What is 12A Registration?
NGOs are crucial in tackling many community challenges. To boost their efficiency, many NGOs seek registration under specific sections of the Income Tax Act to avail tax exemptions and benefits for donors. In this article, we will explore the pros and steps of getting registered under 80G registration and 12A registration, which are essential for NGOs seeking financial support and credibility.
Understanding 12A Registration
12A of Income Tax Act is a crucial process for an NGO to be recognized as a non-profit entity under Indian law. The registration allows the NGO to avail 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 enhances the credibility of an NGO and is often a prerequisite for obtaining 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 trust deed or organization memorandum, PAN card, and details of activities.
What is Section 80G?
Section 80G 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 key feature for NGOs seeking public funding. An NGO must obtain 80G registration to provide 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 allowed. However, the deduction rate may differ depending on the type of the NGO and the type of donation.
Why NGOs Need 80G Registration
Obtaining 80G registration is a great advantage for an section 80g of income tax act NGO as it allows them to gain more donors. When donors realize they can claim tax deductions on their donations, they are more likely to contribute. This also enhances the NGO’s reputation and grows its funding base, which is essential for achieving 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 get large donations from corporate sectors and high-net-worth individuals.
How to Get 80G Registration
To qualify for 80G registration, an NGO must meet certain criteria:
Non-commercial Nature: 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 involves 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.
How Donors Benefit from Section 80G
Section 80G provides a framework through which donors can receive deductions on their taxable income. This section is aimed at promoting charitable activities by incentivizing donations. Individuals, companies, and other entities donating to an 80G registered NGO can claim a deduction under Section 80G.
The eligible deduction is limited to a certain percentage 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.
Why 12A and 80G Matter for NGOs
Having both 12A and 80G registration is beneficial for NGOs. 12A registration helps an NGO get exemptions on income, reducing their tax liability, while 80G registration encourages donors to contribute by enabling 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 comply with tax regulations, engaging an NGO consultancy can be highly beneficial. 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 ensure 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 widely used ways to form a non-profit entity. In India, a charitable trust is typically set up 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 lays the groundwork for the NGO’s activities and allows it to operate as a legal entity under the law.
Conclusion
Getting registered an NGO under Section 12A and Section 80G is crucial for any organization wanting tax exemptions and increase donations. These registrations are highly beneficial, 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 guarantees that the NGO’s income is not taxable.
If you are planning to form an NGO or are an existing one looking to get these registrations, it’s recommended to get guidance from consultants in NGO consultancy to help you through the process and ensure compliance with all requirements. These measures will not only increase your NGO's credibility but also support the expansion of your outreach and financial stability.