Section 12AB(4): The Rule That Keeps Charitable Trusts Accountable to the Tax Department

Every year, thousands of new NGOs and charitable trusts are formed in India. Some truly work for the public good — running schools, distributing medicines, or feeding the poor. But not all operate with the same sincerity. To keep the system fair, the government introduced Section 12AB(4) of the Income Tax Act, 1961. It regulates the registration and operation of charitable organizations so that only genuine ones get tax exemptions under Sections 11 & 12.

If a trust misuses donations or drifts from its stated goals, the Income Tax Department can step in and even cancel its registration.

A Quick Flashback – From 12A to 12AB

Until a few years ago, trusts and NGOs used to register under Section 12A or 12AA. Once registered, many never updated their details, even if they became inactive. The government decided to change that. In 2020, it introduced Section 12AB, which made re-registration mandatory every few years. This simple reform ensured:

• Active monitoring of charitable institutions
• Transparency in donations & expenses"
• Removal of fake or dormant NGOs

In short, Section 12AB created an accountability loop.

What Exactly Does Section 12AB(4) Say?

Section 12AB(4) gives the Principal Commissioner or Commissioner of Income Tax the power to cancel the registration of a charitable organization if it’s found violating the law.

For example:

• If a trust isn’t using donations for the public good
• If its activities are not genuine
• Or if it’s caught violating other legal provisions

The Commissioner can issue a notice, review evidence, and cancel its registration after due process.

The intent isn’t punishment — it’s to make sure taxpayer money & public donations are used honestly.

Also Read: Registration & Tax Benefits for Charitable Trusts

Who Needs to Register Under Section 12AB

If you run or plan to start a:

• Charitable trust
• Religious trust or temple trust
• Society under the Societies Registration Act
• Section 8 Company (Non-profit under Companies Act)

— then registration under Section 12AB is a must to claim income tax exemption.

Without it, your donations & surplus income are fully taxable, just like any business.

Why the Registration Isn’t Permanent Anymore

Earlier, once a trust got registered, it could sit back forever. Now, under Section 12AB, registration typically lasts for five years.

The trust must apply for renewal within six months before expiry.

This ensures that only actively functioning, compliant organizations keep their exemption. It also lets authorities weed out shell entities that exist only on paper.

When and Why Can Registration Be Cancelled

Under Section 12AB(4), cancellation isn’t random. It happens when the trust:
1️. Runs activities that are not genuine.
2️. Uses income for non-charitable purposes or private benefit.
3️. Fails to comply with other laws material to its objectives (like FCRA or Companies Act).
4️. Does not maintain proper books of accounts.
5️. Fails to apply income as required under Section 11 (i.e., 85% of income used for charitable work).

If the Commissioner finds any of these issues, a show-cause notice is issued before any action is taken.

A Simple Example

Imagine an NGO registered to promote education for underprivileged children. Over time, it starts using most donations for office renovations & luxury vehicles for its trustees. When the assessing officer reviews their accounts, he finds barely 20% of income spent on education — the rest on personal perks.

In such a case, the NGO clearly violates Section 12AB(4), and its registration can be cancelled after due inquiry.

This keeps the system clean & the spirit of charity alive.

Renewal, Re-Registration, and Deadlines

Every registered trust has to re-register or renew its status periodically.
There are two main forms:

• Form 10A – for new registrations
• Form 10AB – for renewal or modification of existing registration

The process is online through the Income Tax Portal. It’s paperless, transparent, and trackable."

If a trust misses renewal deadlines, its benefits under Sections 11 and 12 automatically lapse.

Also Read: The Essential Guide for NGO Registration and Tax Exemption

What Happens After Cancellation

If registration is cancelled:

• The trust’s income becomes taxable like any regular business.
• It can no longer issue 80G receipts to donors.
• All future donations lose tax-deductible status.
• The trust may face backdated scrutiny for earlier years too.

So, one wrong move can shut the doors to major funding sources & public trust.

How to Avoid Getting Cancelled Under Section 12AB(4)

Here are simple ways to stay compliant:
✅ Stick to your declared objectives.
✅ Spend at least 85% of income on charitable activities.
✅ File your ITR (Form 10B) & audit reports on time.
✅ Maintain complete transparency in donations & expenses.
✅ Avoid related-party transactions without full disclosure.

Basically, if you’re genuine, you have nothing to worry about.

Real-World Case: Where Things Went Wrong

A well-known regional trust once collected large sums to build a free hospital. Years later, the hospital remained incomplete — but the trustees had luxury cars and overseas travel bills. The Income Tax Department cancelled their registration under Section 12AB(4) after verifying misuse of funds.

The message was clear: charity can’t be a cover for personal benefit.

What Section 12AB(4) Means for Donors

Donors now check if an NGO is 12AB registered before donating, because only then can they claim deductions under Section 80G.

So for NGOs, staying registered isn’t just about tax benefits — it’s about credibility.
Without registration, even well-meaning donors hesitate.

The Digital Compliance Revolution

Earlier, NGO registration meant endless paperwork. But the new system is 100% online:

1️⃣ Log in to the portal.
2️⃣ Select Form 10A or Form 10AB.
3️⃣ Upload trust deed, PAN, accounts, and audit report.
4️⃣ Submit & track status online.

No middlemen, no long queues. Technology has made compliance smooth & transparent.

Also Read: Tax Exemption for Charitable Organizations

Important Things Every Trustee Should Remember

✔ Always keep PAN & registration details updated.
✔ Apply for renewal well before expiry.
✔ File income tax returns even if income is fully exempt.
✔ Keep donation receipts and expense proofs neatly organized.
✔ Never divert funds for private or political purposes.

Most cancellations happen not because of fraud — but because of ignorance or careless record-keeping.

How Section 12AB(4) Protects Genuine Charities

Section 12AB(4) may sound strict, but it actually protects honest organizations. It ensures that unethical players don’t misuse the “charity” tag to avoid taxes. By keeping the registration system dynamic & review-based, it rewards transparency and punishes malpractice.

In the long run, it builds public trust — the most valuable currency for any NGO.

Audit and Reporting Requirements

Every charitable organization must:

• Get books audited annually if income exceeds the exemption limit.
• File Form 10B with the Income Tax Department.
• Report details of donations & expenditure.

Audits ensure that funds are being used properly. They’re not just legal formalities — they’re proof of integrity.

Link Between Section 12AB and Section 80G

Many people confuse these two.

• Section 12AB – gives tax exemption to the trust itself.
• Section 80G – gives tax deduction to donors.

You can’t get 80G approval unless your trust is first registered under 12AB.
If registration under Section 12AB(4) is cancelled, the 80G certificate automatically becomes invalid.

Legal Safeguards for Fair Process

Before cancellation, the Commissioner must:

• Issue a formal show-cause notice.
• Give a chance to the trust to explain or correct issues.
• Pass a reasoned written order with justification.

This ensures fair treatment & avoids arbitrary decisions.

Also Read: The Tax-Free Exit Door for NPS Withdrawals

Summary Table – Quick Reference

Conclusion

At its heart, Section 12AB(4) is not about punishment — it’s about protection. It ensures that the trust, temple, or NGO you donate to is real, accountable, and honest.

If your organization is genuine & transparent, this law is your ally.
But if there are loopholes, ignorance, or mismanagement, it can become your biggest challenge.

To stay compliant, keep your records clean, renew on time, and get expert help.

For guided support in trust registration, renewal, audit filing, or legal compliance, visit 👉 Callmyca.com — where India’s top CAs simplify every step of NGO and charitable registration so you can focus on your mission, not the paperwork.