What is 12A Registration?
Charitable organizations are crucial in solving various community challenges. To boost their impact, many NGOs apply for registration under specific sections of the Income Tax Act to obtain tax benefits and incentives for contributors. In this article, we will explore the advantages and process of registering under section 80g of income tax act and 12A, which are important 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 avail 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 boosts the credibility of an NGO and is often a necessary step for receiving grants and donations from various sources.
To register 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 organization memorandum, PAN card, and details of activities.
What is Section 80G?
80G of the Income Tax Act enables donors to avail tax deductions 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 grant tax benefits to its donors.
The 80G deduction allows a portion of the donation to be reduced from the donor's taxable income. In most cases, a deduction of 50% of the donated amount is granted. However, the deduction rate may vary depending on the nature of the NGO and the type of donation.
Advantages of 80G
Obtaining 80G registration is a great advantage for an 80g registration NGO as it enables them to attract more donors. When donors understand they can get tax benefits on their donations, they are more likely to contribute. This also increases the NGO’s reputation and grows its funding base, which is critical 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.
How to Get 80G Registration
To qualify for 80G registration, an NGO must fulfill particular criteria:
Non-commercial Nature: The NGO should not be engaged 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.
Registration: 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 applicable for five years.
Section 80G of Income Tax Act: Tax Deduction for Donors
Section 80G offers a system through which donors can benefit from deductions on their taxable income. This section is aimed at promoting charitable activities by motivating donations. Persons, companies, and other entities contributing 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 granted a 100% deduction.
Importance of 12A and 80G Registration for 80g registration NGOs
Having both 12A and 80G registration is advantageous for NGOs. 12A registration helps an NGO avail exemptions on income, reducing their tax liability, while 80G registration helps donors to contribute by enabling them claim 80G deductions on their donations. These registrations increase the credibility of the NGO, allowing them to receive funds from multiple sources, including government schemes and corporate social responsibility (CSR) initiatives.
Consultancy for NGOs
For NGOs looking to manage the registration processes and adhere to tax regulations, engaging an NGO consultancy can be highly beneficial. NGO consultancy services help with 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 ensure that the application is processed without hassle and in a timely manner.
How to Register a Trust
For organizations that are looking to establish 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 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 acknowledged entity under the law.
Summary
Registering an NGO under Section 12A and Section 80G is crucial for any organization looking to get tax exemptions and attract more donors. These registrations are highly beneficial, 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 makes sure that the NGO’s income is not taxable.
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 regulations. These steps will not only increase your NGO's credibility but also help in expanding your outreach and financial stability.