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The charitable institutions are eligible for certain tax exemptions and benefits in India. The exemptions and benefits are dealt with under Sections 12A/12AA and 80G of the Income Tax Act, 1961. The institutions availing benefits under Section 12A and 80G had to revalidate their registrations under these two sections before August 2020 to continue to obtain the benefits.

The existing religious or charitable institutions or NGO’s had to re-apply to the Income Tax authorities for revalidation of the existing registrations. The charitable institutions cannot claim the benefits provided to them under 12A and 80G deductions without revalidation. This revalidation process focuses on whether the charitable activities of the institution or trust, or NGO are genuine or not.

The revalidation is necessary due to the changes made by way of amendment to the Finance Act, 2020, which mandates that the charitable institutions registered under Sections 12A/12AA and/or 80G of the Income Tax Act, 1961 are required to re-apply online for approval/registration by 31 August 2020. This amended provision came into force on 1 June 2020.

However, due to the COVID-19 situation, the CBDT (Central Board of Direct Taxes) deferred the start date to 1 October 2020, and the charitable institutions had to re-apply for registration by 31 December 2020. On the 26 of March 2021, the CBDT notified the Income-Tax (6th Amendment) Rules, 2021 that states the procedure for fresh registration and the list of documents required for organisations registered under Section 12A/12AA/80G.

The Income-Tax (6th Amendment) Rules, 2021, came into force on 1 April 2021. Thus, the institutions and trusts with existing registrations under Section 12A/12AA or/and 80G should file the application for fresh registration within three months from 1 April 2021, i.e. before 30 June 2021, as per the Income-Tax (6th Amendment) Rules, 2021.

Section 12A of the Income Tax Act, 1961
Registration of trust or charitable institutions under section 12A/12AA certifies that the Income Tax authorities recognise the registered institution or trust as having been incorporated or established for a charitable purpose.

The effect of such recognition is that the respective institutions are exempted from paying income tax, subject to the satisfaction of certain other compliance requirements as per law.

Section 12A deals with institutions and trusts registered before 1996, and Section 12AA deals with institutions and trusts registered after 1996. The NGO’s have to obtain a 12A certification to avail tax benefits, regardless of whether they are constituted as a society, trust or not-for-profit company.

Section 80G of the Income Tax Act, 1961
Registration of trust or charitable institutions under Section 80G does not provide any direct benefits to them. The trust or charitable institutions register themselves under Section 80G to enable the donors who contribute to them to avail certain tax benefits on their contributions.

The registration under section 80G of charitable institutions is to incentivise their donors to make contributions. However, only the NGOs that have registered under both Section 12A and 80G are eligible for availing of government funding.

Procedure of Revalidation Under Section 12A and 80G
In order to claim exemption, a charitable or religious trust or institution, including an NGO, should make an application to the Principal Commissioner of Income Tax or Commissioner of Income Tax online in Form 10A. The procedure of applying for revalidation/registration are mentioned below:

Log in to the E-filing portal of the IT department.
Go to the ‘Income Tax Forms’ under the e-File tab.
Choose the Form Name as ‘Form 10A’ and select the relevant Assessment Year from the drop-down list.
Choose the ‘Prepare and Submit Online’ option in the submission mode.
Fill in all the details required in the form and attach the applicable attachments.
Submit the form using EVC (Electronic Verification Code) or Digital Signatures as required during return filing.
The NGO’s applying for registration/revalidation as per the amended provisions of Section 80G are mandatorily required to provide the details of their Registration number with the DARPAN portal of Niti Aayog.

The registration under Section 12A and 80G are also mandatory when the organisations intend to receive or receive any grant or assistance from the Central Government or State Government.

Documents Required for Revalidation
The following are the documents that need to be submitted while applying for revalidation:

Self-certified copy of the incorporation document of Societies/Trust
Self-certified copy of the registration with the Registrar of Companies or Registrar of Societies or Registrar of Firms or Registrar of Public Trusts, as the case may be
Self-certified copy of registration under the FCRA [Foreign Contribution (Regulation) Act], 2010, if the applicant is registered under the respective Act.
Self-certified copy of the existing order of registration under section 12A/12AA/12AB, as the case may be
Copies of the annual accounts for a period not exceeding three years immediately prior to the year in which the application is made, in the case of existing entities
Where the income of the organisation includes the profits and gains of business or where a business undertaking is held by the organisation under the provisions of Section 11(4A), copies of the annual accounts and audit report under Section 44AB for three years immediately prior to the year in which the application is made
Self-certified copy of the documents showing/evidencing modification or adoption of the objects
Notes on the activities of the trust or institution
The details of the DARPAN registration, if the organisation is registered on the DARPAN portal
Issuance of Certificate of Revalidated Registration
After 1 April 2021, upon filing the application for revalidation, an order granting the revalidated registration is passed within three months. The revalidated registration under section 12A and/or 80G is valid for a period of five years, after which it needs to be revalidated again. The re-application after five years has to be made at least six months before the expiry of the validity period of the registration.

After receiving the revalidation application under 10A, the Principal Commissioner of Income Tax (PCIT) or Commissioner of Income Tax (CIT) will pass an order of granting approval in writing in Form No.10AC and issue a 16 digit Unique Registration Number (URN) to the applicants.

The PCIT/ CIT may reject the application after giving an opportunity of being heard or demand further documents from the applicant if needed. The rejection order is also passed in Form No.10AC.

The applicants must submit the application for renewal after the initial five years of registration in Form No.10AB. Upon receiving the application under Form No.10AB, the PCIT/CIT will make the order of registration or cancellation of registration or rejection in Form No.10AD.

The PCIT/CIT is entitled to demand from the applicant further documents to satisfy the genuineness of the activities of the institution or trust and the compliance of the requirements under any other law for the time being in force by the institution or trust that are material to achieve its objects.

There is an earnest desire among many members of the public to do charity, welfare and social good. This leads to flow of money without consideration from one individual to another or from one entity to another. Such flow of money is termed as donation in common as well as legal parlance. Unlike in commercial transactions, in case of donations, the decision makers, or person carrying out charitable activities or the beneficiaries of such activities are different from the person who are extending the money (‘Donors’). Such set ups may, at times, be an opportunity for anti-social elements to negate the welfare of the needy or to carry out their malicious activities in disguise.

In order to tackle these nuisances, charitable institutions have to obtain various registrations and comply with multiple statutory filings, reporting and audits. This article looks into these compliances within the ambit of the Income Tax Act, 1961(‘Act’).

Page Contents

Types of Charitable Institutions
Registrations under the Act:
Benefits of above registrations under the Act
Annual filing and statutory compliance:
Types of Charitable Institutions
Before jumping to the applicable provisions under the Act for charitable institutions, different types of charitable institutions can be looked at. Most of us know these institutions as Non-Government Organisation (‘NGO’) or Non-Profit Organisation (‘NPO’). However, from legal point of view, these institutions are incorporated as a separate legal entity either as public trusts or societies or companies.

Entity

Company

Registrations under the Act:
Mandatory Registration under the Act

Once the trust/institution is incorporated as any one of the above legal entity, it shall then be required to get itself mandatorily registered either under Section 12A or under Section 10(23C) of the Act, but not both. Without either of these registrations, all the donations and the receipts of the institutions shall be subjected to tax without any set off for expenditure incurred.

Normal Registration

As per Section 12A/10(23C) and other related provisions, trust or institution is required to apply for fresh, renewal or provisional registration in Form 10A which is to be filled online and shall be furnished electronically. Form shall be verified by the person who is authorized to verify the return of income.

Before the Finance Act, 2020, above registrations once granted were valid in perpetual. However, after the above act, the registrations now granted, shall remain valid for 5 years, after which application has to be made in the same form for renewal.

Provisional Registration

Provisional registrations are applied for when the trust or institution has not started its charitable activities. Form 10AB is required to be filed for the purpose of conversion of provisional registration into final registration. In case of provisional registration, it shall be valid for 3 years.

 

Registration under Section 80G of the Act

Registration under Section 80G is required only when trust or institution wants to pass on tax benefits to its donors in the form of eligible tax deductions. More often than not, trusts or charitable institutions opt for registration under Section 80G as well. However, it is mandatory to have registration under Section 12A/10(23C) before applying for registration under 80G. This registration, which was earlier valid perpetually once granted, now needs to be renewed every 5 years just like the applications under Section 12A/10(23C).

Benefits of above registrations under the Act
On registration under the Act, trusts or institutions get recognized as charitable or religious trust and shall get special benefits and treatment for taxation. The most important ones are:-

Complete Tax Exemption
The most important reason for getting the charitable entity registered under the Act is to avail full tax exemptions, subject to fulfillment of certain conditions. No receipts of the trust or institution shall be taxable. Some of the examples are:-

property
Tax Deduction to Donor
Registration of trust as per income tax law can be beneficial for donor also. As such the donors do not receive any monetary benefits by making the donations. But as a general encouragement to the members of public to come forward and do the charity, the Act provides such donors to deduct the amount of donations made to the registered trusts and institutions from their total income, subject to certain limits and to pay tax only on the balance income

Annual filing and statutory compliance:
Over the past few years the charitable trusts and institutions have been subjected to increasing level of statutory obligations in the form of new compliances and reporting requirements.

Other than the compliance of the charity commissioners, the Act also mandates compulsory filing of returns, adherence with the Tax Deducted at Source (‘TDS’) rules, tax audits, prohibition on acceptance of donations in cash exceeding Rs. 2,000/-, no tax exemption for anonymous donations to charitable institutions and renewal in 5 years of its registrations among other things.

To add to the above list, beginning from Financial Year 2021-2022, donations have been categorized as a Specified Financial Transaction (‘SFT’). Accordingly, registered trusts and institutions have to furnish statement of donations received annually, based on which the tax deduction shall be available to the donors. These details of donations have to be furnished in Form No. 10BD annually, on or before 31st May of the subsequent financial year. Details of donation include PAN/Aadhaar of the donor, passport number if PAN/Aadhaar is unavailable, amount of donation, mode of payment and date of donation.

In view of these increasing statutory obligations, it has become imperative for charitable trusts to streamline its activities and accountability. Also, these increased regularizations have led to substantial increase in the overall cost of compliance for charitable trusts. Hence charitable institutions should be incorporated only in case one is sure of continuous and consistent charitable activities year after year.