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 12 A 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 12 A of the Income Tax Act. Section 12 A of the Income Tax Act, 1961 does not differentiate between charitable and religious Trusts. Hence 12 A registration is applicable to both kinds of organizations.
Having an 80G registration certificate would make the entity more reputed in the eyes of the public. This certificate enables the donors to secure some form of exemption and pay less tax when it comes to donating to a particular NGO. Hence this certificate is useful for the donor.
Having this certificate not only increases the reputation of the NGO or society but also increases the number of donors. More donors would be able to claim tax exemptions under this system.
Donors can utilize this certificate of the NGO to save tax while paying a certain amount of tax to the respective government authorities.
The government is more likely to provide different forms of grants and related funding to NGOs and societies having these certificates.
By taking the exemption certificate available under 12 A an entity such as an NGO or Society can avail all forms of schemes and grants provided by the government. This would not be available if the NGO or society does not consider this form of registration.
By claiming this exemption the NGO or Society would get exempted from paying tax. For this purpose the NGO would have to furnish the 12 A certificate to claim such exemption.
Such certificate would be valid and legible proof of existence to the government that this form of entity is registered. Legal proof would be available for the entity to secure some form of grant or loan from the government.
12A and 80G Registration procedures typically need to be done by an NGO immediately after its incorporation.
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.
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.
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 procedure consists of the following steps:
80G Certificate valid for a lifetime.
The documents required for 80G registration are as follows:
For approval under Section 80G the following conditions are to be fulfilled:
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 80 G.
In other words, while computing the total income of an assessee and for arriving at the deductible amount under section 80 G, 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 80 G should be made any mode other than cash.
12 A 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.
12 A Registration is valid for a lifetime.
The documents required for 12 A registration are as follows:
Registration under section 12 A 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 12 A and 80 G 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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