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Trusts enjoy income tax exemption under the Income tax Act. A trust that is registered under Section 12 A of the Income Tax Act is exempted from paying income tax. In this article, we shall discuss Income tax exemption for trusts.
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Trust is considered to be the oldest form of charitable organizations. It is an arrangement amongst parties where one party holds ownership over property on behalf of another person. Trust is established as well as governed as per the Indian Trusts Act in case of private trusts.
Trusts work for the benefit of the needy. The companies formed as trust don’t have their interests in mind but rather work as a form of community service. Therefore to encourage these organizations, the government has offered various tax benefits to them.
12A registration is a one-time exemption that can be availed by the trust. This helps them to get an exemption from paying tax right after their incorporation. Section 8 of the Income Tax act permit companies, trusts, and NGOs (Non-Governmental Organizations) registered under 12A to be exempted from paying tax on their surplus income.
It is a kind of tax benefit which is availed by all non-profit NGOs operating in India. Therefore Trusts, NGOs, and not-for-profit organizations should be aware of this and should register according to Section 12 A of the Income Tax Act to benefit.
The trust can get the following benefits:
Charitable and religious trust and sections that abide by the rules provided in Section 8, which try to claim tax benefits provided in Section 11 and 12 of the Income Tax Act, should have a valid 12A registration in order to claim tax benefits. To complete 12A registration, applicants are required to submit form 10 A to the Income Tax commissioner online.
You may file form 10A online by following these steps:
In order to register for 12A, the following steps may be followed:
You are required to attach the following documents:
When a Trust is established, they have to register as per 12A for claiming Income tax exemption under Income Tax Act. Section 12A of the Income Tax Act allows non-profit organizations such as trust, religious, charitable institutions, etc. to claim full income tax exemption. In case where any trust doesn’t register for 12A, their financial transactions shall be considered taxable.
Read our article:How to Register a Religious charitable trust organizations?
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