What is 12A Registration?
NGOs are crucial in addressing many social issues. To increase their effectiveness, 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 registering under section 80g of income tax act and 12A, which are essential for NGOs seeking 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 earned 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 provide 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.
Section 80G Explained
80G of Income Tax Act of the Income Tax Act permits donors to claim deductions 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 provides for 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 allowed. However, the deduction rate may vary depending on the nature of the NGO and the type of donation.
Why NGOs Need 80G Registration
Obtaining 80G registration is a major advantage for an 12a registration NGO as it allows them to bring in more donors. When donors understand they can claim tax deductions on their donations, they are more likely to contribute. This also enhances the NGO’s reputation and grows 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.
Eligibility and Process for 80G Registration
To qualify for 80G registration, an NGO must fulfill certain 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.
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 provide 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.
Section 80G of Income Tax Act: Tax Deduction for Donors
Income Tax Act 80G lays down provisions through which donors can benefit from deductions on their taxable income. This section is aimed at promoting charitable activities by motivating donations. People, companies, and other entities making donations to an 80G registered NGO can receive tax deduction under Section 80G.
The eligible deduction is limited to a part 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 allowed a 100% deduction.
Importance of 12A and 80G Registration for ngo registration NGOs
Having both 12A and 80G registration is advantageous for NGOs. 12A registration allows an NGO claim exemptions on income, reducing their tax liability, while 80G registration motivates donors to contribute by allowing them claim 80G deductions on their donations. These registrations enhance the credibility of the NGO, allowing them to gain financial support from multiple sources, including government schemes and corporate social responsibility (CSR) initiatives.
How NGO Consultancy Can Help
For NGOs looking to manage the registration processes and comply with 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 experienced in handling the complexities of registrations and can make sure 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 common ways to form a non-profit entity. In India, a charitable trust is typically registered by executing a trust deed, which defines the objectives and operational framework of the trust. This legal document is registered with the registrar, making the organization an official entity capable of receiving 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 permits it to operate as a recognized entity under the law.
Conclusion
Getting registered an NGO under Section 12A and Section 80G is important for any organization wanting tax exemptions and attract more donors. These registrations provide substantial benefits, both for the NGO and for the individuals or corporations supporting the cause. With 80G registration, donors are motivated to contribute, knowing they can enjoy tax benefits, 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 seek advice from professionals in NGO consultancy to help you through the process and guarantee compliance with all criteria. These actions will not only increase your NGO's credibility but also support the expansion of your outreach and financial stability.