Trust & NGO Taxation: 12A Registration, 80G & Compliance
Quick Answer
Charitable trusts and NGOs in India can claim tax exemption on their income under Sections 11 and 12 of the Income Tax Act, 1961 — but only if they are registered under Section 12A/12AB. Additionally, to enable donors to claim tax deductions, the trust needs Section 80G approval. Since 01-04-2021, the registration framework has been overhauled — all registrations are now time-bound (provisional for 3 years, regular for 5 years) and require periodic renewal through Form 10A and Form 10AB. At Virtual Auditor, we handle the entire lifecycle of trust taxation — from registration and 80G approval to annual compliance, audit, and representation before the income tax authorities. CA V. Viswanathan (IBBI/RV/03/2019/12333) personally advises trusts on complex compliance matters including FCRA, CSR, and accumulation planning.
Definition — Section 11 (Income from Property Held for Charitable or Religious Purposes): Section 11 provides that income derived from property held under trust wholly for charitable or religious purposes is exempt from tax, to the extent the income is applied for such purposes in India. The trust must apply at least 85% of its income during the previous year. Income includes voluntary contributions (donations) received by the trust. Capital gains on transfer of a capital asset held under trust are also eligible for exemption if the net consideration is applied for charitable purposes.
Definition — Section 12 (Income of Trusts from Contributions): Section 12 provides that voluntary contributions received by a charitable or religious trust shall be deemed to be income of the trust for the purposes of Section 11. Contributions received with a specific direction that they shall form part of the corpus of the trust are not treated as income (corpus donations are exempt unconditionally).
Definition — Section 12A (Conditions for Exemption): Section 12A prescribes the conditions that a trust must satisfy to claim exemption under Sections 11 and 12. The primary condition is registration with the Principal Commissioner or Commissioner of Income Tax. Other conditions include maintenance of books of account, audit of accounts, and filing of return of income within the due date.
Definition — Section 12AB (Procedure for Registration): Inserted by the Finance Act, 2020, Section 12AB prescribes the procedure for grant of registration. It creates a framework of provisional registration (3 years) and regular registration (5 years) with periodic renewal. The Principal Commissioner or Commissioner must process the application within the prescribed time limit and may call for documents, information, and make enquiries before granting or refusing registration.
Definition — Section 80G (Deduction in Respect of Donations): Section 80G provides a deduction from gross total income to a donor who makes a donation to an approved charitable institution or fund. The deduction is available at 50% or 100% of the donation amount, subject to qualifying limits. The trust must have approval under Section 80G(5) from the Principal Commissioner or Commissioner.
Registration Framework: 12A, 12AB, and the New Regime
The Old Regime (Before 01-04-2021)
Under the old Section 12A, a trust could obtain registration that was perpetual — once granted, it did not expire unless cancelled by the Commissioner. There was no requirement for periodic renewal. The registration was granted based on the objects of the trust (as stated in the trust deed or memorandum of association), and the Commissioner had to satisfy himself that the objects were genuinely charitable or religious.
The New Regime (Section 12AB — From 01-04-2021)
The Finance Act, 2020, and subsequent amendments introduced a completely new registration framework under Section 12AB. The key changes are:
- Time-bound registration: All registrations are now time-bound. Provisional registration is valid for 3 years. Regular registration is valid for 5 years. Renewal is mandatory.
- Two-stage process: New trusts first obtain provisional registration (Form 10A), then convert to regular registration (Form 10AB) after commencing activities.
- Existing trusts re-registered: All trusts with existing perpetual 12A registration were required to re-register under 12AB within the prescribed window.
- Centralised processing: Applications are filed electronically and processed through the income tax e-filing portal.
Categories of Application
| Category | Form | Section | Registration Validity |
|---|---|---|---|
| Newly created trust — first-time registration | Form 10A | 12AB(1)(a)(i) | Provisional — 3 years |
| Provisional to regular conversion | Form 10AB | 12AB(1)(a)(ii) | Regular — 5 years |
| Existing trust — re-registration under 12AB | Form 10A | 12AB(1)(a)(iii) | Regular — 5 years |
| Renewal of registration (before expiry) | Form 10AB | 12AB(1)(a)(iv) | Regular — 5 years |
| Registration after activity modification/adoption | Form 10AB | 12AB(1)(a)(v) | Regular — 5 years |
Time Limits for Filing Form 10AB
A trust with provisional registration must file Form 10AB at least 6 months prior to the expiry of the provisional registration period, or within 6 months of the commencement of its activities, whichever is earlier. For renewal of regular registration, Form 10AB must be filed at least 6 months prior to the expiry of the existing registration.
Expert Insight — CA V. Viswanathan
The transition from perpetual 12A registration to time-bound 12AB registration caught many trusts off guard. We have seen trusts that missed the re-registration deadline, trusts that filed Form 10A instead of 10AB (or vice versa), and trusts whose provisional registration expired before they could commence activities. In each of these situations, the consequence is severe — loss of exemption and taxation at maximum marginal rate. At Virtual Auditor, we maintain a registration tracking system for all our trust clients, sending reminders 9 months before expiry to ensure timely renewal. If your trust has missed a deadline, contact us immediately — there are condonation mechanisms and judicial remedies available, but time is critical.
Section 80G Approval: Enabling Donor Deductions
Why 80G Matters
Section 12A/12AB registration benefits the trust (by exempting its income). Section 80G approval benefits the donors (by allowing them to claim a tax deduction for their donations). Many corporate donors — particularly those making CSR contributions — require 80G approval as a precondition for funding. Without 80G approval, the trust’s fundraising ability is significantly impaired.
Deduction Rates Under Section 80G
| Category | Deduction Rate | Qualifying Limit |
|---|---|---|
| National Defence Fund, PM’s Relief Fund, etc. | 100% | No limit |
| Government-notified funds for charitable purposes | 100% | 10% of adjusted gross total income |
| Approved charitable trusts/institutions (most private trusts) | 50% | 10% of adjusted gross total income |
80G Approval Process
The 80G approval process mirrors the 12AB registration process. New trusts apply for provisional 80G approval in Form 10A (valid for 3 years) and then convert to regular approval in Form 10AB (valid for 5 years). Existing trusts with perpetual 80G approval were required to re-apply under the new framework.
The Commissioner examines: the genuineness of the trust’s activities, whether the activities are being carried out in accordance with the objects, whether the trust maintains proper books of account, whether the trust applies its income for charitable purposes, and whether the trust complies with the conditions prescribed under Section 80G(5).
80G Receipts and Donor Compliance
From 01-04-2021, trusts with 80G approval must furnish a Statement of Donations (Form 10BD) to the income tax department, containing details of all donations received during the financial year — donor name, PAN, Aadhaar, amount donated, and 80G receipt number. The trust must also issue a Certificate of Donation (Form 10BE) to each donor. The donor can claim 80G deduction only if the donation appears in Form 10BD and they have the corresponding Form 10BE.
Annual Compliance Requirements
1. Income Tax Return — Form ITR-7
Every trust registered under Section 12A/12AB must file its income tax return in Form ITR-7 within the due date. The due date is:
- 31st October of the assessment year if the trust is required to get its accounts audited (i.e., total income before exemption exceeds the basic exemption limit).
- 31st July of the assessment year if the trust is not required to get its accounts audited.
Filing the return within the due date is not merely a compliance requirement — it is a condition precedent for claiming exemption under Section 11. If the return is filed after the due date, the trust loses the right to claim exemption for that year, and its entire income becomes taxable at maximum marginal rate. This is one of the harshest consequences in the entire Income Tax Act.
2. Audit — Form 10B and Form 10BB
A trust whose total income (before applying exemption under Sections 11 and 12) exceeds the basic exemption limit must get its accounts audited by a Chartered Accountant. The audit report is furnished in:
- Form 10B: For trusts with total income exceeding Rs 5 crore, or trusts that have received foreign contributions, or trusts that have applied income outside India.
- Form 10BB: For all other trusts (total income up to Rs 5 crore, no foreign contributions, no application outside India).
The audit report must be furnished electronically on or before the due date of filing the return. The auditor must verify: the application of income for charitable purposes, compliance with accumulation rules, investment of funds in prescribed modes under Section 11(5), and compliance with all conditions of registration.
3. Application of Income — 85% Rule
Under Section 11(1), the trust must apply at least 85% of its income during the previous year for charitable or religious purposes. The remaining 15% can be accumulated without any condition (this is the automatic accumulation allowance under the first proviso to Section 11(1)).
Application of income includes: expenditure on charitable activities, grants to other registered trusts, capital expenditure on assets used for charitable purposes, and repayment of loans taken for charitable purposes. However, expenditure of a capital nature (such as purchase of land or construction of buildings) is treated as application only to the extent it is actually utilised for charitable purposes during the year.
4. Accumulation Beyond 15% — Form 10
If the trust wishes to accumulate more than 15% of its income (for example, to save for a major project), it must file Form 10 before the due date of filing the return. Form 10 specifies:
- The amount proposed to be accumulated.
- The purpose for which the accumulation is being made (which must be a charitable purpose consistent with the trust’s objects).
- The period of accumulation (maximum 5 years from the relevant assessment year).
The accumulated amount must be invested in the modes prescribed under Section 11(5) — these include government securities, fixed deposits with scheduled banks, units of UTI or mutual funds, and certain other specified investments. Investment in shares of private companies, loans to trustees, or speculative instruments is not a prescribed mode and will result in deemed application followed by taxation.
Expert Insight — CA V. Viswanathan
The Form 10 deadline is one of the most frequently missed deadlines in trust taxation. Many trusts realise they have under-applied their income only when preparing the audit report — by which time the due date for Form 10 may have passed. Without Form 10, the unspent amount (beyond 15%) is treated as income of the trust and taxed at maximum marginal rate. At Virtual Auditor, we conduct a mid-year review of application of income for all our trust clients (typically in December) to identify shortfalls early. This gives the trust time to either accelerate expenditure before 31st March or file Form 10 before the due date. Prevention is far cheaper than dealing with the tax consequence.
5. Investment of Funds — Section 11(5)
All funds of the trust — including corpus, accumulated income under Form 10, and surplus funds — must be invested in modes prescribed under Section 11(5) read with Rule 17C. Prescribed modes include:
- Government savings certificates and government securities
- Fixed deposits with scheduled banks (Post Office, nationalised banks, and private scheduled banks)
- Units of UTI or SEBI-registered mutual funds investing only in government securities
- Any other mode approved by the CBDT
Investment in modes not prescribed under Section 11(5) — such as shares of private companies, loans to related parties, or immovable property not used for charitable purposes — is treated as a violation. Under Section 13(1)(d), if any funds of the trust are invested in modes not prescribed, the income of the trust from such investments is taxable.
Cancellation of Registration: Section 12AB(4)
The Principal Commissioner or Commissioner can cancel the registration of a trust under Section 12AB(4) if:
- The activities of the trust are not genuine.
- The activities are not being carried out in accordance with the objects of the trust.
- The trust has not complied with the conditions of registration.
- The trust has obtained registration by fraud or misrepresentation of facts.
Cancellation has retroactive consequences — the trust loses exemption from the assessment year in which the Commissioner is satisfied that the grounds for cancellation existed. The trust’s income for those years is taxed at maximum marginal rate, and penalties may be levied.
Anonymous Donations — Section 115BBC
Anonymous donations (where the trust does not maintain a record of the donor’s identity) exceeding Rs 1 lakh or 5% of total donations (whichever is higher) are taxed at 30% under Section 115BBC. This provision is designed to prevent trusts from being used as conduits for money laundering. Trusts must maintain proper records of all donations including the donor’s name, address, and PAN (for donations exceeding Rs 50,000).
Special Categories
Section 8 Companies and NGOs
Section 8 companies (registered under Section 8 of the Companies Act, 2013) that are established for charitable purposes can also obtain 12AB registration and 80G approval. The registration process is the same as for trusts — Form 10A for provisional registration and Form 10AB for regular registration. However, Section 8 companies are also subject to compliance requirements under the Companies Act (annual filing with ROC, board meetings, AGM, etc.) in addition to trust taxation compliance. For company secretary services related to Section 8 companies, see our company secretary services page.
Religious Trusts
Religious trusts are eligible for registration under Section 12AB if their activities include charitable purposes (education, medical relief, relief of the poor, etc.) in addition to religious purposes. A trust established exclusively for religious purposes (without any charitable element) is not eligible for 12AB registration but may claim exemption under Section 10(23C) if it meets the specified conditions.
FCRA-Registered Trusts
Trusts registered under the Foreign Contribution (Regulation) Act, 2010 (FCRA) and receiving foreign contributions have additional compliance obligations. They must file FCRA annual returns, maintain a separate bank account designated for foreign contributions, and comply with utilisation norms prescribed under FCRA. From an income tax perspective, trusts receiving foreign contributions must use Form 10B (not Form 10BB) for their audit report, regardless of the quantum of total income.
Taxation of Trust Income When Exemption Is Lost
If a trust fails to comply with the conditions for exemption — whether due to late filing of return, non-application of 85% of income, investment in non-prescribed modes, or cancellation of registration — its income is taxed at the maximum marginal rate (currently 30% for income exceeding Rs 15 lakh, plus surcharge and cess). This is a punitive rate that applies regardless of the amount of income.
Deemed Income Provisions
Several provisions create deemed income for trusts:
- Section 11(3): If accumulated income (for which Form 10 was filed) is not applied for the stated purpose within the specified period, or is applied for a purpose other than the stated purpose, it is deemed to be income of the year in which the default occurs.
- Section 11(1B): If income applied outside India is not applied for charitable purposes in India, it is deemed income of the trust.
- Section 13(1)(c): If any part of the trust’s income is used for the benefit of the author of the trust, any trustee, or any relative of the author or trustee (as defined in Section 13(3)), the entire income of the trust is taxable.
- Section 13(1)(d): If funds of the trust are invested in non-prescribed modes, the income from such investments is taxable.
CSR Donations and 80G
Companies making Corporate Social Responsibility (CSR) contributions under Section 135 of the Companies Act, 2013 cannot claim 80G deduction for such contributions. Section 80G(2)(iiihk) explicitly excludes CSR expenditure from the ambit of 80G deduction. This means that while a company can donate to an 80G-approved trust as part of its CSR obligation, it cannot claim a tax deduction for that donation under Section 80G. The CSR expenditure is also not deductible as a business expense under Section 37(1).
Summary
Charitable trusts and NGOs must obtain Section 12AB registration (via Form 10A for provisional, Form 10AB for regular) to claim income exemption under Sections 11 and 12. Section 80G approval enables donor deductions. All registrations are now time-bound — provisional for 3 years, regular for 5 years — with mandatory renewal. Annual compliance includes: ITR-7 filing, audit in Form 10B/10BB, 85% application of income, Form 10 for excess accumulation, investment in prescribed modes under Section 11(5), and Form 10BD/10BE for donor reporting. Virtual Auditor provides end-to-end trust compliance services — from 12AB registration and 80G approval through annual audit, return filing, Form 10 planning, and representation before the income tax authorities in case of notices or cancellation proceedings. Call +91 99622 60333 for a consultation.
Frequently Asked Questions
Q: What is Section 12A registration for a trust?
Section 12A registration is the registration granted by the Principal Commissioner or Commissioner of Income Tax, enabling a charitable or religious trust to claim exemption of its income under Sections 11 and 12. Since 01-04-2021, all registrations are governed by Section 12AB — provisional (3 years) and regular (5 years).
Q: What is the difference between Form 10A and Form 10AB?
Form 10A is for: (a) provisional registration of new trusts under Section 12AB; (b) re-registration of existing trusts under 12AB; (c) provisional 80G approval. Form 10AB is for: (a) conversion from provisional to regular registration; (b) renewal of regular registration before expiry; (c) registration after modification of objects or activities.
Q: What happens if a trust files its return after the due date?
If the return in Form ITR-7 is filed after the due date prescribed under Section 139(1), the trust loses the right to claim exemption under Section 11 for that year. Its entire income is taxed at maximum marginal rate. This is explicitly stated in Section 12A(1)(ba). There is no mechanism for condonation of this delay — late filing results in automatic loss of exemption.
Q: Can a trust make loans to its trustees or their relatives?
No. Under Section 13(1)(c) read with Section 13(2), if any income or property of the trust is used or applied (directly or indirectly) for the benefit of the author, any trustee, any relative of the author or trustee, or any concern in which any such person has a substantial interest, the entire income of the trust is taxable. Loans to trustees or their relatives fall squarely within this prohibition.
Q: Is audit mandatory for all trusts?
Audit is mandatory under Section 12A(1)(b) if the total income of the trust (computed before giving effect to the exemption under Sections 11 and 12) exceeds the basic exemption limit (currently Rs 2,50,000 for AY 2025-26 onwards under the old regime). In practice, most registered trusts with any meaningful activity will exceed this threshold and require audit.
Q: What does Virtual Auditor charge for trust compliance services?
12AB registration (Form 10A/10AB): from Rs 15,000. 80G approval: from Rs 15,000. Annual compliance (audit + ITR-7 + Form 10BD): from Rs 25,000. Form 10 accumulation planning: from Rs 10,000. Trust restructuring and object modification: from Rs 30,000. Contact us at +91 99622 60333 or visit our pricing page.
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