What an Income Tax Hearing for 12A and 80G Actually Looks Like

Notes from a first-hand experience

For many non-profits organisations (NPOs), applying for permanent registrations under sections 12AB and 80G of the Income Tax Act, 1961 comes with some fear and anxiety.  Many leave it up to their finance teams to upload the forms and attach documents and hope it’s the same as obtaining a provisional registration. In practice, the process is far more conversational, and at times, searching.

This note is drawn from a first-hand experience of appearing before the Income Tax Department (IT Department) in connection with applications for permanent 12AB registration and approval under section 80G(5). It is not a critique of the system, but an attempt to demystify what applicants should expect once the application is submitted and enters the scrutiny phase.

First Notice

Once the applicant NPO forms and documents are filed online, acknowledgements are generated almost instantly. However, applicant NPOs may not be informed about when they can expect to hear back.  This is normal, the income tax department officers will have 6 months from the end of the quarter of the filing to respond to the applicant under Income Tax Act, 2025.  So, if the application is filed in April/May, responses can take as long as December 31 (June 30 + 6 months).

Generally, the time between submission and the first substantive communication happens between 6-10 weeks. Applicant NPOs can expect to receive to receive a notice asking for responses to queries and questions that the IT Department has.  Questions will generally revolve around activities of the applicant in the previous year, financial entries that seem irregular, governing charter of the applicant and specific concerns.

Applicant NPOs should respond to such a notice in detail.  They should be ready to provide the necessary paperwork and justify payments/activities where necessary.  The easiest way to ensure applicants have answers for the IT Department is to ensure that records are maintained through the year, rather than only at the time of submission.  This enables an applicant to record in real time the activities being carried out, beneficiaries impact, monies received and spent rather than attempts to match receipts in the future. 

As important as responding in detail with sufficient records to the IT Department is responding in time.  Many applicants miss deadlines or show cause notices themselves leading to rejection of their Income Tax registrations without a proper hearing.  This could be because the registered email was inactive or went to an old CA firm.  Applicant NPOs should ensure that they are actively monitoring the email provided to the IT Department so as to not miss any important emails.

Responses to the first notice may result in the request for further documentation or a hearing being fixed.  At this point, the process moves quickly and applicants may be given only a few days or a week to respond to additional requests.  Applicant NPOs should attempt to respond to their best ability to such requests.

The hearing: less about paperwork, more about substance

Under section 12AB, the Commissioner is required to satisfy himself about (i) the genuineness of activities of the applicant and (ii) compliance with such requirements of law as are material for achieving its objects. Approval under section 80G(5) similarly requires satisfaction that the institution is established in India for charitable purposes and that its income would not be used for private benefit.

Contrary to popular perception, the hearing is not a line-by-line verification of your balance sheet. The focus was on understanding the applicant as an entity in the social space.  It focused on who runs it, how decisions are taken, where money flows, and who ultimately benefits.

The questions broadly clustered into five themes.

1. The NPO and its Board

The first set of questions sought to understand the relationship between the applicant NPO and its governing board.

a) Who are the trustees/directors? Are they related to each other?

b) How were they appointed? What are there qualifications?

c) Do they draw any personal benefit from the NPO?

These questions are not accusatory, but they are probing. The underlying concern was clear: whether the NPO is genuinely independent and charitable, or whether it functions as an extension of its board’s personal or family interests. Charter documents, profiles of trustees/directors, and clarity on governance structures was the most important to clarify.

2. Salaries and remuneration

Remuneration emerged as a focal point.

a) Which directors/trustees or key persons draw salaries?

b) How are these salaries determined?

c) Are they commensurate with roles and responsibilities?

d) Are any trustees/directors simultaneously employees?

The department questions thoroughly on whether the remuneration paid to key managerial personnel is reasonable, justified, and transparently approved. Where trustees were also salaried executives, the expectation was that this dual role be clearly documented and defensible on commercial and functional grounds. 

This becomes harder to justify for research and policy-based organisations where most of the expenses are salaries of staff.  Ensure that there is clear documentation with relevant researchers and consultants that showcase their value to the NPO and invoices that are raised for work done.  Here, linkage with activities conducted and beneficiaries impacted becomes relevant.  For example – if you are running a think tank, demonstrate how NPO staff actively engage in work that pushes public policy.

3. Actual and ultimate beneficiaries

A recurring theme was: who really benefits?

a) Who are the beneficiaries of the NPO’s activities?

b) Are they identifiable groups or the general public?

c) How does the NPO ensure benefits are not restricted to a closed circle?

This is where activity reports, photographs, program descriptions, and beneficiary narratives proved useful. Abstract charitable objects are insufficient on their own. The hearing tests whether those objects translated into real-world outcomes for identifiable beneficiaries. 

Again, this becomes harder to justify for NPOs working in capacity building roles where their direct beneficiary may be another organisation or personnel and links to the ultimate beneficiaries may seem faint.  The NPO must show how they advanced public utility by using data/reports to show how the ultimate beneficiary benefitted from the Applicant NPO’s intervention. Clarity of institutional purpose, supported by documentary evidence, significantly strengthens the applicant’s case. 

4. Activities conducted

The department sought alignment between objects, activities, and expenditure.

a) What activities have been conducted so far?

b) Do they match the stated objects?

c) How are these activities funded?

d) Are there any activities that resemble commercial services?

All NPOs are expected to demonstrate some level of activity and documentation of this activity.  Newspaper clippings, media reports, public narrative building documentation helps prove that the applicant NPO is engaged in the work and there is external validation of the same.  Images and documents that show public mobilisation will always help build trust in the NPOs work. 

If there are any large expenses that stand out in the NPO’s balance sheet – they will be questioned.  NPOs should be prepared to explain such expenses with proper utilisation documentation. 

5. Donations received and their character

The department seeks to learn about how money was received by the NPO. 

a) Who has donated to the NPO so far?

b) Are donations domestic or foreign?

c) Are there corpus donations?

d) Are any donations conditional or routed through related parties?

The emphasis was on understanding whether donations were genuine voluntary contributions, free from quid pro quo, and consistent with the NPO’s charitable character. Transparency mattered most – especially when donors were related to the governing board of the NPO. 

The motives of the donors were questioned too.  Be prepared to validate the motives of larger donors through a quick background.  For example – if your work is in disability and you have non-institutional HNI donors; feel free to anonymise but use their stories for why they carry out philanthropy in the sector.  It helps create context for the NPO and really put into perspective why the work the NPO does is relevant and needed.

Where the NPO falls under the limb of “advancement of any other object of general public utility”, the Department may examine whether any activity resembles trade or business within the meaning of the proviso to section 2(15). Applicants should be prepared to explain the nature of consultancy fees, training charges, or event revenues, and demonstrate that such receipts are incidental and within statutory thresholds. If such receipt of revenue exceeds the 20% limit, NPO must demonstrate that it was solely for remuneration of expenses. 

The tone of the process

What stood out most was that the hearing was not adversarial. It was investigative, sometimes sceptical, but fundamentally grounded in understanding intent and structure rather than catching errors. That said, gaps in documentation or unclear explanations were quickly exposed.

The process rewards preparation not just of documents, but of narrative and intention. Applicant NPOs who can clearly explain why the NPO exists, how it operates, and who it serves are far better placed than those who rely solely on formal compliance.

What applicants should take away

A 12AB or 80G hearing is not a mere formality. It is, in effect, a legitimacy check. Applicants should expect scrutiny on governance, remuneration, beneficiaries, activities, and funding. They should be prepared to explain relationships, justify payments, and demonstrate that charitable intent is matched by charitable action.

Most importantly, they should view the process not as an obstacle, but as an opportunity to put their institutional story on record.  Passionate founders explaining their story, NPO purpose and mission will go a long way towards helping the department understand your NPO’s legitimacy. 

Also, NPOs should plan for the time effort.  Permanent registrations need to be applied for within 6 months of receiving your provisional registration.  There is document preparation required which will involve time consuming work.  If your grants hinge on obtaining permanent 12A/80G approval, put your best foot forward and carry out meaningful compliance and documentation.

What the Income Tax Act, 2025 Means for Charitable Registrations

The proposed Income Tax Act, 2025, expected to take effect from 1 April 2026, reorganises and renumbers provisions of the existing Income-tax Act, 1961. For charitable institutions, however, the underlying principles remain substantially intact.

Registrations currently granted under sections 12A, 12AA, or 12AB, and approvals under section 80G, continue to operate within the same conceptual framework. The conditions governing:

a) application of income,

b) accumulation limits,

c) prohibition on private benefit,

d) restrictions on commercial activity under section 2(15),

e) and audit and filing requirements,remain materially unchanged.

The reform is primarily structural and numerical rather than doctrinal. Case law developed under the 1961 Act on “charitable purpose”, “genuineness of activities”, and “application of income” will continue to guide interpretation unless expressly altered.

For NPOs who already have tax exemption, nothing needs to be changed or re-done.  Only NPOs who are applying for registrations post April 1, 2026 – the correct respective forms should be used.  However, there is no benefit in delaying your application till the new financial year - compliance discipline, documentation standards, and scrutiny at the stage of registration are unlikely to soften or intensify merely because of the new statute.