NGOTaxation

The 80G Certificate and Tax Exemption for Nonprofits

The Income Tax Act's Section 80G permits some charitable contributions made in India to be deducted from taxable income. However, non-profit organisations must obtain the necessary paperwork, including an 80G Certificate, in order to qualify for such deductions and tax benefits.

Under the Income Tax Act, certain contributions or donations are eligible for a tax deduction under Section 80G. NGOs and other non-profit organisations must register and validate themselves with the Income Tax Department to receive such certifications. 

Since such organisations attract donations from corporations and individuals, they must have stringent measures to ensure transparency and efficiency. The government provides such organisations with various tax benefits and deductions as they perform charitable activities. 

Generally, if you have donated to charitable trusts or section 8 companies or organisations, you are entitled to an 80G certificate, which exempts you from paying taxes in part or full.

Eligibility for 80G Exemptions

Only donations to charities under Section 80G are eligible for an 80G deduction and registration. Most charities with a religious or business angle do not receive 80G certification. Similarly, gifts made to trusts outside India are not eligible for such a tax deduction. Additionally, individuals who donate to private trusts that do not have an 80G registration or to political parties cannot avail of any tax exemption for the amounts donated. Such contributions and donations will still be a part of their taxable income.

As per Budget 2020, every charitable trust or institution registered under Section 80G must submit a statement of donations received. Donors will receive tax benefits under Section 80G based on the information furnished by the charitable trust or institution.

What Are the Tax Deductions Under 80G?

Taxpayers are eligible for an exemption under 80G if they comply with certain specifications regarding the mode of payment, percentage eligible for a deduction, and so on. Here’s a quick look at those criteria that make individuals eligible for a tax 80TTB deduction

Payment mode

All contributions made to charitable institutions must be through cheques or demand drafts. In the case of a cash contribution, the amount donated must be below ₹10,000 to be eligible for a tax deduction. Any contributions, like clothes, gift items, or food, cannot claim as a donation for tax exemption.

Percentage of Contribution Eligible for Deductions

Not all funds come under the 80G category, and only donations to individual funds receive a 100% tax exemption for the amount paid. The others are eligible for a 50% tax exemption. Additionally, any donations made to a trust or NGO that do not have an 80G certification are not eligible for tax exemption. It is, therefore, essential for trusts, NGOs and welfare societies looking for donations from fellow citizens to go ahead and apply for an 80u Income tax.

Documents Required As Proof

If you have donated to a fund or a charitable institution with an 80G certificate, you must submit the following documents when filing your returns.

  1. Stamped receipt

All trusts and organisations receiving donations must provide a stamped receipt for the funds gained. Individuals must ensure they keep this receipt safe and submit it while filing tax returns to claim exemptions. The receipts should contain the organisation’s name, official stamp, PAN number and date of issue.

With Vakilsearch’s Income Tax Calculator, you can easily calculate your taxable income and file your Tax Return (ITR).

  1. Form 58

For donations made towards funds with 100% exemptions, individuals must submit Form 58 as received from the organisation. The receipt should contain the organisation’s 80G registration number. While all receipts from registered organisations must have the number printed, individuals must request it specifically in case they cannot locate it on the receipt.

Eligibility for 80G Certification

Not all NGOs or trusts are eligible for 80G certification, as there are certain rules and guidelines regarding what non-profits are eligible for. Here is a quick look at the several conditions organisations have to meet to obtain an 80G certification: 

  1. Separation of business and charity: If your organisation is involved in any business apart from its charitable component, you will have to segregate it to receive an 80G exemption certificate
  2. No misuse: The donations received so far towards the cause should not be misused on any account or used for any other purpose, even within the organisation. Hence, all such organisations have to maintain strict accounting principles to prove they have not misused any funds
  3. No religious activity: Any NGO or trust that engages in religious preaching, or works for a particular caste or creed, is not eligible for 80G certification
  4. Proper accounting: As mentioned earlier, organisations must maintain accurate and up-to-date accounting books and records of financial transactions as proof before applying for an 80G exemption
  5. Appropriate registration: The organisation must be with registration under the Societies Registration Act of 1860 or Section 25 of the Companies Act of 1956.

Tax Benefits to the Organisation

The certification helps donors reduce their tax liability by 10% to 50% on the amount donated. However, the 80 G certification does more than allow donors to claim tax exemption on their donations. It also provides organisations with several tax benefits. The institution can get an exemption of 10% for the gross income obtained through donations and contributions. 

Moreover, the Income Tax Department: https://incometaxindia.gov.in/Pages/default.aspx has the power to approve or reject such requests upon disqualification of the non-profit organisation or dissatisfaction with its activities. While the primary role of 80G certification is to encourage donors to donate funds to non-profit organisations, it can help organisations in several ways. 

How to Apply for an 80G Certificate

An 80G certification is a document issued by the Income Tax Department to certain not-for-profit organisations, allowing their donors to avail of tax deductions on donations. Hence, NGOs and other non-profit organisations must obtain an 80G registration at the earliest to increase their donations. To apply for an 80G certificate, organisations must first obtain a 12A certificate. Next, the organisation has to duly fill and submit Form 10G, along with a copy of their activity report for the past one to three years. Additionally, non-profits must also provide an audited statement for the past three years to complete the verification process. 

While the Income Tax Department’s website contains a copy of the 80G application form, the registration process is arduous. Hence, most non-profits take the help of professional legal service providers to complete their 80G registration. Since even a small error made while filing can create long delays, it is advisable to get expert assistance for this process. Also, the IT department will scrutinise your application, activity report, and audited statement before approving your application. To make the registration process easy and efficient, reach out to Vakilsearch. Then, let us handle the filing of your 80G application. Our legal representatives will arrange all the necessary documentation and apply your process of ITR filing. 

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