Benefits of Getting 12a Registration for Your Trust

In India, charitable trusts and non-profit volunteering organizations contribute a lot to social, educational, medical and religious requirements. In order to conduct legally and take advantage of the provisions in the income tax act, these entities need to acquire certain types of registrations, one of the most important 12a registration. Granted through this registration are huge financial and legal advantages and places your trust to give all their attention to the realization of the charitable aims of the trust without having to pay any undue taxes.

What is 12a Registration?

Section 12a of the Income Tax Act, 1961, provides that those trusts, ngos or not-for-profit organizations can apply to get an exemption from surplus income. When a trust is registered under 12a the income need not be taxed as long as the money is utilized only in charitable or religious activities.

All the organizations that wish to claim exemptions under sections 11 and 12 of the Income Tax Act are required to be registered according to Section 12a. Otherwise, your trust income will be 100 percent taxable at the ordinary rate of income tax.

The important advantages of 12a registration are listed below

 1. Full Income Exemption

The greatest benefit of 12a registration is that it makes your trust income not subject to tax in any manner. The source of generating the income may be in the form of donations, grants or returns on capital but as long as the money is utilized in charitable purposes, it is not liable to taxation. This can enable organizations to make better use of their resources in order to serve their mission.

2. Eligibility for 80g Certificate

The trust registered under 12a are also allowed to get 80g registration. This means that under section 80g the donors of your charitable trust will be able to claim a deduction on their donations. These two registrations are 12a and 80g with which your organization will be more appealing to donors, both individuals and corporates, raising your chances in terms of funding.

3. Building of Credibility and Trust of Donors

A registration is a badge of legitimacy. Donors, governments and grant making organizations prefer to give their money to officially recognized obligant organizations. The registered trusts are found to be transparent, compliant and serious in their charity goals.

 4. Instead of Charities, they receive Government and Foreign Grants

Multiple government departments, as well as foreign funding agencies, mandate the applicant organization to have having valid registration under 12a. Without it, one can hardly get a chance to apply to get financial support from these bodies. Together with fcra registration, trusts are legally allowed to accept foreign contributions as well.

5. The long-term Compliance Award

In the past, 12a registration was accorded permanently. But under the new developments (particularly after the 2020 reforms), all trusts have been mandated to renew their 12a registration regularly (typically, there is a time limit of 5 years). The registration still forms a pillar of long-term operational compliance and recognition, even with the new structure.

 6. At a higher level of credibility, stronger Financial Planning

The fact that a trust will not be required to pay income tax will enable the organization to have more funds. This facilitates more effective financial management, infrastructure-related investment or expansion of the program. Businesses can take an undaunted approach of donating money to social good without the need of tax deductions

 7. Protection of Law and Ordered Organization

Having secured the 12a status sets up a formal framework and legal confidence. It assures that the trust works within a specific framework, adheres to the financial reporting standards and the transparency of the financial spending. This shields the trust against any future legal difficulties and helps to improve governance.

Who can apply for a under 12a?

• Charitable Trusts
• Societies
• ngos
• Section 8 Companies (non-profit companies under the Companies Act)

Depending on whether your organization operates in education, health or rural development, environment or in any other socially important sphere, 12a tax-exempt status secures the performance of your organization on the highest level in legal and financial aspects.

How to Get Registered under 12a?

Organizations may submit it online through the PDF using Form 10a in cases of initial or Form 10ab in cases of renewal applications. Some of the required documents include:

• The trust has a pan card
• Certificate of incorporation or trust deed
• The presence of details of activities
• Audited financials
• Bank account information

Approval will have to take several weeks, and the department may require further details or even documents during the process.

Conclusion

The process of gaining 12a registration is a wise move, both legally and strategically wise for any charitable trust or ngo in India. It not only provides full tax exemption, but it also strengthens credibility, funding capability, and compliance of your organization. A 12a-registered trust is now better equipped to fulfill its social objectives as compared to the past due to tax incentives and the trust itself draws credibility among donors, and can access grants with greater ease.

If you intend to register your trust or are already having an ngo, then you should not miss the benefits of 12a registration.