Previously the registration made by an NGO to receive corporate tax exemptions was made under Section 12AA. All income will not be taxed after the registration of Section 12A. If NGO does not receive 12A Registration, income tax is payable on accumulated revenue during the year.By the new compliance with section 12A and section 12AA, all non-profit organizations enjoying exemptions under Section 12AA in the IT Act must re-apply by 31 March 2022 and must obtain a new registration under Section 12AB.
Terms and Conditions of Section 12AB Registration
All existing trusts registered under section 12A or section 12AA will move on to the new provision 12AB.
Newly established trusts and institutions applying for income tax for the first time will be temporarily registered for three years called the provisional period.
Temporary registration will be valid for three years.
Within 6 months from the completion of the three-year provisional registration, an application for renewal of the temporary registration or the registration must be made.
All registrations under Section 12A or 12AA upon completion will have to renew their registration every 5 years.
After processing your application, your trust or institutional registration under sections 12AA and 80G may be re-verified with a 5-year income tax return.
Benefits of 12AB Registration
The Procedure of registration under Section 12AB
Registration application under Section 12AB is made on Form 10A as prescribed in Rule 17A of the Income Tax Act, 1962. It must be completed with the relevant documents to the Jurisdictional Principal Commissioner / the Income Tax Commissioner.
Application for registration of 12AB is made on Form 10A as prescribed in Act (Rule 17A) of the Income Tax Act, 1962.
Upon receipt of the application for registration, the Commissioner verifies the documents and the integrity of the activities of the NGO. He may ask for additional documents and information that he considers necessary.
After confirmation, the Commissioner passes a written order to grant 12AB Registration. If the Commissioner is not satisfied, he or she will refuse the application, after which the applicant will be given a fair opportunity to be heard.
What is 80G?
Registration under Section 80G of the Income Tax Act, 1962 provides benefits to an NGO donor. A donor receives financial benefits from his or her income taxable income.
Conditions to be fulfilled as per Section 80G (5) Registration
An NGO should not have any income not exempted, such as business income. If the NGO has the business income it should keep separate accounts of the business and should not divert donations received for that business.
By-laws or the intentions of NGOs should not include any provision for the use of the income or assets of an NGO for purposes other than charitable purposes.
An NGO will not work for the benefit of a particular religious community or race.
The NGO will keep regular accounts receipts and its expenses.
The wise details of the donors should be taken care of and all donors will need to be certified.
Tax deductions under section 80G will not be available to providers who choose to reduce the tax rate.
Benefits of 80G Registration
Procedure for registering under 80g
Application for 80G registration is made on Form 10G. It must be filed with the relevant documents to the Principal Jurisdictional Commissioner or the Income Tax Commissioner.
Upon receipt of the application for registration, the Commissioner verifies the documents and the integrity of the activities of the NGO. He may ask for additional documents or information that he considers important.
After confirmation, the Commissioner approves the written order for the issuance of 80G Registration. If the Commissioner is not satisfied, he or she will refuse the application, after which the applicant will be given a fair opportunity to be heard.
Amendments to Section 80g and 12ab
We know that charities and non-profit organizations registered under Section 12A or 12AA of the Income Tax Act, 1962, are entitled to full tax exemption from their income. In addition, if these organizations are also registered under Section 80G of the Act then individuals/organizations making donations to such businesses are also eligible for a tax deduction on the contributions made. The Finance Bill, 2020, introduced certain amendments to the 12AB and 80G of Income Tax Act, 1962.
All existing registrations and authorizations granted to exempted entities under Section 10 (23C), 12A, 12AA, and 80G will not be effective from 1 October 2020.
All exempted businesses that are already licensed and registered under the above categories will be required to submit new applications.
New registrations will come with a minimum of 5 years validity – the concept of permanent registration and certificates will be cleared.
In the past, the government has had a flexible and pliant approach to NGOs. In recent years, however, the government has changed its position, choosing a strict system with several regulatory rules. Many NGOs terminated their 80G and 12A registrations after inception to seek exemption. However, the Finance Act, 2020 has introduced major alterations to this process by bringing a new Section 12AB, instead of Section 12AA.
CA Pulkit Goyal, is a fellow member of the Institute of Chartered Accountants of India (ICAI) having 10 years of experience in the profession of Chartered Accountancy and thorough understanding of the corporate as well as non-corporate entities taxation system.
His core area of practice is foreign company taxation which has given him an edge in analytical thinking & executing assignments with a unique perspective. He has worked as a consultant with professionally managed corporates. He has experience of writing in different areas and keep at pace with the latest changes and analyze the different implications of various provisions of the act.
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