What is 12A Registration?
Non-Governmental Organizations are crucial in solving numerous social issues. To enhance their effectiveness, many NGOs apply for registration under certain provisions of the Income Tax Act to avail tax exemptions and benefits for donors. In this article, we will explore the advantages and procedures of registering under 80G registration and 12A, which are important for NGOs seeking financial support and credibility.
What is 12A Registration?
12A certificate is a important process for an NGO to gain recognition as a charitable institution under Indian law. The registration allows the NGO to benefit from income tax exemptions on their income. This means that the income earned 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 necessary step for gaining grants and donations from various sources.
To register for 12A registration, the NGO must file an application to the jurisdictional Commissioner of Income Tax along with key documents, including the trust deed or memorandum of association, PAN card, and details of activities.
What is Section 80G?
80G of Income Tax Act of the Income Tax Act permits 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 change depending on the type of the NGO and the type of donation.
Why NGOs Need 80G Registration
Obtaining 80G registration is a major advantage for an section 80g NGO as it helps them to bring in more donors. When donors realize they can get tax benefits on their donations, they are more likely to contribute. This also enhances the NGO’s reputation and boosts its funding base, which is essential for meeting 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.
Eligibility and Process for 80G Registration
To be eligible for 80G registration, an NGO must meet specific criteria:
Non-commercial Nature: 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.
Registration: The NGO must be registered either as a trust, society, or Section 8 company.
The application for 80G registration needs 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 effective for five years.
Tax Savings Under 80G
Section 80G of the Income Tax Act lays down provisions through which donors can receive deductions on their taxable income. This section is aimed at promoting charitable activities by motivating donations. Individuals, companies, and other entities donating 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 granted a 100% deduction.
Why 12A and 80G Matter for NGOs
Having both 12A and 80G registration is advantageous for NGOs. 12A registration helps an NGO get exemptions on income, reducing their tax liability, while 80G registration encourages 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 offer guidance on documentation, application procedures, and compliance with regulations related to trust registration, 80G, and 12A. These consultancies are knowledgeable in handling the complexities of registrations and can make sure that the application is processed smoothly and in a timely manner.
Setting Up a Trust 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 formed 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 obtaining donations and grants.
Trust registration is often the first step before applying for 12A and 80G registration. It provides the foundation for the NGO’s activities and permits it to operate as a legal entity under the law.
Final Thoughts
Becoming registered an NGO under Section 12A and Section 80G is important for any organization aiming to receive tax exemptions and gain more supporters. 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 get tax relief, while 12A registration makes sure that the NGO’s income is tax-free.
If you are looking to start an NGO or are an already established one looking to take advantage of these registrations, it’s suggested 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 boost your NGO's credibility but also support the expansion of your outreach and financial stability.