Charitable organizations (NGOs) play a pivotal role in society by promoting various welfare activities such as education, health, relief to poor, environment preservation, animal protection etc. To encourage such activities, the Income Tax Act, 1961, provides tax exemptions for these entities under Section 12A and 80G.
If you are willing to register an NGO, these exemptions will help your NGO grow. You can apply for exemptions available under section 12A through procedure prescribed under section 12AB of the Income Tax Act. This blog will explore the intricacies of obtaining these registrations, the legal framework surrounding them, and the implications for organizations regarding compliance and tax benefits.
Section 12A Registration in India- Meaning
Section 12A of the Income Tax Act allows charitable organizations to be exempt from income tax on surplus income generated from their activities, provided that their income is utilized for charitable purposes. Earlier to get tax exemption under section 12A, the NGOs were required to get themselves registered with Income Tax Department through procedure prescribed under section 12AA. However, a new section 12AB was introduced by the Income Tax Department w.e.f. 01-04-2021 to ensure simplification in registration process and improving compliance framework.
Also Read:-Step-by-Step Guide by the Expert
What is Section 12AB registration in India?
Section 12AB is a newly inserted section in the Income Tax Act, 1961 which has been introduced by the Government to ensure simplified registration process and robust compliances by NGOs. This section replaces existing registration procedure for charitable trusts/ institutions as prescribed under section 12AA. Section 12AB has the object of making NGO registration process simpler and transparent. All existing NGOs already registered u/s 12AA are also required to migrate by following the process of registration under section 12AB of the Income Tax Act. Once your trust/ society/ section 8 company is registered under section 12AB, you will get tax exemption in respect of your NGO’s surplus subject to the condition that NGO spends its income towards charitable purposes.
Why new NGO registration process introduced under section 12AB?
The Government of India revised the entire process of NGO registration by inserting section 12AB to fulfil the following objectives:
Previously the registration process for NGO registration was manual and thus time taking process. New registration process under section 12AB is online and thus need lesser human intervention.
Earlier, the NGOs were given permanent (perpetual) registration under section 12A. However, the new section 12AB limits the registration period to five years. This time limitation will help Government to scrutinize NGOs charitable activities in a fixed time frame.
Eligible criteria for 12AB registration in India
An organization must fulfil the following criteria for getting registered under section 12AB:
· It should be a registered trust, society or a Section 8 Company
· It should operate exclusively for charitable purposes, as defined under Section 2(15) of the Income Tax Act, which includes relief of the poor, education, medical relief, and advancement of any other object of general public utility.
· It should not engage in activities aimed at profit distribution among members or stakeholders.
Documents required for NGO registration under section 12AB
For NGO registration under section 12AB, the charitable trust/ institution is required to file application in Form No. 10A. This form should be accompanied with the following documents:
1. Trust Deed in case of Trust or Memorandum of Association in case of a Section 8 Company or Memorandum and Byelaws in case of Society Registration
2. Registration Certificate issued by Registrar of Societies (in case of society), Incorporation Certificate issued by Registrar of Companies (in case of a Section 8 Company)
3. Copy of PAN Card of Trust/ Society/ Section 8 Company
4. List of Governing Body or members of the trust/ institution along with their PAN and Aadhar
5. Address Proof of the place where the charitable trust/ institution is situated- Rent Deed/ NOC from landlord along with electricity bill will serve the purpose
6. Books of Accounts, Audited Financial Statements and ITR for a period not more than 3 years (in case of old or existing charitable trust/ institution)
7. Activity and progress report/project report for past three years
8. Bank Account Statements for last three years
9. Any other information/ document as may be asked by the Income Tax Department
Registration Process for Section 12AB- Step by Step
1. Begin by collecting and organizing all required documents. Ensure that all financial statements are audited if applicable as this can lend credibility to your application.
2. Accurately complete Form 10A, providing detailed information about the organization, its objectives, and activities.
3. Access the Income Tax Department’s e-filing portal and log-in to your account.
4. Submit Form 10A online with necessary documents attached and verify it through Aadhar OTP.
5. Follow-up and Response: After submission, the application will be processed by the Income Tax Department. The processing time can vary, but applicants should expect to received communication within a few months. Be prepared to respond to any queries of requests for additional information from the tax authorities.
6. Receiving the Registration Certificate: Upon approval, the organization will receive a registration certificate. Retain a copy of certificate as it may be required for future compliances.
7. The registration will be provisional for three years in case of a new trust/ society/ section 8 company. In case registration is provisional, you need to apply for permanent (five year) registration within six months of commencement of activities.
Annual compliances for NGOs under Income Tax Act
For NGOs who are registered under section 12A are required to make few compliances on a timely basis. These compliances include:
· Yearly Audit of Financial Statements (before 30th September of every year)
· Yearly filing of Income Tax Return (before 31st October of every year)
· Yearly filing of Return of Donations in Form 10BD (before 31st May every year)
· Filing of Annual Return and Accounts with RoC in Form No. MGT-7/7A and AOC-4 in case of a Section 8 Company
· Yearly Director’s KYC of all directors (before 30th September every year)
Besides the annual compliances, the charitable institution needs to re-apply for renewal of registration every five years. All the documents as discussed above should be prepared before hand while applying for renewal of registration.
Common Challenges and FAQs
1. Incomplete Applications: A frequent reason for rejection; ensure all required documents are submitted.
2. Lack of Clarity: Be explicit in describing the organization’s charitable activities to avoid misunderstandings.
3. Delays: Processing times can vary; patience and proactive communication with tax officials can help.
Frequently Asked Questions
1. What is the difference between 12A and 12AB?
Section 12A grants tax exemption to charitable organizations for surplus from their charitable activities. Section 12AB prescribes the procedure for registration for availing tax exemption under section 12A.
2. Is there a penalty for late renewal of 12AB?
There is no monetary penalty for default or delay in renewal of 12AB. However, delay or default in filing renewal application may result in loss of tax-exempt status and heavy tax implication under section 115TD i.e. tax on accreted income.
3. Can a newly formed NGO apply for 12AB registration?
Yes, a newly formed NGO can apply for 12AB registration subject to fulfilment of all requirement outlined in the Income Tax Act.
4. Are there any specific activities that disqualify an organization from obtaining 12A or 12AB registration?
Activities aimed at profit distribution, political campaigning, or non-charitable activities may disqualify an organization.
5. What happens if an organization’s activities change after obtaining registration?
Organizations must notify the Income Tax Department of significant changes including the following to maintain compliances:
. Change in Registered Office Address
. Change in Objects of the charitable institution
6. Can an organization apply for registration under both Section 80G and 12AB?
Yes, applying for both is advisable, as 12AB allows for income tax exemption while Section 80G provides donors with tax deductions
7. Is there any specific format for the Trust Deed or Memorandum of
Association?
While no mandated format exists, the document should clearly state objectives, governance structure, and income utilization provisions. Consulting legal professionals is recommended.
8. Can international NGOs apply for 12A or 12AB registration in India?
International NGOs can apply only when they have a registered entity in India that aligns with the eligibility criteria
9. How often should an organization conduct audits?
Annual audits are mandatory in case where an NGO is registered under section 12A/12AB and 80G.
10. Can an organization challenge a rejection of its application under section 12A/12AB?
Yes, organizations can appeal decisions within the framework provided by the Income Tax Act, and consulting a tax professional for guidance is advisable.
Conclusion
Obtaining 12A and 12AB registrations is crucial for charitable organizations in India, facilitating tax exemptions that significantly enhance operational capabilities. By adhering to the prescribed processes and maintaining compliance, organizations can fulfill their social missions while building credibility with donors and stakeholders. For tailored guidance, consulting with a tax professional is highly recommended, ensuring that your organization is well-prepared for successful registration and continued compliance.
