What is 12A Registration?
NGOs are crucial in tackling various social issues. To enhance their impact, many NGOs get registered under certain provisions of the Income Tax Act to benefit from tax relief and incentives for contributors. In this article, we will explore the pros and steps of registering under section 80g of income tax act and 12A registration, which are key for NGOs aiming for 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 allows 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 enables the organization in utilizing more resources for charitable activities. Obtaining 12A registration also boosts the credibility of an NGO and is often a prerequisite for gaining grants and donations from various sources.
To apply for 12A registration, the NGO must file an application to the jurisdictional Commissioner of Income Tax along with key documents, including the trust deed or MOA, PAN card, and details of activities.
What is Section 80G?
80G of Income Tax Act of the Income Tax Act allows donors to avail tax 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 portion of the donation to be reduced from the donor's taxable income. In most cases, a deduction of 50% of the donated amount is allowed. However, the deduction rate may differ depending on the category of the NGO and the type of donation.
Why NGOs Need 80G Registration
Obtaining 80G registration is a great advantage for an 80g deduction 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 meeting 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 meet specific criteria:
Non-Profit Status: 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.
Legal Status: The NGO must be registered either as a trust, society, or Section 8 company.
The application for 80G registration requires 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.
How Donors Benefit from Section 80G
Section 80G provides a framework through which donors can benefit from deductions on their taxable income. This section is aimed at promoting charitable activities by incentivizing donations. Persons, companies, and other entities contributing to an 80G registered NGO can receive tax deduction under Section 80G.
The tax 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 allowed a 100% deduction.
Benefits of Both 12A and 80G
Having both 12A and 80G registration is advantageous 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 enhance 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 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 ensure that the application is processed effectively 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 widely used ways to form a non-profit entity. In India, a charitable trust is typically formed by executing a trust deed, which details the objectives and operational framework of the trust. This legal document is registered with the registrar, making the organization an official entity capable of receiving donations and grants.
Trust registration is often the first step before obtaining 12A and 80G registration. It provides the foundation for the NGO’s activities and permits it to operate as a recognized entity under the law.
Final Thoughts
Registering an NGO under Section 12A and Section 80G is important for any organization aiming to receive tax exemptions and increase donations. These registrations provide substantial benefits, both for the NGO and for the individuals or corporations supporting the cause. With 80G registration, donors are more likely to contribute, knowing they can enjoy tax benefits, while 12A registration guarantees that the NGO’s income is tax-free.
If you are looking to start an NGO or are an already established one looking to get these registrations, it’s suggested to consult with experts in NGO consultancy to help you through the process and ensure compliance with all regulations. These actions will not only enhance your NGO's credibility but also support the expansion of your outreach and financial stability.