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In my last article I have discussed 'Concept of NGO and Income Tax Provisions'. In that article we have discussed the formation of NGO, Procedure for Section 12A registration, Filing of income Tax Return for NGO and Section 80G registration etc.

We have already discussed, NGO's have multiple options to select the form of constitution. There are various factors which may be considered while selecting a particular form for NGO. NGO can be in the form of Trust, Society or Section 8 Company.

Section 2(15) defines Charitable Purpose and sections 11, 12, 12A, 12AA and 13 of the Income -tax Act, are the main sections that deal with scheme of taxation exemption in respect of income of charitable or religious trusts/institution.

Section 11 and 12 of the income tax act provides exemptions to NGO's. Registration u/s 12A is a pre-condition and mandatory requirement for claiming those exemptions. NGO's having 12A registration enjoy tax benefits.

'It is important to note here that notwithstanding the fact that trust, society and section 8 companies are registered as per their respective acts, the registration under section 12A is necessary to claim exemption under Income Tax Act.'

The Supreme Court of India held in the case of:

U.P. Forest Corporation And Anr vs. Dy. Commissioner Of Income Tax, ... on 27 November 2007

'A conjoint reading of Section 11, 12 and 12A makes it clear that registration under Section 12A is a condition precedent for availing benefit under Section 11 and 12 of the Act. Unless and until an institution is registered under Section 12A of the Act, it cannot claim the benefit of Section 11(1)(a) of the Act.'

Here we are discussing why NGO's should get themselves registered u/s 12A of the Income Tax Act.

Benefits of Registration

The various benefits of Section 12A registration are enumerated as below:

1. The income applied for the charitable or religious purpose will be considered as an application of income i.e. expenditure incurred for the charitable or religious purpose will be allowed while computing income of the trust.

2. The benefit of accumulating or setting aside of income not exceeding 15% for the charitable or religious purpose will be available.

3. The accumulation of income, which is deemed as an application of income as per section 11(2), shall not be included in the total income.

4. NGO's receives various grants from government and other agencies. They are eligible to get grants and financial funding from various agencies. These agencies generally make grants to 12A registered NGO's.

5. The benefit in Section 80G registration. NGO's have to apply separately for Section 80G registration.

It is important to note that when registration is granted under section 12A, it does not mean that section 80G approval is to be given i.e. registration under section 12A will not provide automatic approval under section 80G. Section 80G applies only to charitable trusts or institution. It does not apply to religious trust or institutions.

6. The benefit in FCRA registration. NGO's seeking foreign contributions have to obtain FCRA registration from the Ministry of Home Affairs.

7. Finance Act'2014 has extended the benefits of registration for prior years as well. These benefits have been extended to the trusts or institutions where the registration has been granted under section 12AA.

  • The benefit of Section 11 and 12 will apply to trust or institutions for all the pending assessments on the date of such registration subject to the condition that the objects and activities of Trust in the earlier years claimed are same on the basis of which the registration has been granted.
  • Further, it is provided that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of such trust or institution for the said assessment year.

The above benefits would not be available in case of any trust or institution which anytime had applied for registration and the same was refused under section 12AA or a registration once granted was cancelled.

8. Registration under section 12A is one-time registration. Once the registration is granted to the trust, it will hold good till the cancellation of registration. There is no provision which requires any renewal of registration. Thus, the benefits of registration can be claimed for lifetime by NGO.


Published by

CA Tarun Kumar
Category Income Tax   Report

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