Understanding 12A Registration
Non-Governmental Organizations play a vital role in addressing various societal problems. To boost their impact, many NGOs get registered 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 procedures of getting registered under Section 80G and 12A registration, which are key for NGOs aiming for financial support and credibility.
Understanding 12A Registration
12A of Income Tax Act is a crucial process for an NGO to be recognized as a charitable institution under Indian law. The process enables the NGO to benefit from 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 boosts the credibility of an NGO and is often a necessary step for receiving grants and donations from various sources.
To register for 12A registration, the NGO must provide 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.
Understanding 80G Registration
Section 80G of the Income Tax Act enables donors to get tax benefits on their taxable income against donations made to eligible NGOs. This section promotes individuals and corporations to contribute to charities, making it an essential tool for NGOs seeking public funding. An NGO must obtain 80G registration to offer tax benefits to its donors.
The 80G deduction provides for 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.
Advantages of 80G
Obtaining 80G registration is a major advantage for an 80g 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 meet specific criteria:
Non-Profit Status: The NGO should not be involved 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.
Formal Setup: 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 trust deed, 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 valid 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 receive deductions on their taxable income. This section is aimed at promoting charitable activities by encouraging donations. Individuals, companies, and other entities contributing to an 80G registered NGO can receive tax 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.
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 helps 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.
NGO Consultancy Services
For NGOs looking to manage the registration processes and comply with 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 skilled 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 considering forming an NGO, trust registration is one of the most popular 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.
Final Thoughts
Registering an NGO under Section 12A and Section 80G is essential for any organization looking to get tax exemptions and gain more supporters. These registrations provide substantial benefits, 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 establish 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 enhance your NGO's credibility but also aid in growing your outreach and financial stability.