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Section 12AA of Income Tax Act of 1961 details the procedure for registering a trust, society, or non-profit organization. 12AA Registration is mandatory for such organizations to be eligible for tax exemptions and deductions for donations.
Non-profit organizations play a pivotal role in shaping and contributing to the country’s societal and environmental development. They engage in diverse activities and welfare initiatives in education, healthcare, relief and rehabilitation. The 12AA registration process helps regulate their operations within the legal frameworks, ensuring continued positive impact.
Any non-profit organization seeking to obtain form 12AA of Income Tax Act registration under the Income Tax Act must submit a duly filled form 10A in India. This form must be submitted to the Principal Commissioner or Commissioner of Income Tax. Essential details such as objectives and financial statements must be correctly filled in to be eligible to receive the registration certificate from the authorities.
An organization applying for 12AA registration must first define its purpose and operational category, specifying whether it is established to run for charitable, religious, or both causes. Once this is done, the organization must fulfil the conditions and compliance requirements.
Section 12AA registrations under the Income Tax Act in India offer various benefits to the applicant organizations, including access to tax exemptions on surplus income. It also allows them to utilize their funds more effectively to meet their charitable objectives. Benefits include:
Tax Exemptions
Undeniably, the most crucial benefit of 12AA registration under the income tax is exemption on income generated from the NPOs’ charitable and religious activities. Tax benefits help them save a substantial amount of money, which can be further invested to achieve their non-profit objectives and serve the needs of their organizations.
Encouraging Donations
12AA registration also plays a crucial role in boosting donations. Donors who contribute to a registered non-profit organization can deduct their donations from their taxable income, reducing their tax burden. This tax benefit encourages more donors to support non-profit organizations, thereby increasing their fundraising potential.
Eligibility to Receive Foreign Funds
All registered non-profits organizations including trust registered under section 12AA and NGOs are eligible to receive donations from foreign sources under the Foreign Contribution (Regulation) Act, 2010. Therefore, this benefit opens up another income stream for such organizations where foreign funds can be contributed legally to help them run their operations seamlessly.
Transparency & Accountability
12AA registration enhances the credibility of non-profit organizations. These organizations undergo a rigorous verification process by the Income Tax Department, ensuring they meet all compliance and regulatory standards. This transparency and accountability make them more trustworthy, as they operate in a clear and responsible manner.
Hire Qualified Staff
A non-profit organization with 12AA registration is well positioned to hire qualified staff, as it can receive tax-exempt donations from supporters. These donations provide the necessary funding to attract and retain skilled professionals, boosting the organization’s overall effectiveness and impact.
Government Benefits
12AA registration offers non-profits access to government funding, enhances policy influence and facilitates resource sharing. It also boosts visibility and provides valuable networking opportunities, helping organizations build connections, expand their reach, and achieve more significant impact in their communities.
A non-profit organization comprises an entity that does not function to earn profits. The first essential eligibility criterion for online registration in section 12AA is to define a charitable trust.
Charitable Activities
As per the Income Tax Act, charitable purpose means any activity to benefit the public. These include the activities related to the following fields:
List of Charitable Activities
Religious activities comprise activities conducted to promote any religion or religious values, such as:
Religious activities eligible for 12AA registration include:
Documents required for 12AA registration by non-profit organizations, which they need to submit to register and get 12AA certificate, include:
The applicant organization needs to prepare all required documents for registration, including a trust deed, PAN card, audited financial statements, etc.
The applicant organization must correctly complete Form 10A, include all the details about the organization & its activities, and submit the duly filled form.
Next, the Income Tax officers scrutinize the submitted form and review the application, which may or may not need further information, submissions, or clarifications.
Once the submitted form is validated by the Income Tax officer, they may decide to visit the organization as part of the field inspection to verify its details, activities, and records
If the Income Tax officer is satisfied with the field inspection, the Commissioner proceeds to approve Section 12AA registration of the organization and issues a registration certificate.
Once the applicant organization receives its registration certificate, it must ensure that it follows all regulatory and legal requirements, including timely submission of annual returns and audit reports. Non-compliance can lead to the cancellation of the 12AA registration.
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