Section 12A(1)(b) of the Income Tax Act, 1961 is a provision that provides tax exemption to certain charitable organizations. The section deals with the registration of trusts or institutions which are established for charitable purposes. In this blog, we will discuss in detail the provisions of Section 12A(1)(b) of the Income Tax Act, 1961.
Meaning of Section 12A(1)(b)
Section 12A(1)(b) of the Income Tax Act, 1961 provides for the registration of trusts or institutions that are established for charitable purposes. It states that any trust or institution established for charitable purposes that wants to claim tax exemption under Section 11 or Section 12 of the Income Tax Act, must get itself registered with the Income Tax Department. The registration is valid for a period of five years, after which it needs to be renewed.
Charitable Purpose
The term “charitable purpose” is defined in Section 2(15) of the Income Tax Act, 1961. It includes the relief of the poor, education, medical relief, preservation of the environment, and any other object of general public utility. It is important to note that the activities of the trust or institution must be for charitable purposes only, and not for any commercial purpose. The income of the trust or institution must be used for charitable purposes only, and cannot be distributed among the members or trustees.
Procedure for Registration
To obtain registration under Section 12A(1)(b) of the Income Tax Act, 1961, the trust or institution needs to apply in Form 10A to the Commissioner of Income Tax (Exemptions) having jurisdiction over the trust or institution. The application should be made within one year from the date of creation of the trust or institution. The application should be accompanied by a copy of the trust deed, details of the trustees, and other relevant documents. If the Commissioner is satisfied with the genuineness of the activities of the trust or institution, he may grant registration under Section 12A(1)(b) of the Income Tax Act, 1961.
Benefits of Registration
Registration under Section 12A(1)(b) of the Income Tax Act, 1961 provides the following benefits to the trust or institution:
Tax Exemption: The trust or institution is eligible for tax exemption under Section 11 or Section 12 of the Income Tax Act, 1961.
Donations: Donations made to the trust or institution are eligible for tax deduction under Section 80G of the Income Tax Act, 1961.
Credibility: Registration under Section 12A(1)(b) of the Income Tax Act, 1961 enhances the credibility of the trust or institution, as it signifies that the activities of the trust or institution are genuine and are for charitable purposes only.
Renewal of Registration
The registration under Section 12A(1)(b) of the Income Tax Act, 1961 is valid for a period of five years. However, it can be renewed by making an application in Form 10A to the Commissioner of Income Tax (Exemptions) at least six months before the expiry of the registration. The Commissioner may renew the registration if he is satisfied that the activities of the trust or institution are still genuine and are being carried out for charitable purposes only.
Cancellation of Registration
The registration granted under Section 12A(1)(b) of the Income Tax Act, 1961 can be cancelled if the trust or institution fails to comply with the conditions mentioned in the Act. The Commissioner of Income Tax (Exemptions) may cancel the registration after giving a reasonable opportunity of being heard to the trust or institution. The cancellation of registration would mean that the trust or institution would no longer be eligible for tax exemption under Section 11 or Section 12 of the Income Tax Act, 1961.
Impact of Amendments
In 2020, the Finance Act made certain amendments to the provisions of Section 12A(1)(b) of the Income Tax Act, 1961. The most significant change was the insertion of a new provision, i.e., Section 12AB, which replaces Section 12A. Section 12AB provides for a new registration procedure for trusts or institutions. The application for registration under Section 12AB has to be made in Form 10A, similar to the previous procedure. However, the new provision requires the trust or institution to be registered afresh after the expiry of the previous registration period.
Conclusion
Section 12A(1)(b) of the Income Tax Act, 1961 provides registration and tax exemption to trusts or institutions that are established for charitable purposes. The registration is valid for a period of five years and can be renewed by making an application to the Commissioner of Income Tax (Exemptions). The trust or institution must ensure that its activities are for charitable purposes only and comply with the conditions mentioned in the Act. The recent amendments to the provision have introduced a new registration procedure and require trusts or institutions to be registered afresh after the expiry of the previous registration period.
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Frequently Asked Questions (FAQs)
What is the meaning of “charitable purpose” under Section 12A(1)(b) of the Income Tax Act, 1961?
Ans: The term “charitable purpose” is defined in Section 2(15) of the Income Tax Act, 1961. It includes the relief of the poor, education, medical relief, preservation of the environment, and any other object of general public utility.
Is it mandatory for a trust or institution to get registered under Section 12A(1)(b) of the Income Tax Act, 1961?
Ans: No, it is not mandatory for a trust or institution to get registered under Section 12A(1)(b) of the Income Tax Act, 1961. However, if the trust or institution wants to claim tax exemption under Section 11 or Section 12 of the Income Tax Act, it must get itself registered.
What is the procedure for registration under Section 12A(1)(b) of the Income Tax Act, 1961?
Ans: The trust or institution needs to apply in Form 10A to the Commissioner of Income Tax (Exemptions) having jurisdiction over the trust or institution. The application should be made within one year from the date of creation of the trust or institution.
Is there any fee for registration under Section 12A(1)(b) of the Income Tax Act, 1961?
Ans: No, there is no fee for registration under Section 12A(1)(b) of the Income Tax Act, 1961.
What are the benefits of registration under Section 12A(1)(b) of the Income Tax Act, 1961?
Ans: Registration under Section 12A(1)(b) of the Income Tax Act, 1961 provides tax exemption, credibility, and eligibility for tax deductions on donations.
How long is the registration valid under Section 12A(1)(b) of the Income Tax Act, 1961?
Ans: The registration is valid for a period of five years from the date of registration.
Can the registration under Section 12A(1)(b) of the Income Tax Act, 1961 be cancelled?
Ans: Yes, the registration can be cancelled if the trust or institution fails to comply with the conditions mentioned in the Act.
Is it necessary to renew the registration under Section 12A(1)(b) of the Income Tax Act, 1961?
Ans: Yes, it is necessary to renew the registration after the expiry of the previous registration period.
Can a trust or institution claim tax exemption without registration under Section 12A(1)(b) of the Income Tax Act, 1961?
Ans: No, a trust or institution cannot claim tax exemption under Section 11 or Section 12 of the Income Tax Act without registration under Section 12A(1)(b).
What is the impact of recent amendments on the registration procedure under Section 12A(1)(b) of the Income Tax Act, 1961?
Ans: The recent amendments have introduced a new registration procedure under Section 12AB and require trusts or institutions to be registered afresh after the expiry of the previous registration period.
