Section 12AA
The pre-2021 income-tax registration route for NPO tax exemption, now superseded by Section 12AB — still relevant because every 12AA-registered charity had to re-register under 12AB.
In plain language
Before an NPO can claim Section 11's tax exemption, it must first be registered. For years, that registration ran under Section 12AA. It no longer does — but 12AA still matters, because of what replaced it.
The workbook explains: the Central Board of Direct Taxes issued the Income Tax (6th Amendment) Rules, 2021, dated 26 March 2021, bringing in Section 12AB as the new registration route. Every charitable institution already registered under Section 12AA, along with every brand-new entity, had to apply afresh for registration under 12AB.
So Section 12AA is now, in effect, the old regime. Its registration procedure, and the scope of verification it required, carried over largely unchanged into 12AB — the workbook is explicit that this remains "similar."
How it works
The workbook distinguishes 12AA from 12AB directly:
| Aspect | Section 12AA (old) | Section 12AB (current) |
|---|---|---|
| Status | Superseded | Current registration route |
| Who must move to 12AB | All 12AA-registered charities | New entities register under 12AB directly |
| Procedure and verification scope | Broadly the same as under 12AB | Broadly the same as under 12AA |
Section 12AA also appears alongside 12A, 12AB, 10(23C) and 10(46) as an acceptable basis for a valid income-tax exemption certificate under Table 3.1's mandatory SSE registration criteria — an NPO can point to any of these, so long as the certificate is valid for at least the next 12 months at the time of applying to the SSE.
A worked example
Illustrative NPO; the transition rule and dates are the workbook's own.
Amar Jyoti Sansthan was registered under Section 12AA in 2015, and had claimed tax exemption on that basis for years. When the Income Tax (6th Amendment) Rules, 2021 came into force, it could not simply continue under its old 12AA registration — it had to apply afresh under Section 12AB, even though its underlying activities and governance had not changed at all.
Once its 12AB registration was granted (first provisionally, for up to 3 years, then for 5 years on renewal), Amar Jyoti Sansthan's 12AA registration became historical — relevant to explaining how it got here, but no longer the certificate a current SSE listing document or an income-tax filing would cite.
Why NISM asks about it
Chapter 10 (Taxation), section 10.3, explains that 12AA-registered charities had to move to 12AB following the CBDT's 2021 amendment rules. Chapter 3's Table 3.1 lists 12AA among the acceptable tax-exemption certificates for SSE registration, alongside 12A, 12AB, 10(23C) and 10(46). Expect a question asking what replaced Section 12AA registration, or naming the year of the amendment.
Common exam traps
- 12AA is the old registration route; 12AB is the current one — even previously-12AA-registered charities had to re-apply under 12AB.
- The transition rule came from the Income Tax (6th Amendment) Rules, 2021, dated 26 March 2021.
- Table 3.1 still lists 12AA as an acceptable certificate type for SSE registration purposes, alongside 12A, 12AB, 10(23C) and 10(46).
- Do not confuse Section 12AA with Section 12AB, the current registration provision, or with Section 11, the separate provision that actually grants the income exemption once registration is in place.
Check yourself
1.Which of the following is NOT part of the enhanced due diligence requirements under Section 12AA of the PMLA, as described in the workbook?
- a)Verifying client identities
- b)Examining ownership and financial position
- c)Recording the purpose of transactions
- d)Obtaining SEBI's approval before each transaction
Show the answer
Answer: (d) Obtaining SEBI's approval before each transaction
Section 12AA covers verifying client identities, examining ownership and financial position, recording transaction purposes, and maintaining obtained information for five years, plus monitoring for suspicious activity.
There is no requirement of SEBI approval for each transaction.
Where this is taught
Free preparation for NISM Series XXIIIRelated terms
- Not for Profit OrganisationA social enterprise that is a charitable trust, charitable society or Section 8 company (or other entity SEBI specifies); it can register on an SSE and raise money mainly through ZCZP instruments.
- Section 11The Income Tax Act provision exempting an NPO's property income, conditional on applying at least 85% of it to charitable objects each year, with a 5-year window to accumulate any shortfall.
- Section 12ABThe current Income Tax Act registration route every NPO must hold to claim exemptions — granted first as a maximum 3-year provisional registration, then as a 5-year regular registration, replacing Section 12AA from 2021.
- Provisional registrationThe initial, time-limited tax registration an NPO is granted under Section 12AB — valid for a maximum of 3 years, before regular registration for 5 years follows.