What is 12A Registration?
NGOs play a vital role in solving many social issues. To boost their effectiveness, many NGOs seek registration under certain provisions of the Income Tax Act to avail tax exemptions and tax perks for supporters. In this article, we will explore the pros and steps of getting registered under 80G registration and 12A registration, which are important for NGOs seeking financial support and credibility.
What is 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 received 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 requirement for gaining grants and donations from various sources.
To register for 12A registration, the NGO must submit 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 the Income Tax Act permits donors to avail tax 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 written off 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 significant advantage for an trust registration NGO as it helps them to attract more donors. When donors realize 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 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 qualify for 80G registration, an NGO must satisfy specific criteria:
Non-commercial Nature: 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.
Formal Setup: The NGO must be registered either as a trust, society, or Section 8 company.
The application for 80G registration requires 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 effective for five years.
How Donors Benefit from Section 80G
Section 80G of the Income Tax Act lays down provisions through which donors can get 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 claim a deduction under Section 80G.
The tax 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 allowed a 100% deduction.
Why 12A and 80G Matter for NGOs
Having both 12A and 80G registration is advantageous for NGOs. 12A registration enables an NGO claim exemptions on income, reducing their tax liability, while 80G registration helps donors to contribute by letting them claim 80G deductions on their donations. These registrations boost 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 adhere to tax regulations, engaging an NGO consultancy can be highly helpful. NGO consultancy services help with 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.
Setting Up a Trust for NGOs
For organizations that are looking to establish 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 registered by executing a trust deed, which defines the objectives and operational framework of the trust. This legal document is submitted to 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 forms the basis for the NGO’s activities and allows it to operate as a legal entity under the law.
Summary
Getting registered an NGO under Section 12A and Section 80G is essential for any organization aiming to receive 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 more likely to contribute, knowing they can benefit from tax deductions, while 12A registration ensures that the NGO’s income is tax-free.
If you are looking to establish an NGO or are an current one looking to get these registrations, it’s recommended to get guidance from consultants in NGO consultancy to help you through the process and make sure compliance with all regulations. These measures will not only enhance your NGO's credibility but also help in expanding your outreach and financial stability.