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Trust Registration under IT Act

Charitable or religious trusts who desirous of claiming exemption under Section 11 and 12 of the Income-tax Act are required to obtain registration under the Act as registration u/s 12A is a pre-condition and mandatory requirement for claiming exemptions.

Registration under section 12A allows a Charitable Trusts and NGOs to enjoy exemption from paying income tax on the surplus income of the Trust or NGO.

Note: Section 11 and 12 of the income tax act provides exemptions to NGO’s.

Coverage: –

  1. Trust Registration under IT Act
  2. What are the benefits of 12A Registration?
  3. What is the procedure for Registration of Trust or Institution – Section 12AA?
  4. What are the Documents required for registration under section 12A?

 

What are the benefits of Trust registration under IT Act (Section 12A)?

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

  • Application of Income: The income applied for charitable or religious purpose will be considered as application of income i.e. expenditure incurred for charitable or religious purpose will be allowed while computing income of the trust.
  • Accumulation of Income @15%: The person registered under this section can avail benefits for accumulating or setting aside income which is not more than 15% for the charitable or religious purposes.
  • One time Registration: The registration that is made under Section 12A, is a one-time registration. Once the registration is made, it will be active till the date of cancellation of the registration. There is no requirement of renewing the registration. Therefore, these benefits can be claimed whenever required by the NGO.
  • Benefits of taking grants from the Government, Abroad, other agencies: 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.
  • Benefits of FCRA Registration

 

What is the procedure for Trust registration under IT Act – Section 12AA?

  • Application in form 10A:  The person required to get registered under section 12AA and in receipt of the income should make an application in Form No. 10A for registration of the trust or institution to the Commissioner before the expiry of a period of one year from the date of the creation of the trust or the establishment of institution, whichever is later.

 

  • Steps to be taken by the Principal Commissioner on receipt of application [Section 12AA(1)]

The Principal Commissioner or Commissioner on receipt of an application for registration of a trust or institution shall—

  1. call for necessary documents or information from the trust or institution to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries in this behalf and
  2. Once satisfied about the objects of the trust or institution and the genuineness of its activities, he
  1. If satisfied, shall pass an order in writing registering the trust or institution or
  2. If he is not so satisfied, he shall pass an order in writing refusing to register the trust or institution,

A copy of such order shall be sent to the applicant. However, applicant will be given a reasonable opportunity of being heard in case of passing of refusal order to register.

Note: Every order granting or refusing registration shall be passed before the expiry of six months from the end of the month in which the application was received by the commissioner. (Section 12AA(2)).

 

What are the Documents required for registration under section 12A?

An application in Form 10A for registration of charitable or religious trust or institution shall be furnished electronically under digital signature (DSC) to the Commissioner of Income Tax along with the following documents.

Along with the form 10A application, the following documents must be attached by the taxpayer:

  • 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 12AA, as the case may be; and
  • Self-certified copy of order of rejection of application for grant of registration under section 12A or section 12AA,as the case may be, if any.

Cancellation of Registration of a Trust or Institution under Section 12AA(3)

As per section 12AA, the registration once granted to a trust or institution shall remain in force till it is cancelled by the Principal Commissioner or Commissioner.

However, the Principal Commissioner or Commissioner can pass an order in writing for cancelling the registration under the following two circumstances:,

  1. The activities of a trust or institution are not genuine, or;
  2. The activities are not being carried out in accordance with the objects of the trust or institution.

If any of the above or both conditions are met, the Principal Commissioner/ Commissioner be empowered to cancel the registration.

However, no order under section 12AA(3) shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.

Further, as per Section 12AA(4), the power of cancellation of registration has been extended  the powers of Principal Commissioner/Commissioner to cancel registration under section 12AA(3) are severely restricted.

There have been cases where the income is not properly applied for charitable purposes or has been diverted for benefit of certain interested persons and these institutions continue to enjoy the beneficial regime of exemption.

Therefore, in order to rationalise the provisions relating to cancellation of registration of a trust, section 12AA(4) was introduced to provide that where a trust or an institution has been granted registration, and subsequently it is noticed that its activities are being carried out in such a manner that,

  1. its income does not ensure for the benefit of general public;
  2. it is for benefit of any particular religious community or caste;
  3. any income or property of the trust is applied for benefit of specified persons like author of trust, trustees, etc.; or
  4. its funds are invested in prohibited modes,

then the Principal Commissioner or the Commissioner may by an order in writing cancel the registration of such trust or institution.

However, registration shall not be cancelled under section 12AA(4) if such trust or institution proves that there was a reasonable cause for the activities to be carried out in the above manner.

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