Section 12AA of the Income Tax Act plays a vital role for organisations that work for charitable or religious purposes. This section offers a structured legal framework for the registration of charitable & religious organisations in India. The primary benefit of getting registered under this section? Income is exempt from taxes.
Let’s break it down in a way that’s clear, practical, and easy to follow.
What is Section 12AA of the Income Tax Act?
Section 12AA outlines the procedure through which trusts & institutions can apply for income tax exemption. This section applies specifically to charitable & religious institutions seeking benefits under sections 11 and 12 of the Act.
Once the registration is granted under Section 12AA, the income is exempted from taxes, provided the organisation complies with all the rules & conditions laid out by the Income Tax Department. "
Registration Procedure Under Section 12AA
The process is now streamlined with online applications & predefined guidelines. Here’s how it works:
- Apply in Form 10A to the Principal Commissioner or Commissioner of Income Tax.
- Provide documents like the trust deed, PAN, activity reports, etc.
- The Commissioner may request further documents or conduct inquiries.
- Once satisfied, the Commissioner grants registration.
Previously, this registration was granted for a lifetime. However, under recent reforms, all new registrations will be given for 5 years only. After 5 years, a renewal process must be initiated. "
Why Is Section 12AA So Important?
Let’s say you’re running an NGO or a temple trust. You receive donations & grants. Without registration under this section, you would be taxed on this income just like any other business.
But Section 12AA offers a framework to shield your funds from taxation, allowing the organisation to reinvest more into its cause.
Benefits of Section 12AA Registration
- 100% tax exemption on eligible income.
- Greater trust and credibility with donors and government bodies.
- Eligibility to register under 80G for donor benefits.
- Easier grant access from international and national donors.
Who Can Apply?
- Charitable Trusts
- Religious Institutions
- NGOs and Section 8 Companies
Common Mistakes to Avoid
- Not maintaining proper books of accounts.
- Misutilization of income (spending on non-charitable activities).
- Delay in renewal after the 5-year registration period.
What Happens If You Don’t Register?
Any institution not registered under Section 12AA will be taxed like a business, meaning your charitable income will no longer be exempted. This could heavily impact the funds available for your activities.
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