Section 12A — For NGOs and Other Non-Profit Organisations

Non-profit organisations, religious trusts, non-government organisations all cater to the development of a country. India has been blessed with many such organisations that conduct community services and help maintain peace and harmony in society.

As an energy boost to such entities, the income tax Act of 1961 has provisions for full exemption from Income tax. Yes, Section 12A of Income Tax Act provides such a benefit for registered trusts and organisations.

What is Section 12A?

Section 12A is a provision under the IT Act that provides full tax exemption for NGOs, charitable trusts, welfare societies and religious trusts. Once such an entity is established, it has to be registered as per Section 12A to claim such an exemption.

This is available for such entities because they don’t work for profit but for the public welfare. The government considers such services as selfless acts that should be given the benefit of such an exemption.

However, if an NGO or any such community-based entity has not registered itself according to the conditions and provisions of this act, the financial transactions will be considered as business ones. Note that private and family trusts are not allowed to register under this section and avail its benefits.

Conditions for Eligibility Under Section 12A

Even if your NGO or trust is registered, there are some guidelines to follow which are related to Section 12A and Section 80G. The terms are mentioned below:

1. Specific Caste/Community

If your charitable trust, NGO or welfare society is working toward a specific caste or community, it will not be eligible to claim an exemption under Section 12A.

2. Other Source of Income

If you also own a business along with an NGO, you won’t be qualified to claim exemption.

3. Cash Donation

Eligible trust and NGO should accept cash donations up to an amount of Rs. 2000 from donors.

4. Transaction

If the donation amount exceeds Rs. 2000, then the transfer should be done through electronic transfer or cheque.

5. Account Books

Proof of regularly maintaining account books and receipts should be carried out by NGOs and other such organisations. Failing to do so will cause non-eligibility for exemption.

6. Registration

Your NGO should be registered under the Societies Registration Act of 1860 or Section 8 Company Registration Act of 2013.

Your NGO should also be registered under Section 12A and Section 80G to gain tax exemption.

7. Spending

In order to claim exemption, your NGO should be spending more than 85% of your income on welfare. The main expenses should include education, medical, health and sanitation and general relief to needy.

Benefits of Registering Under Section 12A

1. Income

Note that the income in case of charitable and religious organisations will be considered as application income. This means that the expenses incurred for charitable or religious purposes will be allowed while computing income of the trust.

You will also have the benefit of accumulating or setting aside of income not more than 15% for charitable or religious purposes.

In the case of accumulation of income, it will not be included in total income.

2. Grants and Donations

NGOs are eligible to get grants and donations from government organisations and other agencies. In order to gain this benefit, the NGO has to be registered under Section 12A.

3. Additional Benefit from Section 80G

Along with benefit from Section 12A, you will also be eligible to get benefits as mentioned under Section 80G. You will also need to be registered under Section 80G.

Note that registration under Section 80G is not applicable to religious trusts or institutions.

Registration Documents Required Under Section 12A

You have to fill Form 10A and submit certain documents to file under Section 12A. Following are the documents you have to submit along with Form 10A.

• Self-certified copy proving creation and establishment of trust.
• A self-certified copy of the registration with Registrar of Companies or Registrar of Firms and Societies or Registrar of Public Trusts.
• A self-certified copy of evidence regarding the adoption or modification of assets.
• Self-certified copies of annual accounts.
• List of activities carried out by a trust or institution
• A self-certified copy of the order granting registration under Section 12A or Section 12AA
• Self-certified copy or rejection of order granting registration under Section 12A or Section 12AA.

How to File Form 10A Online?

Step 1: Go to the E-filing Portal of the Income Tax Department

Step 2: On the left side of the page you will see a tab called ‘Submit returns/Forms’. Click on it.

Step 3: Log into your account using User ID and Password. Click on ‘E-File’ tab on the bar and select Income Tax Forms.

Step 4: Select Form 10 A from the field ‘Form Name’. Select the year for assessment and submission. Click on ‘Prepare and Submit Online’. Then click on ‘Continue’.

Step 5: Read all the instructions carefully before hitting the submit button. Enter all the required details correctly.

Note: Submitting Form 10A to the Commissioner of Income Tax does not guarantee that your organisation will be registered under Section 12A. On the Receipt of the 12A application, the commissioner will examine all details and additional documents. Once all requirements are met, the application will be accepted.

Important Points Under Section 12A

If your NGO is seeking for foreign donations, you have to avail FCRA registration from the Ministry of Home Affairs. Corpus donations will not be considered as an application of income for the trusts and organisations which are registered under Section 12A.

Conclusion

To enjoy all benefits under Section 12A, make sure to fill correct details and be transparent.