Section 12A of the Income Tax Act – Registration for Charitable Trusts

Karan is the director of an NGO which sends needy children to school. The total value of his NGO is ₹20,00,000. To ensure the smooth running of his NGO, he should comply with some of the rules stated in Section 12a of the Income Tax Act.
 

Here’s a simple breakdown:
 

• Example: If Karan’s NGO earns ₹50,000 from donations, it won’t pay tax on this amount if registered under Section 12a.
   

Such a rule allows NGOs such as Karan to do an increased number of good work.

Importance of Section 12a
 

Karan founded an NGO which assists 200 children with free books and school uniforms.
 

His NGO is registered under Section 12a, which makes him exempt from paying tax on donations, and that means more is available to the kids. Without the advantage, much of the money would go to the taxman.

Here’s why Section 12a is important:
 

• Example: If Karan gets ₹5,00,000 from a donor, the full amount goes to charity with no tax cuts.
   
• Without 12a: If not registered, 30% (₹1,50,000) would be paid as tax, leaving only ₹3,50,000 for the kids.

Section 12a allows NGOs such as those by Karan to do good wonders without the fear of paying taxes.

Objectives of Section 12a

Karan’s NGO uses donations to teach underprivileged children. Because it is registered under Section 12a, all the money goes directly to buying books, paying teachers, and running classes without any tax deductions. This is exactly what Section 12a aims to do: help NGOs focus on charity, not taxes.

Here are the main objectives of Section 12a:
 

• Example: If Karan receives ₹10,00,000 in donations, 100% is used for charity with no tax cuts.
   
• Without 12a: Without registration, ₹3,00,000 (30%) could be lost in taxes, reducing impact.

Section 12a will protect NGOs such as Karan through which maximum good will be done out of every dollar donated.

TDS Rate Under Section 12a

A company gives ₹50,000 to Karan NGO as a donation towards the construction of a new classroom. Usually, TDS (Tax Deducted at Source) would be deducted by the company, and only then would they make payment because the NGO by Karan is under Section 12a, no TDS deduction would be effected by the company. This implies that the entire amount, ₹50,000, will be used to support children.

Read More – Section 11 of the Income Tax Act

Here's how TDS rules apply to 12a-registered NGOs:
 

Key points:
 

• No TDS on donations/grants if 12a registration is shared with the payer.
   
• TDS still applies to interest, rent or professional payments to others.
   
• Example: ₹1,00,000 grant → ₹1,00,000 received (no ₹10,000 TDS cut).

Such a rule is useful in a way that allows NGOs such as Karan to obtain the highest amounts of funding to conduct their social work.

Exemption Under Section 12a

This year, donors gave Karan NGO ₹5,00,000. Since it enjoys section 12a registration, the NGO does not pay income tax on this money. This implies that the entire ₹5,00,000 worth of money can be spent to purchase school items for children.

Here's how the Section 12a exemption works:
 

Key points:
 

• No income tax on donations, grants or charity income
   
• Must use money only for approved charitable work
   
• Example: If an NGO earns ₹10,00,000, ₹0 tax (vs ₹3,00,000 tax for non-registered NGOs)
   
• Must renew registration every 5 years

This exception permits Karan NGO to do greater good work without wasting its money on paying taxes. The government is encouraging such NGOs in order to allow them to concentrate on helping people.

Due Date and Compliance Requirements

The NGO by Karan is registered under Section 12a, but there are conditions that he needs to adhere to retain its tax advantage.

• Example: Karan must file his NGO's annual ITR by 31st July each year. If he misses this, he might lose tax exemptions.
   
• Renewal: The 12a certificate is valid for 5 years. Karan must apply for renewal before it expires.
   
• Record Keeping: Karan must maintain proper books of accounts and donation records.
   
• Spending Rule: At least 85% of income must be spent on charitable activities each year.

By observing these rules, Karan will be able to avoid tax issues, and his NGO will be able to continue to be of assistance to children.

Also Read - Types of Assessment in Income Tax
 

Practical Examples

A fundraiser of ₹2,00,000 was received by Karan in his NGO. He did not pay tax on this money as a result of Section 12A, and he spent all this money on school meals.

• Donation Example: When a company donated ₹5,00,000, no TDS was deducted due to 12A registration
   
• Grant Benefit: A ₹10,00,000 government grant came tax-free, helping build a new classroom
   
• Event Income: A charity concert earned ₹3,00,000, which wasn't taxed, funding 100 uniforms
   
• Bank Interest: ₹5,000 bank interest was taxed because 12A doesn't cover investment income

These instances indicate how 12A assists Karan in maximising the money that can be used by his NGO.

Conclusion 

The NGO story of Karan demonstrates the way that Section 12A assists decent individuals to perform good deeds. Due to this tax exemption, when a local business donated ₹3,00,000 to buy computers at school, all that money was used on behalf of the children, and there was no channel of loss due to taxes.

It is straightforward: the rules consist of filing returns on time, spending as much money as possible on charity, and keeping good records. Though bank interest continues to be taxed, all donations and grants are tax-free. It implies that Karan is free to operate his NGO without concerns of paying taxes. 

In the case of small non-governmental organisations having a huge impact, Section 12A is a kind of loyal assistant that helps more cash get to where it is most needed.

FAQs

What is Section 12A?
It gives tax exemption to NGOs like Karan’s so they don’t pay tax on donations.

Who can apply for 12A?
Any NGO working in education, health, or charity can apply.

How long is a 12A valid?
It lasts 5 years, then needs renewal.

Does 12A cover all NGO income?
No, donations are tax-free, but bank interest is taxed.

What’s the penalty for late filing?
Karan’s NGO could lose tax benefits if returns are late.

Can an NGO spend all donations freely?
No, at least 85% must go to charity work yearly.

Do donors get tax benefits too?
Yes, if the NGO also has 80G registration.

Is an audit compulsory for 12A NGOs?
Yes, if yearly income crosses ₹5,00,000.

Can political NGOs get 12A?
No, only non-profit charitable NGOs qualify.

How to check the 12A status?
Verify on the Income Tax website using PAN or registration number.
 

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