If you want to continue fighting the good fight, ensure that you’ve fulfilled and adhered to the following requirements that have been made mandatory for NGOs.
NGOs, trusts, and charitable organisations are dependent on donations for their functioning. Tax exemptions are given both to the donors and to the receiving NGOs to encourage charitable donations and to promote activities for good causes. Further, to avail of these exemptions, NGOs have to register under Sections 80G and 12A of the Income Tax Act. Previously this registration was deemed to be valid in perpetuity.
Through the Finance Bill 2020, changes have been made to this outdated system. While the exemptions are still available, re-registration under Section 80G and fresh registration under Section 12AB are now required. Moreover, a new procedure has been put in place to claim CSR funding too. Keep reading to learn more.
1. Form CSR-1 for CSR Funding
Through CSR or corporate social responsibility, funding NGOs can get funding or grants from corporations to carry out activities like fighting climate change, wildlife and environmental protection or any other social cause which can bring about many positive changes in society. Further, with effect from 1 April 2021, NGOs have to register through Form CSR-1 on 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 Companies 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
- Further, any entity that is 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 authorised person with his PAN number
- Details of governing body members
- Registration certificate.
2. Re-registering Under Form 10A
NGOs registered under Section 80G and Section 12A/12AA have the benefit of tax exemptions and deductions. Further, to continue 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 recognised 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 organisations are now required to freshly register under Section 12AB. This is to get the benefits provided under Sections 11 and 12 of the Income Tax Act 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 of these developments have alarmed NGOs since they make the compliance procedure more difficult than it was previously. However, these changes are commendable as they strive to make the operation of NGOs more transparent and credible.
If you run a non-profit organisation, you must be aware and stay up-to-date on the important changes brought about by the financial bill in order to remain compliant.
Alternatively, you can simplify the process by utilising Vakilsearch’s Section 8 and Section 12A compliance package. Hence, this will take care of everything for you.