Non-Governmental Organizations (NGOs) can be formed under various constitutions such as trusts, societies, or Section 8 companies. However, to claim tax exemptions under Section 11 & 12 of the Income Tax Act, 1961, it is mandatory for NGOs to obtain registration under Section 12A. This registration ensures that the NGO is eligible for exemptions on income, making it an essential step for all charitable organizations.
This article offers a comprehensive overview of Section 12A registration, detailing eligibility, benefits, procedures, and recent updates to the process. Let’s explore the key aspects in a structured manner to ensure a smooth application process.
Section 12A Registration
Section 12A of the Income Tax Act provides tax exemptions to NGOs involved in charitable and religious activities. While an NGO may register under its respective formation laws (Trust Act, Society Registration Act, or Section 8 of the Companies Act), Section 12A registration is crucial to avail of exemptions under Sections 11 and 12 of the Income Tax Act.
Previously, Section 12A provided a one-time registration, valid until cancellation. However, as of 1st April 2021, this has been amended, and now all new registrations are granted for 5 years. After 5 years, the NGO must apply for renewal.
Recent Amendments in Section 12A Registration (Post-Finance Act 2020)
A. New Registration Process
The Finance Act of 2020 introduced important changes to Section 12A registration. Under the amended provisions, organizations now receive a provisional registration valid for three years. This is a significant shift from the earlier permanent registration system. After the provisional period, the registration is renewed for 5 years, subject to conditions.
The timeline for applying for registration is outlined as follows:
- New NGOs: Apply at least one month before the commencement of the assessment year.
- Provisional to Regular Registration: Must be submitted at least 6 months before the expiry of the provisional period.
B. Migration of Existing Registrations
Existing registered NGOs must apply for re-validation of their registration under Form 10A within three months from 1st April 2021. This re-validation will also be valid for 5 years, after which a renewal application should be submitted in Form 10AB.
C. Simultaneous Benefits under Section 12A and Section 10(23C)
If an NGO’s registration becomes non-operative due to availing benefits under multiple sections (such as Section 10(23C)), it will need to reapply under Section 12AB. The registration will be valid for 5 years, requiring a renewal after every 5 years.
D. Modification of NGO Objectives
In case of any change in the objectives of the NGO, it is mandatory to apply for re-registration under Section 12AB within 30 days of the modification. The new registration will be valid for 5 years.
Benefits of Section 12A Registration
Obtaining Section 12A registration provides several benefits for NGOs. These include:
| Benefit | Description |
|---|---|
| Tax Exemption | The NGO’s income is exempt from income tax, enabling more resources for their cause. |
| Income Application | Funds spent on charitable or religious activities are considered as application of income. |
| Accumulation of Income | NGOs can accumulate up to 15% of income for future use in charitable activities. |
| Access to Grants | Section 12A registered organizations can receive grants from both domestic and international sources. |
| One-Time Registration | Once granted, Section 12A registration is permanent until cancellation or revalidation. |
| Financial Flexibility | NGOs can avail of benefits without any rigid renewal process, offering flexibility in operations. |
Eligibility for Section 12A Registration
To qualify for Section 12A registration, an organization must meet the following criteria:
- Charitable Purpose: The organization’s objectives must align with charitable purposes such as relief to the poor, education, medical relief, and environmental conservation.
- Non-Profit Motive: The activities should not have any profit motive. The income should be applied exclusively to charitable purposes.
- Non-Business Activities: The organization should not engage in substantial business activities. If it does, business receipts should not exceed 20% of total receipts.
- Public Benefit: The activities must benefit the public at large, rather than specific individuals or groups.
Section 12A Registration Procedure
The registration process for Section 12A is straightforward but requires careful attention to detail. The application must be submitted to the Principal Commissioner or Commissioner of Income Tax. Below are the steps involved:
A. Filing Form 10A
- Visit the E-Filing Portal: Go to the Income Tax Department’s E-filing portal at https://www.incometaxindiaefiling.gov.in.
- Select Form 10A: Under the “Income Tax Forms” section, select Form 10A for the relevant assessment year.
- Prepare and Submit Online: Choose the “Prepare and Submit Online” option, fill in the required details, and attach necessary documents.
- Verify Using Digital Signature or EVC: Submit the form using the authorized digital signature or EVC for verification.
B. Documents Required for Registration
Ensure the following documents are submitted along with Form 10A:
- Incorporation Document: Self-certified copy of the trust or society’s incorporation document.
- Registration Certificate: Copy of the registration certificate with the relevant authority.
- FCRA Registration (if applicable): Copy of registration under the Foreign Contribution Regulation Act.
- Annual Accounts: Copies of financial statements for the past 3 years.
- Modification of Objects: If applicable, submit self-certified documents evidencing any modifications to the NGO’s objectives.
- Notes on Activities: Detailed note on the activities carried out by the organization.
Timelines for Application and Approval
The timeline for submitting applications and receiving approval is crucial for maintaining compliance. Here’s a summary of the deadlines:
| Category | Time Limit for Filing Application | Time Limit for Passing Order |
|---|---|---|
| New NGOs (Provisional Registration) | 1 month before the commencement of the assessment year | Within 1 month of receiving the application |
| Existing NGOs Revalidation | Within 3 months from 1st April 2021 | Within 3 months from the end of the month in which the application is received |
| Renewal (After 5 years) | At least 6 months before the expiry of the registration | Within 6 months from the end of the month in which the application was received |
| Change in Objectives | Within 30 days from the change in objectives | Within 6 months from the end of the month in which the application was received |
Issuance of Registration Certificate
Once the application is processed, the Commissioner will issue the registration certificate or reject the application after providing a reason. If approved, the NGO will receive a unique 16-digit alphanumeric registration number. The registration is valid for 5 years, after which it needs to be renewed.
Important Considerations for NGOs
- DARPAN Registration: NGOs applying for Section 12A registration or revalidation must be registered on the DARPAN portal of NITI Aayog. This is particularly mandatory if the NGO receives or intends to receive grants from the Central or State Government.
- Non-Profit Status: NGOs should ensure their activities strictly adhere to the non-profit criteria to maintain Section 12A registration.
Conclusion
Section 12A registration is an essential step for any NGO looking to avail tax exemptions under the Income Tax Act. With the introduction of new provisions in the Finance Act 2020, it is crucial for organizations to understand the updated registration, renewal, and revalidation processes. By following the correct procedures, ensuring timely submissions, and maintaining compliance, NGOs can continue their charitable missions without the burden of taxation, enabling them to channel more resources into their activities.
By staying informed and adhering to the guidelines, NGOs can effectively navigate the regulatory landscape and focus on making a positive impact on society.
FAQs
Section 12A registration provides NGOs with tax exemptions under the Income Tax Act, enabling them to apply income for charitable purposes without paying income tax, thus maximizing resources for their activities.
Section 12A registration is valid for 5 years. After that, renewal must be applied for at least 6 months before the expiry of the registration period.
No, new NGOs cannot claim Section 12A registration benefits in their first year. They must apply for registration at least one month before the start of the relevant assessment year.
Documents required include incorporation documents, registration certificates, annual accounts for the last three years, evidence of any object modifications, and details from the DARPAN portal if applicable.
Yes, DARPAN registration is mandatory for NGOs applying for Section 12A registration, especially if they receive or intend to receive grants from the central or state government.
If an NGO modifies its objectives, it must reapply for Section 12A registration within 30 days of the change, with the new objectives, to maintain its tax-exempt status.