12A registration is a one-time registration which is granted by the Income Tax Department to trusts and other not for profit organisations. The purpose of the registration is to be exempted from the payment of income tax. 12A registration is generally applied for immediately after incorporation. Section 8 Companies, Trusts and NGOs which have obtained 12A registration enjoy exemption from paying income tax on their surplus income. The 12A registration facility is available for all non-profit entities. Hence, it is necessary for all Trusts, NGOs and other Not-for-Profit organizations to be aware of Section 12A of the Income Tax Act.
The fund that is used for the charitable or religious purposes is considered to be the income application. The income application is nothing but the expenses used for charitable or religious purposes when calculating the income of the trust. The income received will be free from taxation. The person registered under this section can avail benefits for accumulating or setting aside income which is not more than 15% for the charitable or religious purposes. The accumulation of income that is considered to be the income application according to Section 11(2) will not be included in the total income.
Only Charitable Trusts, Religious Trusts, Societies and companies that come under Section 8 are eligible for 12A registration. 12A registration is not applicable for Private or Family Trust.