What is 12A Registration?
NGOs are crucial in tackling various community challenges. To boost their effectiveness, many NGOs get registered under certain provisions of the Income Tax Act to benefit from tax relief and benefits for donors. In this article, we will examine the benefits and process of registering under section 80g of income tax act and 12A, which are essential for NGOs aiming for financial support and credibility.
12A Registration Overview
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 permits 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 enables the organization in utilizing more resources for charitable activities. Obtaining 12A registration also increases the credibility of an NGO and is often a prerequisite for gaining grants and donations from various sources.
To get 12A registration, the NGO must submit an application to the jurisdictional Commissioner of Income Tax along with key documents, including the legal trust document or organization memorandum, PAN card, and details of activities.
What is Section 80G?
80G of the Income Tax Act permits donors to get tax benefits on their taxable income against donations made to eligible NGOs. This section encourages individuals and corporations to contribute to charities, making it an important aspect for NGOs seeking public funding. An NGO must obtain 80G registration to offer tax benefits to its donors.
The 80G deduction allows 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 vary 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 ngo consultancy NGO as it helps them to bring in more donors. When donors understand they can get tax benefits on their donations, they are more likely to contribute. This also improves the NGO’s reputation and increases its funding base, which is essential 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 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-commercial Nature: The NGO should not be conducting 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 requires 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 provides a framework 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 donating to an 80G registered NGO can get tax relief under Section 80G.
The tax deduction is limited to a specific portion 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.
Why 12A and 80G Matter for NGOs
Having both 12A and 80G registration is beneficial for NGOs. 12A registration helps an NGO avail exemptions on income, reducing their tax liability, while 80G registration helps donors to contribute by allowing them claim 80G deductions on their donations. These registrations increase the credibility of the NGO, allowing them to gain financial support from multiple sources, including government schemes and corporate social responsibility (CSR) initiatives.
NGO Consultancy Services
For NGOs looking to handle 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 make sure that the application is processed without hassle and in a timely manner.
Setting Up a Trust 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 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 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 recognized entity under the law.
Conclusion
Becoming registered an NGO under Section 12A and Section 80G is crucial for any organization wanting tax exemptions and increase donations. These registrations offer major advantages, both for the NGO and for the individuals or corporations supporting the cause. With 80G registration, donors are motivated to contribute, knowing they can benefit from tax deductions, while 12A registration ensures that the NGO’s income is exempt from tax.
If you are planning to start an NGO or are an current one looking to get these registrations, it’s suggested to seek advice from professionals in NGO consultancy to guide you through the process and make sure compliance with all requirements. These steps will not only enhance your NGO's credibility but also help in expanding your outreach and financial stability.