To avail the tax exemption, all the charitable trusts or institutions, NGO(s), welfare societies or religious trusts, etc are needed to adhere to the provisions stated under section 12A, Section 12AA & Section 12AB of the Income Tax Act. In this article, we have made an attempt to explain the applicability of these sections for registration of trusts under Income Tax Act.
So, without further ado. Let’s get started.
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Section 12A of the Income Tax Act
As per section 12A, the exemption to a trust under section 11 and section 12 is available only if such trust is registered under section 12AA/section 12AB of the Income Tax Act. Also, if total income of such trust before claiming the aforesaid tax exemption is more than the basic income as per the slab rate prevailing then such trust needs to get its accounts audited and furnish audit report under section 44AB of the Income Tax Act.
Further, the exemption is available from the relevant previous year in which application is made by the trust.
Please note – A special relaxation is given to registered trusts, according to which tax exemption under section 11 & section 12 shall also be available for earlier assessment years for which assessment is pending with the assessing officer on the date of registration, if the activity of such trust in those years is same as mentioned by trust for granting of registration. Aslo, the assessing officer cannot reopen the assessment under section 147 only on account of non-registration of such trust in those years.
**In case trust had applied for registration and it was subsequently rejected or if passed but has canceled then the above relaxation shall not be applicable for earlier assessment years.
Section 12AA and Section 12AB of the Income Tax Act
A new section 12AB for the registration of the trusts or institutions for availing the tax exemption was introduced by the Indian government in the Finance Act, 2020. The new section 12AB was effective from 1st April 2021, making the erstwhile section 12AA of the Income Tax Act, ineffective.
Period of registration
The registration granted under section 12AA was valid for life long, unless canceled due to any violation. But under new section 12AB a trust or institution can get registered for a fixed tenure, after the expiry of which mandatory renewal is required to avail the tax exemption.
Acording, to the section 12AB, registration to the trusts or institutions is granted for differ tenure, as per the different scenarios, which are explained below:-
● Where existing trusts already registered under section 12A/section 12AA of the Income Tax Act apply for the registration under section 12AB, it shall be granted registration for a period of 5 years.
● Where, a new trust applying for fresh registration under section 12AB or a trust whose application is pending under section 12AA, it shall be granted a provisional registration for over 3 years.
Requisite documents required to register a trust under section 12AB
The list of the requisite documents to register a trust under section 12AB to avail the tax exemption is given as below:-
● A duly signed application for registration (Form 10A)
● A certified Trust Deed or memorandum of Trust
● A certified copy of registration of trust with the Registrar of Trusts. To know all about the trust registration process with the Registrar click here (please link to the respective article.)
● A certified copy of earlier registration grant under section 12A or section 12AA, if any.
● A certified copy of financial statements including audit report, if applicable.
● A brief note about the activities of trust.
●PAN or Aadhar details or any other ID proof of all trustees/founder/settlor/author.
Procedure to registration under section 12AB
The Commission of Income Tax (CIT) or Principal Commissioner of Income Tax (PCIT) on receipt of application for registration under section 12AB and other requite documents from the trust, after reviewing the application and such documents submitted, shall pass an order for registration within a specified time period.
Please note – CIT or PCIT has the power to cancel the registration of a trust, after giving a reasonable opportunity of being heard, if activities of trust are not genuine or in accordance with its objects, or not complied with any other law or any violation is done.
So, please make sure to comply with all these conditions. If you need any assistance in filing an application for registration of a trust or fulfilling any other compliance requirements please feel free to reach out to us. Our team of experts is available to serve you all.
