Re-validation of Section 12A and 80G Registration for NGOs

Charitable institutions in India have historically been eligible for certain tax benefits and exemptions, primarily dealt with under Sections 12A/12AA and 80G of the Income Tax Act, 1961. All institutions that have been availing of these benefits are now required to re-validate their registrations under Sections 12A/12AA and 80G no later than August of 2020, in order to continue enjoying such benefits.

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What is Section 12A/12AA?

Registration under section 12A/12AA basically certifies that Income Tax authorities recognize the registered trust or institution as having been established for charitable purpose. As a consequence of this recognition, the said institutions are exempt from payment of income tax, subject to having satisfied certain other compliance requirements under law.

Section 12A deals with trusts and institutions registered prior to 1996, and Section 12AA deals with trusts and institutions registered after 1996. It is also pertinent to note that regardless of whether the NGO is constituted as a trust, society or a not-for-profit company, it will have to seek a 12A certification to avail tax exemption.

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What is Section 80G?

Registration under Section 80G, on the other hand,does not directly benefit the charitable institutions or trusts. It is for the purpose of enabling donors contributing to the charitable trust or institution registered under section 80G to avail of certain tax benefits on their contribution. This registration under section 80G is a means for charitable institutions to incentivize donors to make contributions.

It may also be noted that only an NGO registered under both 12A and 80G is eligible for availing government funding.

What is the need for re-validation?

If you are an existing charitable or religious institution availing of the benefits mentioned above through prior registration under Sections 12A and 80G of the Income Tax Act, 1961, you will be required to reapply to the income tax authorities for revalidation of these existing registrations. The process will be online and the new online form will particularly focus on whether the charitable activities of the trust or institution are genuine.

This is due to a recent change in law by way of amendments brought in through the Finance Act, 2020, which mandates that charitable institutions which are already registered under sections 12A/12AA or 80G (or both) of the Income tax Act 1961 will now be required to re-apply online for registration/approval by the 31st of August 2020.

Upon such application for revalidation, an order granting the revalidated registration will be passed within three months. This revalidated registration under section 12AA and/or 80G will be valid for a period of five years, after which it will have to be revalidated once again. The re-application after five years needs to be made at least 6 months prior to the expiry of the validity period.

What is the process for re-validation?

The good news is that we at Vakilsearch are equipped to complete the entire application process for re-validation online, once the forms are released by the authorities. There is a three month period from the date of notification of the Finance Act, 2020 (i.e. April 1, 2020) for compliance with this requirement

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