“What is Section 12AA of Income Tax Act?” & “How to apply for Section 12AA Registration?”

This article includes information on Section 12AA, “How to apply for 12AA registration online?”, And Section 12AA Registration Process. For a taxpayer who is engaged in the activity related to NGO, Charitable trust, or similar to that then a taxpayer needs to learn about Income Tax Act Section 12AA.

Introduction

The purpose of registering for 12AA is to receive an income tax exemption. Once this registration is completed, the organization’s entire income is exempt from taxation. The application form for 12AA registration is filled out using Form 10A. Your application for registration under section 12AA will be processed by the Commissioner of the Income Tax Department, who has jurisdiction over the institution. As a result, all Non-Governmental Organizations (NGOs), Trusts, and other Not-for-Profit organizations must be aware of Section 12AA of the Income Tax Act to enjoy the benefit of the exemption limit.

What is Section 12AA?

Any Registered NGO is free from paying Revenue Tax on surplus income under Section 12AA of the Income Tax Act of 1961, which is known as 12AA Registration.

It is the first step that an NGO must perform after incorporation to receive tax benefits from the IRS. The NGO receives a 12AA Certificate after it is registered, which aids in the collection of donations from the government and international sources. In addition, the 12AA Certificate acts as legal documentation of the NGO’s existence.

Advantages of Section 12AA of Income Tax Act

• NGOs are entitled to several permits from the government and other agencies. Some organizations provide financial assistance to NGOs, and these organizations prefer to give grants to 12AA registered organizations.
• A charitable or religious organization or person that is registered under this section can benefit from an accumulation of income that cannot exceed 15% for charitable or religious purposes.
• Section 12AA registration is a one-time procedure. Once you have completed the registration, it will be valid until you cancel it. Because 12AA registration does not need to be renewed, it might be regarded as a benefit that NGOs can make use of.

Form 10A under Income Tax Section 12AA

Form 10A is required for organizations wishing to register under Section 12AA of Income Tax Act. Charitable trusts, religious trusts, societies, and section 8 corporations are all eligible to apply for Section 12AA registration. The 12AA registration process, as well as the submission of Form 10A, has been made entirely online and is only feasible with the signatory’s digital signature.

Important points taxpayers need to keep in mind

• Government Authorities will check whether there is any financial motivation involved in performing the activities before issuing a registration certificate under Section 12AA; if there is not, then registration under Section 12AA is allowed.
• For section 12AA of Income Tax Act family or private trust is not eligible to apply for registration.
• One of the most important requirements for obtaining Section 12AA registration is that the organization’s primary objective is to perform charity work as defined by the Internal Revenue Code. Providing education, medical help to the destitute, and doing actions to prevent environmental damage are examples of philanthropic acts.
• If the assessee engages in activities such as trade or commerce, the services available under this section are restricted. In such instances, registration is granted only to those applicants whose trade activity receipts are less than 20% of the assessed total receipts.

Documents required for Section 12AA Registration

• Copy of the incorporation paperwork for Societies/Trusts that has been self-certified
• Copy of the registration with the Registrar of Companies, Registrar of Societies, Registrar of Firms, or Registrar of Public Trusts, as applicable.
• If the applicant is registered under the FCRA [Foreign Contribution Regulation Act], 2010, a self-certified copy of their registration is required.
• A self-certified copy of the existing registration order issued under section 12AB/12AA/12A, as applicable
• In the case of existing entities, copies of their annual accounts for the three years immediately preceding the year in which the application is lodged.
• If the organization’s income includes business profits and gains, or if the organization holds a business undertaking under the provisions of Section 11(4A), copies of the annual accounts and audit report under Section 44AB for the three years immediately preceding the year in which the application is made are required.
• A self-certified copy of the paperwork demonstrating or proving the objects’ alteration or adoption
• Notes on the trust’s or institution’s operations
• If the organization is registered on the DARPAN portal, the details of the DARPAN registration.

A process on “How to apply for Section 12AA Registration?” 

• The Commissioner will ask you to submit additional papers as per the extra requirements after you have filed your application in the prescribed online manner. The request for additional document verification will aid in showing the organization’s activities are genuine.
• If the Commissioner approves the application, he or she will register the Trust or Institution under Section 12AA. After that commissioner will issue an order to start a registration process.
• Section 12AA(2) says that the registering authority must decide on whether to grant or deny registration within six months of the end of the month in which the application was received.
• Taking everything into account In India, 12AA registration takes 1 to 3 months. In any case, once a Trust is registered, it is valid for the rest of the Trust’s life, and there is no need to renew it.

Conclusion

Relief for the poor, education, medical relief, environmental preservation, preservation of monuments or sites or things of artistic or historic interest, and development of any other cause of public benefit are all examples of charitable purposes. In India, the tax laws for charity organizations have generally allowed for certain sorts of exclusions under Section 12AA.