Registration Under 12A and 80G for NGO’s: Benefits to Look-Out for

Last Updated at: October 16, 2020
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Section 80G of the I-T Act allows donations made to specified relief funds and charitable institutions as a deduction from gross total income. Another way you can save tax while doing some good work is by using the deductions available under Section 80G of Income Tax Act.

Registration under 12A and 80G for NGO's
All current licenses, permissions, etc. issued to exempt entities pursuant to Sections 10(23C), 12AA, and 80 G or notices pursuant to Section 35 of the Act will become inoperative from 1 June 2020.

 

Registering an NGO in India is advantageous for many reasons. The chief of them being the rebate they get in income tax under two major section – the 80G and 12A. This post aims to explain the two in simple words for the benefit of NGO owners.

While Albert Einstein may have said that the hardest thing to understand in the world is Income Tax, this is an attempt to simplify one aspect of the Income Tax Act – the benefits available to NGOs. If you’re a proud founder of an NGO, a manager of its funds or a big-hearted donor, this article casts light on why registration of NGO in India under 12A and 80G and for the tax exemption is available and important.

Browse the articles below for more free information and guidance on government registrations, tax, compliance, patent filing process and more.

Registration under 12A: The Stepping Stone

The foremost thing for an NGO to do is to seek an exemption certificate, which is known as a 12A registration. Without this registration process for your NGO in India, your receipts would be entitled to normal tax rates and the beneficial exemptions available would evade you. This society bylaw to register under 12A would also help you in seeking grants from government or organizations abroad, as it serves as a legitimate proof of the existence and purposes of your NGO. It is also noteworthy that regardless of whether the NGO is constituted as a trust, society or a not-for-profit company, it will have to seek a 12A certification to avail tax exemption.

Ask for free NGO advice now

Registration under 80G: Benefits 

One of the major registration processes for an NGO in India is receiving registration under 12A. Once that is done the major benefit is that you can seek to register under 80G of the Income Tax Act. The advantage NGO registration confers is that the donor (that is the person donating money) to the NGO will no longer be taxed for donating to your NGO. The donors can use this registration to reduce the amount they donate to an NGO from their total taxable incomes. The circular benefit of this registration would be threefold:

  1. As a society bylaw, 80G certification makes your NGO become a promising prospect and enhances the value of the organization and confidence of those associated with it.
  2. It effectively enables a donor to not just feel good about making a donation for a cause but also reap the tax advantage of lowering taxable income associated with it. Well, who doesn’t like freebies?
  3. Only an NGO registered under both 12A and 80G is eligible for availing government funding.
  4. Getting an 80G registration also helps in seeking foreign contributions.

While the registration process may take a few months, it is a lifetime registration with no requirement for renewals.

The donation exemption limit: Donors beware!

While money may not be able to buy you happiness, it can certainly help by lowering your tax liability. But like all good things, there is a limit to how much of it you may reap. It’s a common misconception that there is a 50 % deduction available of the amount donated. While singularly the statement stands true, it is subject to another provision in the income tax act that states this 50 % limit is subject to an overall cap of 10% of the donor’s gross total income. So think of that sale you’ve been eyeing, what this effectively means is that it’s a no-questions-asked straight 50% discount on the MRP but subject to 10 percent of the amount you have in your purse.

So if your income is 10 lacs and you donate 10 lacs to a registered NGO, you cannot claim 5 lacs (or 50 % of your donation) as a deduction but rather your deduction would be limited to 1 lac, which is 10% of your income. For the sake of simplicity, we have used the word ‘Income’ here to explain, although the correct terminology is Gross Adjusted Total Income and the Income Tax Act provides that for this purpose, it is calculated as Gross Total Income minus (i) all exempted incomes, (ii) long-term capital gains and, (iii) all deductions under section 80C to 80U except for 80G.

No action solely for non-registration

It is also provided that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of trust in India or institution for the said assessment year.

Disqualification from exemption:

Even after registration and meeting all requirements under the Income Tax Act, here are a few situations which may still disentitle a donor from claiming the tax deduction.

  1. If a charitable organisation registered as NGO is engaged in religious affairs or promoting interests of a particular caste of community.
  2. If this registration process for NGO has any ‘non exempted income’, that is if they have any business income or a commercial purpose that gives rise to incomes not specifically exempted for NGOs.
  3. If the donor pays in cash – the government from the budget 2018-19 onwards has reduced the admissible deduction, if cash has been used from 10,000 rupees to only 2,000 rupees. However, there is no such limit for cheque or other electronic modes of transfer.
  4. If the NGO does not maintain its routine account of expenditures and receipts.
  5. If the NGO is not duly registered under the Societies Registration Act of 1860 or under Section 8 company registration Act, 2013.

To summarise, registering under the 12A section allows the NGO exemption from tax rates. Failing to do will make them applicable for ITR filling. The 80G section, on the other hand, ensures that a person donating to the NGO can deduct the amount from their taxable income, which leads to more donations.

To know about NGO : Click here

You should also read:
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Registration Under 12A and 80G for NGO’s: Benefits to Look-Out for

25324
All current licenses, permissions, etc. issued to exempt entities pursuant to Sections 10(23C), 12AA, and 80 G or notices pursuant to Section 35 of the Act will become inoperative from 1 June 2020.

 

Registering an NGO in India is advantageous for many reasons. The chief of them being the rebate they get in income tax under two major section – the 80G and 12A. This post aims to explain the two in simple words for the benefit of NGO owners.

While Albert Einstein may have said that the hardest thing to understand in the world is Income Tax, this is an attempt to simplify one aspect of the Income Tax Act – the benefits available to NGOs. If you’re a proud founder of an NGO, a manager of its funds or a big-hearted donor, this article casts light on why registration of NGO in India under 12A and 80G and for the tax exemption is available and important.

Browse the articles below for more free information and guidance on government registrations, tax, compliance, patent filing process and more.

Registration under 12A: The Stepping Stone

The foremost thing for an NGO to do is to seek an exemption certificate, which is known as a 12A registration. Without this registration process for your NGO in India, your receipts would be entitled to normal tax rates and the beneficial exemptions available would evade you. This society bylaw to register under 12A would also help you in seeking grants from government or organizations abroad, as it serves as a legitimate proof of the existence and purposes of your NGO. It is also noteworthy that regardless of whether the NGO is constituted as a trust, society or a not-for-profit company, it will have to seek a 12A certification to avail tax exemption.

Ask for free NGO advice now

Registration under 80G: Benefits 

One of the major registration processes for an NGO in India is receiving registration under 12A. Once that is done the major benefit is that you can seek to register under 80G of the Income Tax Act. The advantage NGO registration confers is that the donor (that is the person donating money) to the NGO will no longer be taxed for donating to your NGO. The donors can use this registration to reduce the amount they donate to an NGO from their total taxable incomes. The circular benefit of this registration would be threefold:

  1. As a society bylaw, 80G certification makes your NGO become a promising prospect and enhances the value of the organization and confidence of those associated with it.
  2. It effectively enables a donor to not just feel good about making a donation for a cause but also reap the tax advantage of lowering taxable income associated with it. Well, who doesn’t like freebies?
  3. Only an NGO registered under both 12A and 80G is eligible for availing government funding.
  4. Getting an 80G registration also helps in seeking foreign contributions.

While the registration process may take a few months, it is a lifetime registration with no requirement for renewals.

The donation exemption limit: Donors beware!

While money may not be able to buy you happiness, it can certainly help by lowering your tax liability. But like all good things, there is a limit to how much of it you may reap. It’s a common misconception that there is a 50 % deduction available of the amount donated. While singularly the statement stands true, it is subject to another provision in the income tax act that states this 50 % limit is subject to an overall cap of 10% of the donor’s gross total income. So think of that sale you’ve been eyeing, what this effectively means is that it’s a no-questions-asked straight 50% discount on the MRP but subject to 10 percent of the amount you have in your purse.

So if your income is 10 lacs and you donate 10 lacs to a registered NGO, you cannot claim 5 lacs (or 50 % of your donation) as a deduction but rather your deduction would be limited to 1 lac, which is 10% of your income. For the sake of simplicity, we have used the word ‘Income’ here to explain, although the correct terminology is Gross Adjusted Total Income and the Income Tax Act provides that for this purpose, it is calculated as Gross Total Income minus (i) all exempted incomes, (ii) long-term capital gains and, (iii) all deductions under section 80C to 80U except for 80G.

No action solely for non-registration

It is also provided that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of trust in India or institution for the said assessment year.

Disqualification from exemption:

Even after registration and meeting all requirements under the Income Tax Act, here are a few situations which may still disentitle a donor from claiming the tax deduction.

  1. If a charitable organisation registered as NGO is engaged in religious affairs or promoting interests of a particular caste of community.
  2. If this registration process for NGO has any ‘non exempted income’, that is if they have any business income or a commercial purpose that gives rise to incomes not specifically exempted for NGOs.
  3. If the donor pays in cash – the government from the budget 2018-19 onwards has reduced the admissible deduction, if cash has been used from 10,000 rupees to only 2,000 rupees. However, there is no such limit for cheque or other electronic modes of transfer.
  4. If the NGO does not maintain its routine account of expenditures and receipts.
  5. If the NGO is not duly registered under the Societies Registration Act of 1860 or under Section 8 company registration Act, 2013.

To summarise, registering under the 12A section allows the NGO exemption from tax rates. Failing to do will make them applicable for ITR filling. The 80G section, on the other hand, ensures that a person donating to the NGO can deduct the amount from their taxable income, which leads to more donations.

To know about NGO : Click here

You should also read:
1+

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Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.