12A Registration Overview
Non-Governmental Organizations are important in tackling numerous community challenges. To boost their efficiency, many NGOs apply for registration under designated parts of the Income Tax Act to obtain tax benefits and incentives for contributors. In this article, we will explore the pros and process of getting registered under Section 80G and 12A, which are essential for NGOs wanting financial support and credibility.
12A Registration Overview
12A of Income Tax Act is a crucial process for an NGO to get acknowledged as a non-profit entity under Indian law. The approval allows the NGO to benefit from 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 prerequisite for receiving grants and donations from various sources.
To get 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 permits 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 essential tool 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 reduced from the donor's taxable income. In most cases, a deduction of 50% of the donated amount is permitted. However, the deduction rate may differ depending on the nature of the NGO and the type of donation.
Benefits of 80G Registration for NGOs
Obtaining 80G registration is a significant advantage for an 80g registration NGO as it enables them to bring in more donors. When donors understand they can claim tax deductions on their donations, they are more likely to contribute. This also improves the NGO’s reputation and boosts its funding base, which is crucial for meeting social goals.
Moreover, 80G registration is often necessary 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.
How to Get 80G Registration
To qualify for 80G registration, an NGO must fulfill particular criteria:
Charitable Objective: 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.
Formal Setup: The NGO must be registered either as a trust, society, or Section 8 company.
The application for 80G registration needs the NGO to furnish 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 offers a system through which donors can benefit from deductions on their taxable income. This section is aimed at promoting charitable activities by encouraging donations. Persons, companies, and other entities contributing to an 80G registered NGO can claim a deduction under Section 80G.
The deduction amount 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.
Importance of 12A and 80G Registration for 80g NGOs
Having both 12A and 80G registration is useful for NGOs. 12A registration allows an NGO claim 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 attract funding from multiple sources, including government schemes and corporate social responsibility (CSR) initiatives.
Consultancy for NGOs
For NGOs looking to manage the registration processes and adhere to tax regulations, engaging an NGO consultancy can be highly advantageous. NGO consultancy services offer guidance 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 effectively and in a timely manner.
Trust Registration 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 formed by executing a trust deed, which defines the objectives and operational framework of the trust. This legal document is filed with the registrar, making the organization an official entity capable of obtaining 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 enables it to operate as a recognized entity under the law.
Final Thoughts
Becoming registered an NGO under Section 12A and Section 80G is crucial for any organization aiming to receive tax exemptions and attract more donors. 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 get tax relief, while 12A registration ensures that the NGO’s income is not taxable.
If you are planning to establish an NGO or are an existing one looking to get these registrations, it’s recommended to consult with experts in NGO consultancy to help you through the process and guarantee compliance with all requirements. These steps will not only increase your NGO's credibility but also help in expanding your outreach and financial stability.