What is 12A Registration?
Non-Governmental Organizations are important in tackling various social issues. To increase their efficiency, many NGOs seek registration under designated parts of the Income Tax Act to benefit from tax relief and incentives for contributors. In this article, we will examine the benefits and process of registering under section 80g of income tax act and 12A, which are important for NGOs aiming for financial support and credibility.
12A Registration Overview
12A registration is a important process for an NGO to get acknowledged as a non-profit entity under Indian law. The approval enables 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 supports the organization in utilizing more resources for charitable activities. Obtaining 12A registration also boosts the credibility of an NGO and is often a prerequisite for gaining grants and donations from various sources.
To get 12A registration, the NGO must submit an application to the jurisdictional Commissioner of Income Tax along with key documents, including the legal trust document or organization memorandum, PAN card, and details of activities.
Understanding 80G Registration
Section 80G of the Income Tax Act allows donors to claim deductions on their taxable income against donations made to eligible NGOs. This section motivates individuals and corporations to contribute to charities, making it an key feature 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 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.
Why NGOs Need 80G Registration
Obtaining 80G registration is a significant advantage for an section 80g NGO as it allows them to attract more donors. When donors know they can receive tax exemptions on their donations, they are more likely to contribute. This also improves the NGO’s reputation and grows its funding base, which is crucial for fulfilling 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 receive large donations from corporate sectors and high-net-worth individuals.
How to Get 80G Registration
To be eligible for 80G registration, an NGO must meet specific criteria:
Non-Profit Status: The NGO should not be conducting 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.
Registration: The NGO must be registered either as a trust, society, or Section 8 company.
The application for 80G registration involves 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 effective for five years.
Section 80G of Income Tax Act: Tax Deduction for Donors
Section 80G provides a framework through which donors can benefit from deductions on their taxable income. This section is aimed at promoting charitable activities by motivating donations. Individuals, companies, and other entities contributing to an 80G registered NGO can get tax relief under Section 80G.
The eligible deduction is limited to a specific portion 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.
Benefits of Both 12A and 80G
Having both 12A and 80G registration is beneficial for NGOs. 12A registration helps an NGO avail 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 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 manage the registration processes and adhere to 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 ensure that the application is processed smoothly 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 popular ways to form a non-profit entity. In India, a charitable trust is typically set up by executing a trust deed, which details the objectives and operational framework of the trust. This legal document is submitted to the registrar, making the organization an official entity capable of receiving donations and grants.
Trust registration is often the first step before obtaining 12A and 80G registration. It lays the groundwork for the NGO’s activities and enables it to operate as a legal entity under the law.
Conclusion
Becoming registered 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 motivated to contribute, knowing they can get tax relief, while 12A registration ensures that the NGO’s income is exempt from tax.
If you are planning to start an NGO or are an already established one looking to get these registrations, it’s suggested to get guidance from consultants in NGO consultancy to help you through the process and ensure compliance with all criteria. These actions will not only boost your NGO's credibility but also help in expanding your outreach and financial stability.