12A Registration Overview
NGOs are important in addressing various societal problems. To increase their impact, many NGOs seek registration under certain provisions of the Income Tax Act to avail tax exemptions and benefits for donors. In this article, we will look into the advantages and steps of getting registered under section 80g of income tax act and 12A, which are important for NGOs seeking financial support and credibility.
12A Registration Overview
12A of Income Tax Act is a vital process for an NGO to get acknowledged 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 received 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 obtaining grants and donations from various sources.
To get 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 MOA, PAN card, and details of activities.
Section 80G Explained
80G of the Income Tax Act enables 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 essential tool for NGOs seeking public funding. An NGO must obtain 80G registration to grant tax benefits to its donors.
The 80G deduction provides for a portion 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 category of the NGO and the type of donation.
Advantages of 80G
Obtaining 80G registration is a significant advantage for an section 80g NGO as it helps them to gain more donors. When donors understand 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 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.
80G Registration Requirements
To be eligible for 80G registration, an NGO must fulfill certain criteria:
Non-Profit Status: The NGO should not be conducting any commercial activities, and its primary objective must be charitable.
Proper Fund Usage: The funds should be used only for charitable purposes, and proper records must be maintained.
Formal Setup: 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 applicable for five years.
How Donors Benefit from Section 80G
Section 80G of the Income Tax Act offers a system through which donors can benefit from deductions on their taxable income. This section is aimed at promoting charitable activities by encouraging 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 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 eligible for a 100% deduction.
Why 12A and 80G Matter for NGOs
Having both 12A and 80G registration is beneficial for NGOs. 12A registration enables an NGO avail exemptions on income, reducing their tax liability, while 80G registration encourages donors to contribute by enabling them claim 80G deductions on their donations. These registrations boost 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 handle the registration processes and follow tax regulations, engaging an NGO consultancy can be highly beneficial. 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 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 popular ways to form a non-profit entity. In India, a charitable trust is typically formed by executing a trust deed, which details 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 allows it to operate as a recognized entity under the law.
Summary
Getting registered an NGO under Section 12A and Section 80G is important for any organization looking to get tax exemptions and increase donations. 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 enjoy tax benefits, while 12A registration guarantees that the NGO’s income is not taxable.
If you are considering to form 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 assist you through the process and make sure compliance with all regulations. These steps will not only enhance your NGO's credibility but also help in expanding your outreach and financial stability.