Prior to 6 months from the completion of three years provisional registration, an application for renewal of provisional registration or rather registration has to be made.
• Every charitable trust or institution registered u/s 80G shall be required to submit a statement of donations received in such form & manner as may be prescribed & the benefit of 80G shall be available to donors on the basis of information relating to donation furnished by the corresponding charitable trust or institution.
• Tax deductions under Section 80G will not be available to donors (individuals or companies) who opt for reduced rate of tax.

Additional Consequences

• There will be introduction of new provision as Section 12AB.
• Compliance will become more cumbersome and costlier for NGOs. 
• A higher administrative burden for tax authorities.
• Greater control and leverage to Government Authorities to monitor and control the activities of NGOs.