Registration u/s 12A of the the Income Tax Act, 1961

Registration u/s 12A of the the Income Tax Act, 1961

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Registration u/s 12A of the the Income Tax Act, 1961

Non- Government Organisations (NGOs) work for the betterment of public. They are involved in Charitable Purposes.

As per Section 2(15) of the Income Tax Act, 1961 Charitable Purpose is defined as under.

“Charitable Purpose” includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless—

 (i)  such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

(ii)  the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;

Providing such service is a great job. The question is what shall be the constitution of the NGO for providing this service. They have the following options to get themselves registered:

  • Trust,
  • Society or
  • Section 8 Companies

The taxation regime for trusts or NGOs is not the same as others. They are governed with special provision and sections that provide with various exemptions and conditions The exemptions and conditions are given in Section 11, 12, 12A, 12AA and 13 of the Income –tax Act, 1961.

Basically, Section 11 and 12 of the income tax act provides exemptions to NGO’s. For exemption under these sections registration u/s 12A is mandatory requirement. NGO’s having registered u/s 12A of the Income Tax Act, 1961 enjoy a number of tax benefits.

The registration under Income Tax is mandatory for claiming exemption. The fact that the trust, society and section 8 companies are registered as per their respective acts shall not change this requirement. This was held in case of U.P. Forest Corporation And Anr vs Dy. Commissioner Of Income Tax

 

Let us now discuss the benefits of registration under Section 12A of the Income Tax Act, 1961.

The various benefits of Section 12A registration are enumerated as below:

  1. The income applied for charitable or religious purpose will be considered as application of income i.e. expenditure incurred for charitable or religious purpose will be allowed while computing income of the trust.
  2. The benefit of accumulating or setting aside of income not exceeding 15% for charitable or religious purpose will be available.
  3. The accumulation of income, which is deemed as application of income as per section 11(2), shall not be included in the total income.
  4. Benefit in Section 80G registration. NGO’s have to apply separately for Section 80G registration.
  5. 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 12A 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.
  6. It is not only that the benefit will be availed from the year of registration. Benefit can also be availed for prior years given that:
  7. The benefit of Section 11 and 12 will apply to trust or institutions for all the pending assessments on the date of such registration subject to condition that the objects and activities of Trust in the earlier years claimed are same on the basis of which the registration has been granted.
  8. Further, it is provided that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of such trust or institution for the said assessment year.
  9. The above benefits would not be available in case of any trust or institution which anytime had applied for registration and the same was refused under section 12AA or a registration once granted was cancelled.
  10. Registration under section 12A is one-time 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. Thus, the benefits of registration can be claimed for lifetime by NGO.

To conclude I would say “As you sow, so you reap”. The NGOs provide for betterment of life and have are there helping others. What they reap is tax exemptions!!


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