If you are a social entrepreneur looking to make a change, but worried about tax implications and fundraising. Look no further, as Sections 12A and 80G of the Income Tax Act are here to the rescue!
If you’re looking to take up a social cause, registering an NGO in India is desirable for various reasons. The most important are the income tax benefits for NGOs under Sections 80G and 12A of the Income Tax Act, 1961. You Can Know more about Section 12A & 80G.
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 NGOs in India under 12A and 80G Deduction of the Income Tax Act is crucial for social work.
A Section 80G registration benefits donors, whereas a Section 12A registration will assist an NGO in getting its income exempt from tax under Section 80A of the Income Tax Act.
The 80G registration and the 12A registration are only applicable to NGOs and charitable organizations.
- Drafting of an application for a Section 12A license
- Drafting of an application for an exemption certificate under 80 G
- Income tax commissioner’s approval
- Follow-up with tax authorities from beginning to end
- Over 500+ CA/CS/CMAs in all of India
- Registration Under Section 12A
The first step for an NGO is to apply for a tax exemption certificate, also known as Section 12A registration. Further, without this NGO registration, your NGO’s receipts in India would be subject to standard tax rates. The benefits exemptions applicable to an NGO would be lost to you.
Registration under Section 12A will assist you in securing funds from governments or organisations abroad. This is because it serves as legitimate documentation of your NGO’s existence and social objectives.
You can obtain a 12A certification to avail of tax exemption even though your NGO is constituted as a trust, society, or a not-for-profit company
Applicability of 80G Registration and 12A Registration
80G Registration and 12A Registration are applicable exclusively to NGOs and charitable organizations that meet the following criteria:
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No Business Income:
– The organization should not generate income through business activities.
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Charitable Trust or Registered Society:
– It must be either a charitable trust or a registered society.
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Sole Purpose is Charity:
– The assets or income of the organization should be dedicated solely to charitable purposes.
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Maintenance of Regular Book of Accounts:
– The organization must maintain regular books of accounts detailing receipts and expenses.
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No Undue Benefit for Trustees or Governing Body:
– Trustees or the governing body of the organization should not derive any undue benefit from the funds.
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Non-Discrimination:
– The organization should not work to benefit any particular caste or religion.
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Separate Accounts for Business Income:
– In cases where there is business-related income, separate accounts must be maintained, and donations received should not be used for such businesses.
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Immediate Registration After Incorporation:
– The registration procedures for 12A and 80G should be initiated promptly by the NGO immediately after its incorporation.
Registration Under 80G
You should register an NGO under Section 80G of the Income Tax Act. The main benefit of NGO registration is that the donars to your social cause will not be liable to taxes when they donate to your NGO.
Likewise, this means that donors of a Section 80G registered NGO is entitled to reduce the amount they donate to the NGO from their total taxable income.
80G Registration Process
Acquiring an 80G Registration Certificate involves the following four fundamental steps:
Step 1: File an application for 80G registration with the Commissioner of Income Tax in the organization’s jurisdictional region.
Step 2: Once you’ve submitted all the necessary documents and the application, the Income Tax Department will conduct a thorough examination.
Step 3: In case additional information is required, officials will request supplementary documents, which must be submitted within the specified timeframe.
Step 4: Upon satisfaction with the verification of documents and information provided, the Commissioner will issue the 80G Certification to the organization.
Documents Required for 80G Registration
To seek 80G registration, you must provide the subsequent documents in addition to Form 10A/10AB:
- A self-certified duplicate of the organization’s incorporation document.
- A self-certified copy of the registration certificate issued by the relevant authority.
- A self-certified copy of the FCRA registration under the Foreign Contribution Regulation Act (FCRA), if applicable.
- A self-certified copy of the existing order granting approval under clause (23C) of section 10.
- Replicas of annual accounts for the three years preceding the application for existing entities.
- If the organization’s income includes business income, copies of annual accounts and audit reports according to Section 44AB for the three years before the application.
- Particulars of the organization’s operations since its inception or the last three years, whichever is shorter.
What is 12A Registration?
Having covered the topic of 80G Registration, let’s delve into 12A registration and the process involved.
Through 12A registration, Trusts, NGOs, and other Section 8 companies receive an exemption from paying income tax. NGOs primarily engage in charitable and non-profit activities, and despite having income, they would be liable to pay tax at normal rates if not registered under Section 12A of the Income Tax Act. Notably, Section 12A of the IT Act, 1962 does not distinguish between charitable and religious Trusts, making 12A registration applicable to both types of organizations.
12A Registration Process
To obtain a 12A Certificate, follow the steps outlined below:
Step 1: Submit Form 10A to the Jurisdictional Commissioner of the Income Tax Department as per Rule 17A of the Income Tax Act, 1961.
Step 2: The Commissioner will scrutinize the application and accompanying documents to ensure accuracy. If any information is missing, he will request additional documents.
Step 3: If satisfied with the submission, the Commissioner will issue a 12A Registration Certificate; however, if he finds the materials and application irrelevant, the application may be denied.
Benefits of 12A Registration
When an individual intends to establish an NGO, the primary method of registration is the 12A registration. This type of registration provides an exemption applicable to all NGOs seeking relief under the provisions of the Income Tax Act, 1961. The following are the advantages of 12A registration:
- Access to Government Schemes and Grants:
Obtaining the exemption certificate under 12A allows entities like NGOs or Societies to avail themselves of various schemes and grants provided by the government. Without this registration, such opportunities would not be accessible.
- Tax Exemption:
Claiming this exemption grants the NGO or Society relief from paying taxes. The 12A certificate serves as the necessary documentation to avail of such exemptions.
- Proof of Existence:
The certificate acts as a valid and clear proof of existence, assuring the government that the entity is duly registered. This legal proof is crucial for securing grants or loans from the government.
- Applicable to NGOs and Societies:
This certificate extends not only to NGOs but also to societies registered in compliance with the Societies Registration Act.
Additionally, after an NGO or society is registered under 12A, they can further reap benefits under Section 80G of the Income Tax Act, 1961. The advantages of claiming this exemption include:
- Increase in Reputation:
Possessing an 80G registration certificate enhances the entity’s reputation in the eyes of the public. This certification allows donors to receive exemptions, encouraging them to contribute to the NGO and pay less tax.
- Attracting More Donors:
The certificate not only boosts the reputation of the NGO or society but also attracts a larger pool of donors. More donors can benefit from tax exemptions through this system.
- Tax Savings for Donors:
Donors can utilize the NGO’s certificate to save on taxes while fulfilling their tax obligations to the government.
- Government Funding Opportunities:
NGOs and societies with these certificates are more likely to receive various forms of grants and funding from the government.
Documents Required for 12A Registration
The documentation necessary for 12A registration includes:
- Form 10A.
- Documentary proof of establishing the Trust or NGO – Trust Deed for a Trust; Registration Certificate and Memorandum of Association for a society; section 8 companies must provide a certificate of incorporation along with copies of the company’s Memorandum of Association and Articles of Association.
- A three-year bank account statement of the Trust.
- The PAN card of the organization.
How to reach Vakilsearch for 12A and 80G Registration?
To reach Vakilsearch for 12A and 80G Registration or to schedule a callback, you can use the following contact information:
Phone:
+91-7200 365 365
Call Availability:
Monday – Saturday
10 AM – 7 PM
If you prefer a callback, you can visit Vakilsearch’s official website and look for the option to schedule a callback on our ‘Contact Us’ page. Alternatively, you may directly call the provided phone number during the specified business hours to discuss your requirements for 12A and 80G Registration.
How Vakilsearch Can Secure Benefits Earmarked for NGOs?
Registering at NGO DARPAN under Section 12A & 80G allows an NGO exemption from standard tax rates. Section 80G, 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.
The experts at Vakilsearch can take care of everything, from gathering the necessary paperwork to completing the forms and submitting them at the income tax commissioner’s office.
Not only will we make sure that the application is accompanied by the right form as well as the prescribed documents.
Further, we will ensure that the application passes official scrutiny and all the other formal checkpoints in place. Therefore, fight the good fight with Vakilsearch get in touch with us today!
FAQ’s
What is the difference between 12A and 80G?
12A Registration assists an NGO in getting its organizational income exempted from tax, while 80G Registration, falling under section 80G of the Income Tax Act, benefits the donor of an NGO.
How much tax is exempt from 80G?
The amount of tax exempt from 80G depends on the type of donation and the organization to which the donation is made. Donations to certain funds and institutions qualify for a 100% deduction without any qualifying limit, while others qualify for a 50% deduction subject to a qualifying limit of 10% of adjusted gross total income.
How is 80G deduction calculated?
The deduction from the gross total amount is calculated based on two classifications: deductions without limit and deductions subject to limit.
What is the limit for donation under 80G?
The limit for donations under 80G vary depending on the type of donation and the organization to which the donation is made. Consult with a tax professional from Vakilsearch to determine the maximum amount of 80G deduction you can claim in your ITR.
How much cash donation can a trust accept?
The Finance Act 2017 amended section 80G, stating that no deduction shall be allowed for donations exceeding Rs 2000 unless paid by any other mode.
Who can apply for 12A registration?
12A registration applies to NGOs and charitable organizations.
How do I claim 80G exemption?
To claim an 80G exemption, you need to provide the details of the donation made to the eligible institution or fund in your income tax return. The deduction can be claimed up to a maximum of 50% or 100% of the donated amount, depending on the type of donation and the organization to which the donation is made.
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