Section 12A/12AB - Registration of Charitable Institution/Trust/Organization
Charity or philanthropy has always been virtue of the mankind. In the Indian tax jurisprudence, the entities engaged in charitable activities have always enjoyed benefits in the form of exemptions and deductions in one form or the other.
What is Charitable Institution/Trust/Organization?
A charitable institution or organization or charity is an organization whose primary objectives are philanthropy and social well-being. The efforts can range from educational, religious or other activities serving the public interest or common good.
Charitable institutions are constituted to carry out social, charitable or religious initiatives on a bigger scale. It also enables various persons to contribute to the cause of charity. Because of charitable institutions, schools, colleges, research institutions, hospitals, places of worship, community halls, etc. have come up. Social objects like water supply, sanitation, conservation of natural resources, historical monuments, etc. are also undertaken by such institutions.
What is Charitable Purpose?
As per Section 2(15) of Income Tax Act, 1961, “charitable purpose” includes
- Relief of the poor
- Medical relief.
- preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and
- the advancement of any other object of general public utility.
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless
- such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and
- the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year.
The term religious activity is not defined in the Income Tax Act. The litmus test is however, that the religious purpose must be public in nature. A Religious Trust may be private or public. Section 13(1)(a) excludes from exemption a private religious Trust, which does not ensure for the benefit of the public.
Registration Process for charitable or religious trusts under section 12A/12AB
Finance Act, 2020 had inserted a new clause (ac) in section 12A(1) of the Income Tax Act, 1961. Clause (ac) of sub-section (1) of section 12A of the Income Tax Act states that notwithstanding anything contained in clause (a) to (ab), the person in receipt of the income who intends to claim benefit of section 11 & 12 is to make application in prescribed form to PCIT or CIT for registration of the trust. The forms as prescribed for this purpose are Form No. 10A & 10AB. In simple words, every trust who intends to claim benefit u/s 11 & 12 shall make application in Form No. 10A or 10AB, as the case may be, to PCIT or CIT for registration of trust. The procedure for registration was earlier specified in section 12AA. However, section 12AA has been withdrawn now and section 12AB has now been inserted for making effective the registration procedure of trusts. Thus, all trusts which were earlier registered u/s 12A or 12AA shall now have to obtain fresh registration u/s 12AB.
Due to Covid-19 situations, this new clause was made effective from 01st April, 2021.
What is the procedure of registration under section 12AB
- Log in to Income Tax India E-Filing Portal using to login credentials and password.
- Navigate to “Income Tax Forms” under E-File tab and select Form 10A/ 10AB, as the case may be
- Select the option “Prepare and Submit online” to fill requisite details in the form.
- Attach the requisite document along with Form 10A/10AB.
- Submit the form using digital signatures or EVC.
- On receipt of application in Form No. 10A or 10AB, as the case may be, the PCIT or CIT shall process the application within the prescribed time limit.
In case of applicant who is already registered u/s 12AA or in case of Provisional Registration where Form 10A has been submitted – shall pass an order in writing granting registration in Form No.10AC and issue a 16 digit alphanumeric Unique Registration Number (URN) to the applicants (Provisional registration shall be effective from the assessment year beginning on 1st day of April, 2022.)
In cases where Form No. 10AB has been filed, order granting registration or rejection or cancellation shall be in Form No. 10AD.
Exemption to a trust
Income of a charitable and religious trust is exempt from tax subject to certain conditions. The exemptions are provided to the trusts under various provisions, inter-alia, Section 10, Section 11, etc. Some of the exemptions allowed to a trust are as under.
- Section 11 provides exemption for income derived from property held under trust wholly for charitable or religious purposes to the extent such income is applied for charitable or religious purpose in India. However, this exemption shall be subject to certain conditions.
- In view of Section 12, income in the form of voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes shall also be exempt from tax (subject to certain conditions).
- Any voluntary contributions received by an electoral trust shall not be included in its total income (subject to certain conditions).
- Income of an educational institute is subject to exemption under Sections 10(23C)(iiiab)/(iiiad)/(vi).
- Income of a hospital or other institution shall be eligible for exemption if it satisfies the conditions prescribed under Sections 10(23C)(iiiab)/(iiiad)/(vi).
Documents Required for 12A Registration
- where the trust is created, or the institution is established, under an instrument, self-certified copy of the instrument creating the trust or establishing the institution.
- where the trust is created, or the institution is established, otherwise than under an instrument, self-certified copy of the document evidencing the creation of the trust, or establishment of the institution.
- self-certified copy of registration with Registrar of Companies or Registrar of Firms and Societies or Registrar of Public Trusts, as the case may be.
- self-certified copy of the documents evidencing adoption or modification of the objects, if any.
- where the trust or institution has been in existence during any year or years prior to the financial year in which the application for registration is made, self certified copies of the annual accounts of the trust or institution relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up; note on the activities of the trust or institution.
- self-certified copy of existing order granting registration under section 12A or section 12AB, as the case may be; and
- self-certified copy of order of rejection of application for grant of registration under section 12A or section 12AB, as the case may be, if any.
- In case of existing entities, copies of annual accounts for the period not exceeding 3 years immediately preceding the year in which the application is made.
- Where the income of the entity includes profits and gains of business as per the provisions of sub-section (4A) of section 11, copies of annual accounts and audit report u/s 44AB for 3 years immediately preceding the year in which the said application is made.
- Self-certified copy of the documents evidencing adoption or modification of the objects.
- Notes on the activities of the applicant trust or institution.
- If registered on DARPAN Portal, then details of such registration.
Additional Documents needed –
- If PAN/Aadhar available- PAN and Aadhar of all authors/ settlors/ trustees/ Members of Governing Council/ Members of societies/ Shareholders holding not less than 5% shares.
- If PAN/ Aadhar not available: – Voter ID or Passport or Driving License of the above persons.