NGOs That Don’t Fulfil These 3 Requirements Are in Trouble!

Last Updated at: Apr 28, 2021
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NGO Registration

 

NGOs, trusts, and charitable organizations have provisions for tax exemptions in India. These are given due to the non-profit nature of their work. New registrations/re-registrations have been made mandatory for NGOs now to claim these exemptions as of 1 April 2021. 

 

NGOs, trusts, and charitable organizations are dependent on donations for their functioning. Tax exemptions are given both to the donors and to the receiving NGOs to encourage donations and to promote activities for good causes. Further, to avail of these exemptions, NGOs had to register under Sections 80G and 12A of the Income Tax Act. This registration was deemed to be valid in perpetuity.

Through the Finance Bill 2020, changes have been made to this system. While the exemptions are still available, re-registration under Section 80G and fresh registration under Section 12AB are now needed. Moreover, a new procedure has been put in place to claim CSR funding too. 

1. Form CSR-1 for CSR Funding

CSR or Corporate Social responsibility funding is when NGOs can get funding or grants from corporations to carry out activities like environmental protection or trying to bring about any positive changes in society. Further, with effect from 1 April 2021, NGOs have to register through Form CSR-1 in the MCA portal to be able to avail of such funds.

Eligibility for filing form CSR-1

a. Should be one of the following institutions:

  • a company established under Section 8 of the Act, or a registered public trust or a registered society, registered under Sections 12A and 80 G of the Income Tax Act, 1961
  • a Section 8 company or a registered trust or a registered society, established by the Central Government or State Government
  • any entity established under an Act of Parliament or a State legislature

b. Should have a valid registration under Section 80G and Section 12AA/12AB as of the date of filing the application.

If you are setting up a new NGO, you need to register under Section 12AB and Section 80G of the IT tax before you can get CSR funding.

Documents required for CSR filing

  • PAN card of the NGO
  • Mail ID and mobile number
  • Digital signature of the authorized person with his PAN number
  • Details of governing body members
  • Registration certificate

register your NGO

NGO Registration

2. Re-registering Under Form 10A

NGOs registered under Section 80G and Section 12A/12AA have the benefit of tax exemption. Further, to avail of these benefits, the NGOs are required to re-register themselves with the income tax department through Form 10A. 

Amendment to Section 80G

When a donor makes contributions to certain relief funds and charitable institutions, they can claim income deduction under Section 80G of the Act. This exemption is available only when the donation is made to NGOs approved under Section 80G. Further, the Finance Bill 2020 has made amendments to this section that will be applicable from 1 June 2021:

  • The Principal Commissioner or Commissioner is to whom an institution should apply to be recognized under Section 80G. Further, they will also have the authority to grant the registration.
  • An obligation to give a statement of donations received has been imposed on the institutions, failure of which might result in a penalty. Moreover, without this statement, the donor will not be able to claim a tax deduction.
  • Moreover, the concept of perpetual registration has been withdrawn and institutions from now on need to seek renewal every 5 years under this section.
  • A provisional registration valid for 3 years can be sought by charitable institutions that haven’t started their charitable activities.

To get approved under Section 80G, Form 10A (as discussed above) has to be submitted with the Principal Commissioner.

3. Fresh Registration Under Section 12AB

All charitable organizations are now required to freshly register under Section 12AB. This is to get the benefits provided under Sections 11 and 12 with effect from 1 April 2021.

  • If you are an NGO already registered under Section 12A/12AA, you need to register under Section 12AB within 3 months. 
  • Moreover, if you are an NGO not registered under Section 12A/12AA you need to apply for registration under Section 12AB at least a month before the commencement of the previous year relevant to your assessment year.
  • Additionally, for new registrations, provisional registration for 3 years from the assessment year from which registration is sought will be given.

All these changes have caused concern among NGOs as they make the compliance process more complicated than before. If you run an NGO, you need to understand these key changes brought about by the Financial Bill to stay compliant.

Alternatively, you can make the whole process easier by using Vakilsearch’s Section 8 and Section 12A compliance package, where everything will be taken care of for you.