What is 12A Registration?
Non-Governmental Organizations are crucial in tackling various social issues. To increase their impact, many NGOs get registered under designated parts of the Income Tax Act to obtain tax benefits and tax perks for supporters. In this article, we will look into the benefits and procedures of getting registered under 80G registration and 12A, which are essential for NGOs wanting financial support and credibility.
Understanding 12A Registration
12A of Income Tax Act is a important process for an NGO to gain recognition as a non-profit entity under Indian law. The process allows the NGO to avail 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 enhances the credibility of an NGO and is often a necessary step for gaining grants and donations from various sources.
To get 12A registration, the NGO must file 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.
What is Section 80G?
80G of the Income Tax Act allows 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 important aspect for NGOs seeking public funding. An NGO must obtain 80G registration to grant tax benefits to its donors.
The 80G deduction permits 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 allowed. However, the deduction rate may differ depending on the category of the NGO and the type of donation.
Why NGOs Need 80G Registration
Obtaining 80G registration is a great advantage for an 12a NGO as it helps them to gain more donors. When donors know they can get tax benefits on their donations, they are more likely to contribute. This also improves the NGO’s reputation and grows its funding base, which is essential for achieving 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 get large donations from corporate sectors and high-net-worth individuals.
80G Registration Requirements
To get 80G registration, an NGO must fulfill particular criteria:
Non-Profit Status: 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 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.
Section 80G of Income Tax Act: Tax Deduction for Donors
Section 80G of the Income Tax Act lays down provisions through which donors can benefit from deductions on their taxable income. This section is aimed at promoting charitable activities by incentivizing donations. Individuals, companies, and other entities making donations to an 80G registered NGO can claim a deduction under Section 80G.
The deduction amount 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 trust registration NGOs
Having both 12A and 80G registration is useful for NGOs. 12A registration enables an NGO claim 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 enhance 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 handle the registration processes and comply with tax regulations, engaging an NGO consultancy can be highly helpful. NGO consultancy services provide assistance 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 guarantee 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 lays the groundwork for the NGO’s activities and allows it to operate as a legal entity under the law.
Conclusion
Becoming registered an NGO under Section 12A and Section 80G is essential for any organization looking to get tax exemptions and attract more donors. These registrations offer major advantages, both for the NGO and for the individuals or corporations supporting the cause. With 80G registration, donors are encouraged to contribute, knowing they can get tax relief, while 12A registration guarantees that the NGO’s income is exempt from tax.
If you are looking to form an NGO or are an current one looking to take advantage of these registrations, it’s advisable to seek advice from professionals in NGO consultancy to help you through the process and ensure compliance with all regulations. These actions will not only increase your NGO's credibility but also aid in growing your outreach and financial stability.