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What Is Section 12A Registration For Trusts Under The Income Tax Act?

In this article, we shall delve into getting a better understanding of Section 12A of the Income Tax Act, 1961 and how one can obtain this registration certificate.

Section 12A of the Income Tax Act: A trust is a legal entity created by a person(s) or entity(s), wherein that person(s) or entity(s) hands over an asset to another person(s) or entity(s) to ensure that the asset is used for a specific purpose. The person who hands over the asset is called the ‘settlor’. The person in charge of executing the purpose for which the asset has been handed over is called the trustee. And the person(s) or entities who are benefited from the trust are known as the ‘beneficiaries’. There are mainly two kinds of trusts:

  • Private trust – This is usually created by parents, or guardians for their children or other descendents. It could be a general trust or a specific trust. For instance a general private trust is created to take care of the living expenses of beneficiary. Whereas a specific private trust could be one where the trust has been created to take care of something specific like the child’s higher education etc. It must be noted here that this is just the most common purpose for creating a trust. Legally speaking a trust can be created between any two individuals or entities.
  • Public and charitable trusts: These are generally trusts that are started by a settlor creating a corpus in the form of an asset that could be in the form of cash or property. These kinds of trusts are generally for charitable purposes and hence collect donations from the general public as well. These donations get added to the corpus and is used for the purpose the trust was created.

Now private trusts are usually fixed in nature and have no income as such. But if the money in the trust has been put in some sort of a deposit account, then the interest income on that is taxable. This however is not the case with public and charitable trusts. Public and charitable trusts collect donations which qualify as an income and the public trust also may have invested the whole or part of the corpus in some kind of deposit account. However, the income earned by these charitable trusts are exempt from income tax as they are non-profit organisations conducting activity for the general betterment of the society and upliftment of the downtrodden.

As with all certifications and registrations there are regulatory requirements that need to be fulfilled for the purpose of 12A Registration.

Section 8 of the Income Tax Act, allows companies, trusts, soceities, NGOs and all other not-for-profit entities registered under section 12A to be exempted from paying tax on their surplus income. Section 12A of the Income tax Act provides that all public trusts that a non-profit organisations engaging in charitable work and conducting activities for social upliftment will be exempt from income tax and any income received by the such an entity for its charitable purposes shall be tax free.

This sort of a tax benefit is available to all non-profit NGOs functioning in India. Hence, it is vital that Trusts, Section 8 companies, societies and other Not-for-Profit organisations be aware of and register as per Section 12A of the Income Tax Act in order to avail this benefit.

Documents Required For Elgibility Under Section 12a

As with all kinds of certifications a registrations that award benefits to certain specific parties, due dilligence at the intial stages is very strict. This is done to ensure that the benefits of the exemprions are permeated to the intended beneficiaries. You must have the following documents ready before you begin the process of appliying for certification under section 12A.

  • Copy of the trust deed which unambiguously establishes the Trust’s creation, its location and date of establishment.
  • Document regarding the location and registered address of the trust.
  • Copy of the Trust registration with Registrar of Companies/Firms/Societies/Public Trusts
  • Document regarding the adoption of objects if applicable, including any board resolutions
  • Accounts-related copies of the Trust
  • A document containing information about the  activities of the Trust
  • Copy of 12 A registration
  • Copy of the rejection order received when the Trust had applied for a 12A registration if applicable. 

Procedure To Register For 12a

  • Submit Form 10 A with the documents prescribed above.
  • You can file Form 10A online if you have your digital signature ready. Else, you can file it via an electronic verification code. 
  • The Commissioner will then request for additional documents or information to prove the genuineness of your Trust if deemed necessary.
  • Once satisfied, the Commissioner will register the Trust as per 12A of the Income Tax Act.
  • In case he/she is not satisfied, they will reject the application.
  • Generally, this process takes around 3 months to complete. 
  • Once the registration order has been passed, the Trust will have a 12A validity forever as it is a one-time application or registration process. 
  • The Trust does not have to renew this registration ever.

Form 10a

Charitable and Religious Trusts, soceities and other not-for-profit companies that are eligible to enjoy the tax exemption benefits stated under sections 11 and 12 must be certified under sectio 12A to do so. And the reulatory formalities that are necessary to complete before obtaining a 12A certification are prescribed in Section 8. And a sper senction 8, all applicants must submit Form 10A online to the Commissioner of Income Tax.

How To File Form 10a Online?

  • Access income tax website. 
  • Click on ‘Submit Returns/Forms’ which is visible on the left-most bar on the page.
  • Go to the ‘Login’ option and input your credentials.
  • Click on ‘e-file‘ option and then go to ‘Income Tax Forms’ from the drop-down menu.
  • Choose Form 10A in the “Form Name” field and choose the appropriate assessment year.
  • Click on ‘Prepare and Submit Online’ and then enter ‘Continue’.
  • Fill out the form by entering the details it has asked for. Make sure you re-read everything and avoid typos.
  • Click on  ‘Submit’ once you are done.

Benefits Of Registration Under Section 12a:

Once a trust has been registered under section 12A, it can immediately avail the following benefits:

  • Funds utilised for charitable or religious uses are deemed as income application and is hence added to the value of the Trust rather than being considered taxable income.
  • Income received by an organisation registered as per 12 A is exempt from taxation.
  • Such organisations may set aside up to 15% of their income as an investment.
  • Laws under Section 11(2) which states that accumulated wealth be taxed, is not viable for organisations registered under 12 A.
  • Access to grants and other funds from agencies in and around India.
  • Avail benefits listed under the Finance Act 2014.
  • As it is a one-time registration, it will be valid until it is cancelled and hence, it requires no renewal or excessive paperwork.

Conclusion

As mentioned before, like all registrations and certifications that allow the holder of such registrations and certifications to enjoy certain priviledged benefits have a very thorough due dilligence process at the application stage. Even the slightest mistake in filling out the forms and addressing the formalities can lead to rejection of the form and can cause unnecessary delays in claiming tax exemption on any funds received by way of donation or grant. So it is always advisable to seek guidance of a legal expert who has been trained and has had hands on experience with the registration of trusts and 12A certification. If you have any further queries regard trust formation, 12A certification or are in need of assistance to make an application for a 12A registration, get in touch with us and we will assign a legal expert who will understsnad your requirements and assisst you with your needs.

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