What is 12A Registration?
NGOs are important in addressing many community challenges. To boost their effectiveness, many NGOs get registered under certain provisions of the Income Tax Act to avail tax exemptions and benefits for donors. In this article, we will look into the benefits and steps of registering under 80G registration and 12A, which are important for NGOs seeking financial support and credibility.
12A Registration Overview
12A of Income Tax Act is a important process for an NGO to gain recognition as a charitable organization under Indian law. The approval permits the NGO to obtain income tax exemptions on their income. This means that the income earned by the organization will not be taxed, which in turn helps the organization in utilizing more resources for charitable activities. Obtaining 12A registration also increases the credibility of an NGO and is often a requirement 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 trust deed or memorandum of association, 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 permitted. However, the deduction rate may change depending on the nature 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 attract more donors. When donors know they can claim tax deductions on their donations, they are more likely to contribute. This also enhances the NGO’s reputation and increases its funding base, which is critical for achieving 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 receive large donations from corporate sectors and high-net-worth individuals.
How to Get 80G Registration
To be eligible for 80G registration, an NGO must satisfy specific criteria:
Non-Profit Status: The NGO should not be involved in any commercial activities, and its primary objective must be charitable.
No Misuse of 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 involves 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 effective for five years.
How Donors Benefit from Section 80G
Section 80G of the Income Tax Act lays down provisions through which donors can benefit from deductions on their taxable income. This section is aimed at promoting charitable activities by motivating donations. Individuals, companies, and other entities making donations 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 granted a 100% deduction.
Benefits of Both 12A and 80G
Having both 12A and 80G registration is beneficial for NGOs. 12A registration enables an NGO claim exemptions on income, reducing their tax liability, while 80G registration encourages donors to contribute by allowing 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.
NGO Consultancy Services
For NGOs looking to manage the registration processes and follow tax regulations, engaging an NGO consultancy can be highly helpful. NGO consultancy services provide assistance 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 smoothly and in a timely manner.
Trust Registration for NGOs
For organizations that are considering forming 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 outlines the objectives and operational framework of the trust. This legal document is registered with the registrar, making the organization an official entity capable of gaining 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.
Conclusion
Becoming registered an NGO under Section 12A and Section 80G is important for any organization aiming to receive tax exemptions and gain more supporters. 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 enjoy tax benefits, while 12A registration makes sure that the NGO’s income is exempt from tax.
If you are looking to establish an NGO or are an already established one looking to benefit from these registrations, it’s suggested to seek advice from professionals in NGO consultancy to help you through the process and make sure compliance with all criteria. These steps will not only increase your NGO's credibility but also help in expanding your outreach and financial stability.