What is 12A Registration?
NGOs are crucial in solving many social issues. To increase their efficiency, many NGOs apply for registration under specific sections of the Income Tax Act to avail tax exemptions and incentives for contributors. In this article, we will explore the pros and steps of registering under section 80g of income tax act and 12A, which are important for NGOs wanting financial support and credibility.
12A Registration Overview
12A registration is a crucial process for an NGO to be recognized as a charitable organization under Indian law. The approval enables the NGO to obtain 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 enhances the credibility of an NGO and is often a prerequisite for receiving grants and donations from various sources.
To apply 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.
Section 80G Explained
80G of the Income Tax Act enables donors to avail tax deductions on their taxable income against donations made to eligible NGOs. This section motivates 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 provides for a fraction 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 vary depending on the category of the NGO and the type of donation.
Benefits of 80G Registration for NGOs
Obtaining 80G registration is a great advantage for an 80g NGO as it helps them to gain more donors. When donors realize 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 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 be eligible for 80G registration, an NGO must meet particular criteria:
Charitable Objective: 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.
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 furnish 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.
Tax Savings Under 80G
Section 80G offers a system through which donors can get deductions on their taxable income. This section is aimed at promoting charitable activities by incentivizing donations. People, companies, and other entities making donations to an 80G registered NGO can get tax relief under Section 80G.
The deduction amount 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 allows an NGO claim exemptions on income, reducing their tax liability, while 80G registration motivates donors to contribute by letting 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 navigate the registration processes and adhere to tax regulations, engaging an NGO consultancy can be highly advantageous. NGO consultancy services help with 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 make sure that the application is processed without hassle and in a timely manner.
Trust Registration for NGOs
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 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 applying for 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.
Final Thoughts
Registering an NGO under Section 12A and Section 80G is crucial for any organization aiming to receive 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 more likely to contribute, knowing they can get tax relief, while 12A registration guarantees that the NGO’s income is exempt from tax.
If you are planning to start an NGO or are an already established one looking to benefit from these registrations, it’s recommended to consult with experts in NGO consultancy to help you through the process and ensure compliance with all requirements. These actions will not only boost your NGO's credibility but also aid in growing your outreach and financial stability.