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12A Tax Exemption Benefits Explained for NGOs

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Form 12A: Income Tax Registration for Trusts and Institutions

1. Purpose of Form 12A:

Form 12A is used to apply for registration under Section 12A of the Income Tax Act. This section pertains to the registration of trusts and institutions that are established for charitable or religious purposes and are seeking tax exemption on their income.

2. Eligibility for Section 12A Registration:

To be eligible for registration under Section 12A, a trust or institution must meet the following criteria:

It should be created for a genuine charitable or religious purpose.
Its income should be applied solely for the purposes for which it is established.
It should not be involved in any commercial activities, and its funds should not be used for the benefit of any individual or a particular group.
3. Benefits of Section 12A Registration:

Once an entity is registered under Section 12A, it becomes eligible for the following benefits:

Exemption from income tax: The income of the trust or institution, if applied for charitable or religious purposes, is exempt from income tax.
Deduction of donations: Donors who contribute to a registered trust or institution can claim deductions under Section 80G of the Income Tax Act.
4. How to Apply for Section 12A Registration:

To apply for Section 12A registration, the following steps are typically followed:

The trust or institution must obtain a Permanent Account Number (PAN) if it doesn’t already have one.
Form 12A should be filled out with all the required details, including information about the trust’s objectives, financial statements, and activities.
The application should be submitted to the local Income Tax Exemption Office or the Commissioner of Income Tax (Exemption).
The tax authorities will review the application and may conduct an inspection of the trust’s activities.
If satisfied, the tax authorities will grant Section 12A registration, and the trust or institution will be issued a registration certificate.
5. Ongoing Compliance:

Registered trusts and institutions are required to maintain proper books of accounts and financial records. They must also file annual income tax returns and maintain transparency in their financial transactions to retain their tax-exempt status.

In conclusion, Form 12A is a critical document for trusts and institutions in India that operate for charitable or religious purposes and seek income tax exemption. It is the first step in the process of obtaining Section 12A registration, which grants tax benefits to such entities. Compliance with the requirements and objectives of the trust or institution is essential to maintain this tax-exempt status.,
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This article is only published for informational purposes. Please consult your Chartered Accountant or Financial Advisor before making any important financial decisions.

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12A Tax Exemption Benefits Explained for NGOs