What is 12A Registration?
Non-Governmental Organizations are crucial in tackling many community challenges. To enhance their impact, many NGOs apply for registration under designated parts of the Income Tax Act to obtain tax benefits and benefits for donors. In this article, we will look into the benefits and procedures of getting registered under Section 80G and 12A, which are essential for NGOs seeking financial support and credibility.
What is 12A Registration?
12A of Income Tax Act is a crucial process for an NGO to be recognized as a non-profit entity under Indian law. The registration allows the NGO to avail income tax exemptions on their income. This means that the income generated by the organization will not be taxed, which in turn enables the organization in utilizing more resources for charitable activities. Obtaining 12A registration also enhances the credibility of an NGO and is often a prerequisite for gaining grants and donations from various sources.
To register for 12A registration, the NGO must provide an application to the jurisdictional Commissioner of Income Tax along with key documents, including the deed of trust or organization memorandum, PAN card, and details of activities.
What is Section 80G?
80G of the Income Tax Act enables donors to avail tax deductions on their taxable income against donations made to eligible NGOs. This section motivates individuals and corporations to contribute to charities, making it an important aspect for NGOs seeking public funding. An NGO must obtain 80G registration to offer tax benefits to its donors.
The 80G deduction allows a portion of the donation to be written off from the donor's taxable income. In most cases, a deduction of 50% of the donated amount is granted. However, the deduction rate may differ depending on the nature of the NGO and the type of donation.
Why NGOs Need 80G Registration
Obtaining 80G registration is a significant advantage for an 12a NGO as it enables them to attract more donors. When donors realize they can get tax benefits on their donations, they are more likely to contribute. This also improves the NGO’s reputation and increases its funding base, which is essential for achieving social goals.
Moreover, 80G registration is often demanded by funding agencies and potential donors who are looking for transparency and credibility in charitable organizations. As a result, NGOs with 80G certificates are more likely to obtain large donations from corporate sectors and high-net-worth individuals.
Eligibility and Process for 80G Registration
To be eligible for 80G registration, an NGO must satisfy specific criteria:
Charitable Objective: The NGO should not be involved in any commercial activities, and its primary objective must be charitable.
Proper Fund Usage: The funds should be used only for charitable purposes, and proper records must be maintained.
Registration: The NGO must be registered either as a trust, society, or Section 8 company.
The application for 80G registration needs the NGO to provide documents such as the legal document, 12A registration certificate, financial statements, and PAN card of the organization. The application is made to the Commissioner of Income Tax, and the registration is typically applicable for five years.
Section 80G of Income Tax Act: Tax Deduction for Donors
Section 80G of the Income Tax Act provides a framework through which donors can receive deductions on their taxable income. This section is aimed at promoting charitable activities by encouraging donations. People, companies, and other entities contributing to an 80G registered NGO can get tax relief under Section 80G.
The eligible deduction is limited to a part of the donation, generally either 50% or 100%, depending on the specific criteria set by the government. For instance, donations made to the Prime Minister's National Relief Fund are allowed a 100% deduction.
Benefits of Both 12A and 80G
Having both 12A and 80G registration is beneficial for NGOs. 12A registration helps an NGO avail exemptions on income, reducing their tax liability, while 80G registration motivates donors to contribute by letting them claim 80G deductions on their donations. These registrations increase the credibility of the NGO, allowing them to gain financial support from multiple sources, including government schemes and corporate social responsibility (CSR) initiatives.
How NGO Consultancy Can Help
For NGOs looking to manage the registration processes and comply with tax regulations, engaging an NGO consultancy can be highly advantageous. NGO consultancy services help with on documentation, application procedures, and compliance with regulations related to trust registration, 80G, and 12A. These consultancies are experienced in handling the complexities of registrations and can make sure that the application is processed smoothly and in a timely manner.
Setting Up a Trust for NGOs
For organizations that are planning to start an NGO, trust registration is one of the most popular ways to form a non-profit entity. In India, a charitable trust is typically set up by executing a trust deed, which outlines the objectives and operational framework of the trust. This legal document is filed with the registrar, making the organization an official entity capable of gaining donations and grants.
Trust registration is often the first step before applying for 12A and 80G registration. It forms the basis for the NGO’s activities and enables it to operate as a legal entity under the law.
Final Thoughts
Getting registered an NGO under Section 12A and Section 80G is essential for any organization wanting tax exemptions and increase donations. These registrations offer major advantages, both for the NGO and for the individuals or corporations supporting the cause. With 80G registration, donors are encouraged to contribute, knowing they can benefit from tax deductions, while 12A registration ensures that the NGO’s income is not taxable.
If you are looking to form an NGO or are an current one looking to take advantage of these registrations, it’s recommended to seek advice from professionals in NGO consultancy to guide you through the process and make sure compliance with all requirements. These actions will not only boost your NGO's credibility but also aid in growing your outreach and financial stability.