An NGO can avail exemption under the Income Tax Act by getting itself registered and complying with certain other formalities, but such registration does not provide any benefit to the persons making donations.

80G & 12A Registration

80G & 12A Registration

An NGO can avail exemption under the Income Tax Act by getting itself registered and complying with certain other formalities, but such registration does not provide any benefit to the persons making donations. The Income Tax Act has certain provisions, which offer tax benefits to the “donors”. All NGOs should avail the advantage of these provisions to attract potential donors. Section 80G is one of such sections.
By virtue of 12A registration, Trusts and NGOs and other Section 8 companies enjoy exemption from paying income tax. NGOs are basically organizations that are meant for charitable and non-profit activities.
However, they do have income and would be required to pay tax as per normal rates if not registered under section 12A of the Income Tax Act. Section 12A of the Income Tax Act, 1961 does not differentiate between charitable and religious Trusts. Hence 12A registration is applicable to both kinds of organizations.
PRE-REQUISITES FOR REGISTRATION
The prior requirement for getting registration under section 80G is to obtain registration under section 12A first.

Benefits of 80G & 12A Registration

  • Reputation Increase: Obtaining 80G registration enhances the NGO’s credibility and reputation.
  • More Donors: 80G registration attracts more donors since it offers them tax benefits.
  • Tax Savings for Donors: Donors can claim 50% of their donation as a deduction from their taxable income.
  • Government Funding & Grants: NGOs with 80G and 12A registrations are more likely to receive government grants and access to various schemes.
  • Tax Exemption for NGOs: Section 12A registration exempts NGOs from paying income tax, provided they meet certain conditions.

Applicability of 80G & 12A Registration

Criteria
Details
Income Generation
The NGO should not generate income from business activities unless separate accounts are maintained.
Charitable Purpose
The organization must be a charitable trust or registered society, using its income/assets exclusively for charity.
Non-Discrimination
The NGO must not benefit any particular caste or religion, and trustees should not derive undue benefits from the funds.
Account Maintenance
Regular books of accounts of receipts and expenses must be maintained

80G Registrations For NGO

Procedure
If an NGO gets itself registered under section 80G then the person or the organization making a donation to the NGO will get a deduction of 50% from his/her taxable income.
Earlier registration under 80G was given as one-time registration unless any specific restrictions are provided in the registration certificate itself but Finance Act 2020 has made some substantial changes in the registration process and period for which approval will be given.
New Registration
An application for fresh registration under section 80G will be given to Principal Commissioner or Commissioner. Provisional registration for 3 years will be given to organizations. The registration once granted shall be valid for three years from the Assessment Year from which the registration is sought. Application for renewal of such new registration needs to be submitted
–  at least six months prior to the expiry of the validity period or
–  within 6 months from commencement of activities, whichever is earlier.
The provisional registration so granted shall be valid for a period of 3 years and hence needs to be renewed at the end of the above-mentioned timelines. The registration so renewed shall be valid only for 5 years and needs to be renewed at the end of each 5 years.
What is an 80G Certificate?
80G Certificate is issued to a non-profit organization or non-governmental organizations (NGO), a charitable trust, or a Section 8 Company by the Income Tax Department. The objective behind the 80G certificate is to encourage more and more donors to donate funds to such organizations. The benefit that the donor avails by donating to such an NGO is that he gets tax exemption on 50% of his donation as the donor is allowed to deduct their donations from their Gross Total Income.  To avail of the tax exemption, the donor needs to attach the stamped receipt against the donation that is issued by the NGO – the receipt needs to include the name, date, and PAN of the organization.

80G Registration Process

80G Registration procedure consists of the following steps:
  • The application for an 80G certificate needs to be submitted to the Commissioner of Income Tax (Exemption) in the jurisdictional area of the institution.
  • Once the form and the required documents for 80G registration are submitted, an on-the-premise inspection is done by the Income Tax department.
  • The officials might ask for additional documents and evidence that are required to be made available by the institution.
  • On satisfactory verification and scrutinizing of documents and the office of the NGO, the 80G certificate is awarded to the institution by the Commissioner.
 

Validity

80G Certificate valid for a lifetime.

Documents Required For 80G Registration

The documents required for 80G registration are as follows:
  • Form 10G.
  • Registration certificate and MOA in case of Section 8 companies and Societies; Trust Deed in case of a Trust.
  • No objection certificate from the owner of the property where the registered office of the Institution is located.
  • PAN card copy of the NGO.
  • Copy of Utility Bills – Electricity bills, water bills, or House Tax Receipt.
  • Donor list along with their complete address and PAN.
  • Book of Accounts & Income Tax Return documents, of last three years.
  • List of welfare activities being carried out & the progress report for last three years.
  • A detailed list of the board of trustees.
  • Deed for Verification – Original RC, MoA, or Trust Deed.

Conditions to be fulfilled under Section 80G

For approval under Section 80G the following conditions are to be fulfilled:
  • The NGO should not have any incomes which are not exempted, such as business income. If the NGO has business income then it should maintain separate books of accounts and should not divert donations received for the purpose of such business.
  • The bylaws or objectives of the NGOs should not contain any provision for spending the income or assets of the NGO for purposes other than charitable.
  • The NGO is not working for the benefit of a particular religious community or caste.
  • The NGO maintains regular accounts of its receipts & expenditures.
  • The NGO is properly registered under the Societies Registration Act 1860 or under any law corresponding to that act or is registered under section 8 of the Companies Act 2013.

The Extent of Benefit Under 80G

There is a ceiling limit up to which the benefit is allowable to the donor. If the amount of deduction to a charitable organization or trust is more than 10% of the Gross Total Income computed under the Act (as reduced by income on which income-tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), then the amount in excess of 10% of Gross Total Income shall not qualify for deduction under section 80G.
In other words, while computing the total income of an assessee and for arriving at the deductible amount under section 80G, first the aggregate of the sums donated has to be found out. The 50 percent of such donations has to be found out and it should be limited to 10 percent of the gross total income. If such an amount is more than 10 percent of the gross total income, the excess will have to be ignored.
Cash payment up to Rs. 2,000/-
Any donation in excess of Rs. 2,000/- under section 80G should be made any mode other than cash.

12A Registration Process

  • The application needs to be done using Form 10A, as per Rule 17A of the Income Tax Act, 1962. The application needs to be filed with the Jurisdictional Commissioner of Income Tax (Exemptions).
  • Once the form and the documents have been received, the Commissioner verifies the authenticity of the activities of the organization. He can call for additional documents and information as deemed fit.
  • On the satisfactory report, he will pass an order in writing for a grant of 12A Registration. In case the Commissioner is not satisfied he will reject the application after which the applicant is given a fair chance to be heard.
12A Registration can be canceled at any point in time subject to proof that the activities of the organization being carried out is against the object of the institution or are not genuine or is benefitting a particular religion or caste or the funds are being invested in prohibited modes or income of the institution is being used for the benefit of specific persons.

Validity

12A Registration is valid for a lifetime.

Documents Required for 12A Registration

The documents required for 12A registration are as follows:
  • Form 10A.
  • Documental evidence of the creation of the Trust or NGO – Trust Deed of a Trust; Registration Certificate and Memorandum of Association of a society; section 8 companies to submit a certificate of incorporation and copies of MoA and AoA of the company.
  • Three-year bank account statement of the Trust.
  • PAN card of the organization.

Others Parameters required to be considered before applying for Registration under 80G

  • NGO should create some social appearance by way of Facebook or Instagram etc.
  • NGO should make 5 years plan in terms of what social welfare it is looking for in the next five years.
  • NGO before applying for registration confirms that it has carried any welfare activities at the mass level.
  • Preference will be given to organizations or NGOs that are working for Child empowerment, child food, and safety, child education, etc.
  • Bylaws of NGOs or organizations do not mention that NGOs or organizations are working for the benefit of a particular religious community or caste.

Conclusion

Registration under section 12A provides tax exemption to NGOs and section 80G works for the benefit of individuals and organizations willing to save tax. It is better to make donations by way of cheques or online banking transfers. The application for 12A and 80G registration can be filed together or separately under section 12 AB. It is up to the commissioner to accept or reject the proposals of NGOs or trusts.

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Disclamer: The article provided here is solely for information purposes. This is prepared based on information provided on various forums and the same has been utilized only for information of the readers. The information presented in this article does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice. In case of necessity, consult with professionals.