Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
What it does
Makes the trust’s income exempt when spent on its charitable objects (subject to the 85% application rule).
Replaced 12A/12AA
The new 12AB regime is time-bound and renewable, unlike the old one-time 12A/12AA.
Why it matters, and what it asks in return
Without 12AB a charitable trust is taxed like an association of persons on its surplus, so the registration is what makes the charitable model work financially — it lets income spent on the objects escape tax. In return, the regime imposes conditions designed to ensure the money actually reaches the cause. The trust must apply at least 85% of its income to its objects each year; anything it genuinely can’t spend can be set apart or accumulated for a specific purpose for up to five years, with the prescribed declaration. Income must be applied to charitable (not private) purposes, the trustees can’t derive personal benefit, and investments must stay in the permitted modes. The registration is time-bound and renewable rather than perpetual, so the trust tracks its expiry and re-applies in Form 10AB. Losing or not renewing it can not only end the exemption but trigger a tax on the accreted (net) assets of the trust — an exit charge. So 12AB is better seen as an ongoing compliance relationship, not a one-time certificate. Keeping clean accounts, meeting the 85% application, and renewing on time are what preserve it. Confirm the current conditions, which the 12AB regime tightened.