Registration of Charitable trust, society & NGO in the Income Tax Act u/s 12A
Trusts have a special taxation mechanism. In case of assessee who are engaged in to the business, normally all expenses incurred are allowable as deduction as it is related to the earning of income and incurred for earning the income. This is not so in the case of trust. In case of trust there is no nexus between the income (i.e., receipt by way of donation, grant etc) and expenses (application of money). As a result, entire receipt of trust is liable for taxation irrespective of the amount incurred towards its charitable cause. To be eligible for deduction towards the amount incurred for charitable cause, trust need to obtain registration u/s 12A of the Income Tax Act-1961.
Registration u/s 12A registration is a one-time procedure. After registration, trust can claim exemption from income tax. Trusts and NGOs having 12A registration can enjoy exemption from paying income tax on its receipt Amount received will be free from taxation as fund that is used for the charitable or religious purposes is considered to be application of income. The “application of income” is nothing but the expenses used for charitable or religious purposes when calculating the income of the trust.
The person registered under this section can also avail benefits for accumulating or setting aside income which is not more than 15% for the charitable or religious purposes. The accumulation of income is considered as application of income u/s Section 11(2) & will not form the part of the total income. More important, once the registration is granted, it will be valid till its cancellation by the Commissioner of Income Tax (Exemption) & there is no requirement of renewing the registration. Charitable Trusts, Religious Trusts, Societies and Section 8 Companies claiming exemption under Section 11 and 12 of the Income Tax Act, must obtain 12A registration.
How to get registration:
Whether all trusts are eligible for registration or it is restricted to few only, is the question that is often raised by many. It must be noted that only Charitable Trusts, Religious Trusts, Societies and companies that come under Section 8 are eligible for 12A registration. Section 12A registration is not available to Private trust & Family Trust.
For registration, an application in Form No. 10A is required to be done. The process for filing Form 10A filing has been made online only, which could be with or without the digital signature of the trustee. It need to be supported by the following documents.
- If the trust is created, or the institution is established, under an instrument, self-certified copy of the instrument creating the trust or establishing the institution;
- If the trust is created, or the institution is established otherwise than under an instrument then self-certified copy of the document evidencing the creation of the trust, or establishment of the institution need to be attached.
- Further, Self-certified copy of registration with Registrar of Companies or Registrar of Firms and Societies or Registrar of Public Trusts, as the case may be also need to be attached. It further need to be accompanied by self-certified copy of the documents evidencing adoption or modification of the objects, if any;
- In case the trust or institution has been in existence during any year or years prior to the financial year in which the application for registration is made then self-certified copies of the annual accounts of the trust or institution relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up are also required to be submitted.
- A brief Note on the activities of the trust or institution need to be furnished so as to enable CIT to draw the conclusion about trust genuineness.
- Self-certified copy of existing or earlier order granting registration under section 12A or section 12AA, if any,
- Self-certified copy of order of rejection of application for grant of registration under section 12A or 12AA, if any.
What, after submission of Form No. 10A:
After the application is submitted in the required format online in Form No. 10A, the Commissioner will request the applicant to submit additional information or documents, as the Commissioner deems fit.
The request for additional information or documents is done to satisfy the Commissioner as to the genuineness of the activities of the Trust or Institution. Normally, no registration is granted without additional documents/information by CIT.
If the Commissioner is satisfied with the application then an order in writing registering the Trust or Institution under 12A of the Income Tax Act is passed. In case the Commissioner is not satisfied with the application then an order in writing refusing to register the Trust or Institution is passed.
As per the provisions of Section 12AA(2), every order granting or refusing registration, shall be passed by the registering authority before the expiry of six months from the end of the month in which the application was received.
On average, 12A registration takes 3 months to 6 months even though it can be granted within one month if the CIT is satisfied.