Section 12A of Income Tax Act: The Essential Guide for NGO Registration and Tax Exemption

Section 12A of Income Tax Act: The Essential Guide for NGO Registration and Tax Exemption

Non-profit organisations, NGOs, and charitable trusts play a crucial role in building a better society. But to function smoothly, attract donations, & enjoy tax benefits, they must fulfil certain legal obligations.

One such crucial requirement? Registration under Section 12A of the Income Tax Act.

It’s not just a good-to-have. All NGOs must get registration under section 12A if they wish to claim income tax exemption on the donations they receive.

🔍 What is Section 12A of the Income Tax Act?

Introduced to promote transparency and accountability, Section 12A of the Income Tax Act lays down the registration process for entities involved in charitable or religious activities.

In simpler terms, it offers a framework for the registration of charitable and religious organisations, allowing them to be officially recognised for tax benefits. "

🧾 Why is Section 12A Registration Important?

Without this registration:

• An NGO’s income is fully taxable
• Donations received may not be eligible for exemptions
• The trust cannot claim benefits under Sections 11 and 12, which protect income used for charitable purposes

With registration, the income used towards charitable or religious purposes becomes exempt from tax. It helps the organisation conserve more resources to fulfil its mission. "

✅ Eligibility: Who Should Apply Under Section 12A?

Any trust, society, or Section 8 company that:

• Exists for charitable or religious purposes
• Seeks exemption under Sections 11 and 12
• Has not been previously registered under Section 12A or 12AA

All NGOs must get registration under section 12A before claiming any exemption.

📄 Key Benefits of Section 12A Registration

✔️ Tax Exemption on income used for charitable/religious purposes
✔️ Credibility boost for fundraising and grant applications
✔️ Donors may also claim exemption under Section 80G (if applicable)
✔️ Recognition by government agencies and financial institutions

🧮 Documents Required

To apply for 12A registration, NGOs need to submit:

• Trust deed / Memorandum of Association
• PAN card of the organisation
• Financial statements (past 1-3 years)
• List of trustees or board members
• Details of charitable activities
• Registration certificate under the Society Act or the Companies Act (if applicable)

🧑‍💻 How to Apply for Section 12A Registration

As per new provisions (effective April 2021), all applications are processed online via Form 10A on the Income Tax e-filing portal.

Steps:

1. Log in to the income tax portal using the organisation’s credentials
2. Navigate to "Income Tax Forms" > "File Form 10A"
3. Upload the required documents
4. Verify with DSC (Digital Signature)
5. Submit and await acknowledgement

📅 Timelines and Validity

Once submitted, the Commissioner of Income Tax (Exemptions) evaluates the application & may call for additional documents or clarification.

• Provisional registration: granted initially for 3 years
• Renewal: must be applied for at least 6 months before expiry
• Validity: Once approved post-review, registration may be granted for 5 years

⚠️ Common Mistakes to Avoid

❌ Delaying the application beyond 1 month of the commencement of activity
❌ Not maintaining proper books of accounts
❌ Using funds for non-charitable activities
❌ Accepting anonymous or unaccounted donations

These can lead to the cancellation of 12A status & invite scrutiny.

📘 Legal View: What the Act Says

According to the Income Tax Act:

“No income derived from property held under trust wholly for charitable or religious purposes shall be included in the total income of the person in receipt of the income, provided that such trust is registered under Section 12A.”

Thus, Section 12A offers a framework for the registration of charitable & religious organisations, making them eligible for income tax benefits.

📖 Example: Why It Makes a Difference

Let’s say a charitable trust receives ₹25 lakhs in donations. If it’s not registered under Section 12A:

• The entire amount is considered taxable income
• Tax payable could be as high as 30% or more

If registered under Section 12A:

• Income applied for charitable purposes is fully exempt
• Only surplus, if any, may be considered for taxation

A smart NGO would never skip this registration.

🧾 Summary Table

📘 Section 12A in Hindi (Simplified)

"धारा 12A के तहत एनजीओ, धर्मार्थ और धार्मिक संस्थानों को पंजीकरण कराना अनिवार्य है, ताकि वे आयकर छूट का लाभ उठा सकें।"

✅ Final Words

If you run a non-profit, trust, or religious institution, this isn’t optional. All NGOs must get registration under section 12A to avail of exemptions, raise public trust, & function in a tax-efficient manner.

Section 12A of the Income Tax Act does more than just save taxes—it helps you stay credible & compliant in the eyes of donors, authorities, & beneficiaries alike.

💬 Need help filing Form 10A or preparing for 12A registration?
Talk to experts at CallMyCA.com & get your organisation tax-ready.