12A Act Registration

12A registration is a one-time registration which is granted by the Income Tax Department to trusts and other not for profit organisations. The purpose of the registration is to be exempted from the payment of income tax. 12A registration is generally applied for immediately after incorporation. Section 8 Companies, Trusts and NGOs which have obtained 12A registration enjoy exemption from paying income tax on their surplus income.

BENEFITS
1. The fund used for charitable or religious purposes is considered to be the application of the income. The income application refers to the expenses used for charitable or religious purposes for calculating the taxable income of the not-for-profit organization.
2. The income received will be free from the charge of Income Tax.
3. The person who is registered under Section 12A can avail benefits for accumulating or setting aside income. However, the income which is set aside should not be more than 15% of the amount applied towards charitable or other non-commercial purposes.
4. The accumulation of income which is considered to be the income application shall not be included in the assessee’s total income.
5. NGOs are entitled to receive grants as funds from domestic and international sources. These agencies are entitled to provide grants to NGOs which have obtained registration under this section.
6. The registration which is granted under Section 12A shall be treated as a one-time registration. Once the registration is made, the registration will be active until the date of cancellation.
7. There is no requirement to renew the registration periodically. Hence, the registration benefits can be claimed NGO as and when the requirement arises.

Eligibility Criteria
1. In order to qualify for registration under Section 12A, the organization should meet the definition of charitable purpose as defined in the Income Tax Act. Charitable purpose means relief to the poor, education, medical relief and activities undertaken with the objective of preserving the environment. The pursuit of any other objective of a public utility will also qualify for a charitable purpose.
2. The primary qualifying criterion will be to check whether there is any profit motive involved in the activities carried on by the assesse. In the absence of a profit motive, registration shall be granted.
3. If the assesse is carrying on activities related to trade or commerce, then the facility granted under this section is restricted. In such cases, registration is granted exclusively if the receipts from the trade activity are less than twenty per cent of the total receipts of the assesse.
4. Also, it may be noted that 12A Registration is not applicable for Private or Family Trusts. The activities of the assesse should be genuinely for the benefit of the public.