12A Registration

Benefits of getting 12A Registration

The following points mentions the benefits of Section 12A Registration for NGO:

  • The amount used for charitable purposes is considered to be the application of the income. The income application refers to the expenses used for charitable or religious purposes for calculating the taxable income of the not-for-profit organisation.
  • The income received will be free from the charge of Income Tax.
  • The person who is registered under Section 12A can avail benefits for accumulating or setting aside income. However, the income which is set aside should not be more than 15% of the amount applied towards charitable or other non-commercial purposes.
  • The accumulation of income which is considered to be the income application shall not be included in the assessee’s total income.
  • NGOs are allowed to receive donations as funds from domestic sources. These agencies are entitled to provide grants to NGOs which have received registration under this section.
  • The registration which is granted under Section 12A shall be valid for 5 years. Renewal of license shall be made 6 months prior to the expiry date of license .

Eligibility for 12A Registration

  • In order to get exemption under Section 12A, the organisation should fulfill the definition of charitable purpose as defined in the Income Tax Act. Charitable purpose means relief to the poor, education, medical relief and activities undertaken with the objective of preserving the environment. The pursuit of any other objective of a public utility will also qualify for a charitable purpose.
  • The primary qualifying criterion will be to check whether there is any profit motive involved in the activities carried on by the assessee. In the absence of a profit motive, registration shall be granted.
  • If the assessee is carrying on activities related to trade or commerce, then the facility granted under this section is restricted. In these cases, registration is granted exclusively if the receipts from the trade activity are less than twenty per cent of the total receipts of the organization.
  • Also, it may be noted that 12A Registration is not applicable for Private or Family Trusts. The activities of the assessee should be genuinely for the benefit of the public.

Documents Required for 12A Registration

  1. A self-certified copy of the instrument which was used to create the trust or establish the institution shall be submitted.
  2. The institution or trust may have been created otherwise than by way of drafting and registering an instrument. In these cases, attested true copy of the document evidencing the creation of the trust, or establishment of the institution should be submitted to the Income Tax Department.
  3. It is necessary to submit a self-certified true copy of the registration, which was made with the executive body at that time. The applicable body may be the Registrar of Companies, the Registrar of Firms and Societies or Registrar of Public Trusts.
  4. A self-certified copy of the documents which provide evidence for adoption or modification of the objectives of the entity shall be submitted.
  5. Annual financial statements for three preceding financial years
  6. Note on the activities conducted by the entity
  7. In certain cases, the Income Tax department may cancel the registration granted under this section. After rectifying the default, the assessee is allowed to make a subsequent application. In such cases, it is necessary to submit a self-certified copy of the existing order granting registration.
  8. The NGO may have applied for registration in the past under this section. The application may have been rejected. In such cases, a self-certified copy of the order of rejection should be attached with the application.
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