What is 12A Registration?
Non-Governmental Organizations are important in solving numerous social issues. To enhance their effectiveness, many NGOs seek registration under certain provisions of the Income Tax Act to benefit from tax relief and incentives for contributors. In this article, we will look into the advantages and steps of registering under Section 80G and 12A, which are key for NGOs aiming for financial support and credibility.
12A Registration Overview
12A of Income Tax Act is a important process for an NGO to be recognized as a charitable institution under Indian law. The registration enables the NGO to obtain income tax exemptions on their income. This means that the income generated by the organization will not be taxed, which in turn supports the organization in utilizing more resources for charitable activities. Obtaining 12A registration also enhances the credibility of an NGO and is often a necessary step for gaining grants and donations from various sources.
To apply 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 MOA, PAN card, and details of activities.
What is Section 80G?
80G of Income Tax Act of the Income Tax Act enables donors to claim deductions on their taxable income against donations made to eligible NGOs. This section promotes individuals and corporations to contribute to charities, making it an important aspect for NGOs seeking public funding. An NGO must obtain 80G registration to provide tax benefits to its donors.
The 80G deduction provides for a percentage of the donation to be reduced from the donor's taxable income. In most cases, a deduction of 50% of the donated amount is granted. However, the deduction rate may change depending on the type of the NGO and the type of donation.
Benefits of 80G Registration for NGOs
Obtaining 80G registration is a great advantage for an 12a registration NGO as it enables them to bring in more donors. When donors know they can get tax benefits on their donations, they are more likely to contribute. This also increases the NGO’s reputation and increases its funding base, which is crucial for fulfilling social goals.
Moreover, 80G registration is often required 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 get 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 fulfill specific criteria:
Charitable Objective: The NGO should not be engaged in any commercial activities, and its primary objective must be charitable.
Accountability for Funds: 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 submit 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 lays down provisions through which donors can receive deductions on their taxable income. This section is aimed at promoting charitable activities by motivating donations. Persons, companies, and other entities donating to an 80G registered NGO can get tax relief under Section 80G.
The tax 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 granted a 100% deduction.
Benefits of Both 12A and 80G
Having both 12A and 80G registration is useful for NGOs. 12A registration allows an NGO get exemptions on income, reducing their tax liability, while 80G registration motivates donors to contribute by allowing 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.
Consultancy for NGOs
For NGOs looking to handle the registration processes and adhere to tax regulations, engaging an NGO consultancy can be highly beneficial. NGO consultancy services help with on documentation, application procedures, and compliance with regulations related to trust registration, 80G, and 12A. These consultancies are skilled 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 considering forming an NGO, trust registration is one of the most popular ways to form a non-profit entity. In India, a charitable trust is typically registered by executing a trust deed, which defines the objectives and operational framework of the trust. This legal document is submitted to the registrar, making the organization an official entity capable of obtaining donations and grants.
Trust registration is often the first step before getting 12A and 80G registration. It provides the foundation for the NGO’s activities and permits 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 looking to get tax exemptions and attract more donors. These registrations are highly beneficial, both for the NGO and for the individuals or corporations supporting the cause. With 80G registration, donors are motivated to contribute, knowing they can enjoy tax benefits, while 12A registration makes sure that the NGO’s income is not taxable.
If you are looking to form an NGO or are an existing one looking to take advantage of these registrations, it’s advisable to get guidance from consultants in NGO consultancy to guide you through the process and make sure compliance with all criteria. These measures will not only boost your NGO's credibility but also help in expanding your outreach and financial stability.