Introduction
Running a charitable Trust or NGO involves significant responsibility. In addition to serving society, you must also focus on complying with income tax laws. For instance, whether your organization works in education, healthcare, or religious fields, maintaining compliance is crucial. Otherwise, it may lead to the loss of tax benefits and severe penalties.
Below is a practical compliance checklist to help your Trust or NGO stay on track in 2025.
What is Section 12AB?
1.Make Sure Your Registration is Active (Section 12AB)
Section 12AB governs the registration of charitable and religious trusts or institutions. To claim exemptions under Section 11 and Section 12 of the Act, registration is required.
Why Is Section 12AB Registration Important?
- Enables Tax Exemption: income from donations, grants, interest, etc., is exempted if it is utilized for approved charitable purposes.
- Proof of Genuineness: Confirms that your trust/NGO is legitimate and not created solely for tax benefits.
- Needed for 80G Approval: Section 12AB registration is a prerequisite for Section 80G (donor tax benefit) registration.
- Mandatory for Filing ITR-7: Without this registration, your entire income becomes taxable.
- Revalidation Required: Even if earlier registered under Section 12A or 12AA, revalidation under Section 12AB is compulsory. Old certificates are invalid without it.
2.Use 85% of Income for Charitable Activities
To retain tax exemption status, at least 85% of your income must be applied to charitable or religious purposes in the same financial year.
- If You Cannot Apply 85%:
- File Form 10 to set aside unspent income for future use, or
- Spend in the next year valid documentation.
3. File Income Tax Return on Time (ITR-7)
Even though you’re non-profit, filing Form ITR-7 annually before the due date is mandatory.
- Consequences of Late Filing:
- Rejection of tax exemption
- Interest and penalties
- Scrutiny and compliance risk
4. Maintain Proper Records & Books of Account
Keep detailed records of:
- Income and donations
- Expenses and payments
- Receipts, invoices, and vouchers
- Bank account statements
If your total income before exemption exceeds ₹2.5 lakh, you must:
- Get your accounts audited
- File Form 10B or 10BB, depending on registration type
5. Avoid Use of Funds for Personal Benefit
Funds and property of the trust must not be used for personal gain by trustees or their relatives. This is a violation under Section 13, which can lead to:
- Loss of exemption
- Blacklisting of the trust
- Penalty proceedings
6. Invest Surplus Funds in Approved Modes Only
Invest trust funds only in approved instruments such as:
- Fixed deposits in scheduled banks
- Government securities
- Post office savings
Avoid:
- Private landing
- Risky investments
- Equity or mutual funds not permitted under Income Tax Rules
7. Handle Donations Properly (Form 10BD & 10BE)
If your trust is registered under Section 80G and issues tax deduction receipts to donors:
You Must:
- File Form 10BD (donor-wise donation statement) annually
- Issue Form 10BE (donation certificate) to donors by May 31st of the following financial year
What Happens If You Don’t Comply?
If these issues are found during income tax assessment or scrutiny, your trust may also face notices, audits, and reputation risk.
| Non-Compliance | Consequence |
| No 12AB Registration | Entire income becomes taxable |
| Less than 85% income applied, and no Form 10 filed | Exemption denied |
| Late ITR or Audit Report filing | Exemption cancelled, penalty applicable |
| Using funds for trustee/personal benefit | Loss of tax exemption, trust may be blacklisted |
| Unapproved investments | Section 11 benefit denied |
| Not filing Form 10BD/10BE | Penalty of ₹200 per day + disallowance of donor’s deduction |
Conclusion
Your Trust or NGO can serve its mission more effectively when its income remains tax-exempt and its reputation remains intact. By following the compliance checklist, filing timely returns, maintaining records, and using funds correctly-you protect your organization from penalties and scrutiny.
Stay proactive. Stay compliant. Strengthen your impact in 2025.
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This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.
Published on: July 4, 2025