What is 12A Registration?
Non-Governmental Organizations are important in solving various societal problems. To boost their impact, many NGOs get registered under certain provisions of the Income Tax Act to avail tax exemptions and tax perks for supporters. In this article, we will explore the advantages and process of registering under section 80g of income tax act and 12A, which are key for NGOs wanting financial support and credibility.
What is 12A Registration?
12A registration is a crucial process for an NGO to gain recognition as a charitable institution under Indian law. The approval permits the NGO to benefit from income tax exemptions on their income. This means that the income earned by the organization will not be taxed, which in turn supports the organization in utilizing more resources for charitable activities. Obtaining 12A registration also increases the credibility of an NGO and is often a necessary step for receiving grants and donations from various sources.
To get 12A registration, the NGO must file an application to the jurisdictional Commissioner of Income Tax along with key documents, including the legal trust document or memorandum of association, PAN card, and details of activities.
Section 80G Explained
80G of the Income Tax Act enables donors to claim deductions on their taxable income against donations made to eligible NGOs. This section encourages individuals and corporations to contribute to charities, making it an important aspect for NGOs seeking public funding. An NGO must obtain 80G registration to grant tax benefits to its donors.
The 80G deduction permits a fraction of the donation to be deducted 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.
Why NGOs Need 80G Registration
Obtaining 80G registration is a significant advantage for an 80g NGO as it enables them to gain more donors. When donors know they can claim tax deductions on their donations, they are more likely to contribute. This also increases the NGO’s reputation and increases its funding base, which is critical 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 obtain large donations from corporate sectors and high-net-worth individuals.
80G Registration Requirements
To get 80G registration, an NGO must meet particular criteria:
Non-Profit Status: The NGO should not be conducting 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.
Legal Status: 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.
Tax Savings Under 80G
Income Tax Act 80G 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 making donations to an 80G registered NGO can receive tax deduction under Section 80G.
The eligible deduction is limited to a specific portion 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 eligible for a 100% deduction.
Importance of 12A and 80G Registration for ngo registration NGOs
Having both 12A and 80G registration is beneficial for NGOs. 12A registration allows an NGO get exemptions on income, reducing their tax liability, while 80G registration encourages donors to contribute by letting them claim 80G deductions on their donations. These registrations increase the credibility of the NGO, allowing them to receive funds from multiple sources, including government schemes and corporate social responsibility (CSR) initiatives.
Consultancy for NGOs
For NGOs looking to manage the registration processes and follow 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 knowledgeable in handling the complexities of registrations and can guarantee that the application is processed smoothly and in a timely manner.
How to Register a Trust
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 details the objectives and operational framework of the trust. This legal document is submitted to the registrar, making the organization an official entity capable of receiving 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 allows it to operate as a recognized 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 gain more supporters. These registrations provide substantial benefits, 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 guarantees that the NGO’s income is not taxable.
If you are looking to establish an NGO or are an already established one looking to get these registrations, it’s advisable to seek advice from professionals in NGO consultancy to guide you through the process and ensure compliance with all requirements. These actions will not only enhance your NGO's credibility but also help in expanding your outreach and financial stability.