Understanding 12A Registration
Non-Governmental Organizations are crucial in tackling various social issues. To enhance their efficiency, 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 look into the benefits and steps of getting registered under Section 80G and 12A, which are important for NGOs aiming for 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 permits the NGO to obtain income tax exemptions on their income. This means that the income generated by the organization will not be taxed, which in turn helps 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 receiving 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 deed of trust or memorandum of association, PAN card, and details of activities.
What is Section 80G?
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 provide tax benefits to its donors.
The 80G deduction permits a percentage 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 vary depending on the nature of the NGO and the type of donation.
Benefits of 80G Registration for NGOs
Obtaining 80G registration is a major advantage for an 12a registration NGO as it allows them to bring in more donors. When donors know they can claim tax deductions on their donations, they are more likely to contribute. This also increases the NGO’s reputation and boosts its funding base, which is crucial for achieving 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.
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.
Accountability for Funds: The funds should be used only for charitable purposes, and proper records must be maintained.
Legal Status: 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 applicable for five years.
How Donors Benefit from Section 80G
Section 80G of the Income Tax Act offers a system through which donors can get deductions on their taxable income. This section is aimed at promoting charitable activities by motivating donations. People, companies, and other entities contributing to an 80G registered NGO can claim a deduction under Section 80G.
The tax 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 enables an NGO avail 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 enhance 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 comply with tax regulations, engaging an NGO consultancy can be highly advantageous. 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 guarantee that the application is processed effectively and in a timely manner.
Trust Registration for NGOs
For organizations that are planning to start an NGO, trust registration is one of the most common ways to form a non-profit entity. In India, a charitable trust is typically registered by executing a trust deed, which outlines the objectives and operational framework of the trust. This legal document is filed with the registrar, making the organization an official entity capable of receiving 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 allows it to operate as a recognized entity under the law.
Conclusion
Registering an NGO under Section 12A and Section 80G is crucial for any organization wanting 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 exempt from tax.
If you are planning to form an NGO or are an current one looking to get these registrations, it’s advisable to consult with experts in NGO consultancy to help you through the process and make sure compliance with all requirements. These actions will not only boost your NGO's credibility but also aid in growing your outreach and financial stability.