80G and 12A Registration

Overview of 80G and 12A Registration 

If you're interested in supporting a social cause, consider establishing an NGO in India. This decision comes with numerous advantages, particularly regarding income tax benefits under 80G and 12A Registration of the Income Tax Act, 1961. This writeup sheds light on the significance of registering NGOs in India under Sections 12A and 80G of the Income Tax Act, which plays a crucial role in facilitating social work. Whether you're a passionate NGO founder, a dedicated fund manager, or a generous donor, this information is essential. 
The 80G Certificate, provided by the Income Tax Department, offers advantages to non-profit organizations, NGOs, charitable trusts, and Section 8 Companies. Its primary purpose is to encourage more donations by providing tax exemptions to donors. Donors can avail themselves of tax exemption on 50% of their contributions, deducting the donated amount from their Gross Total Income. To claim this benefit, donors must attach the stamped receipt issued by the NGO, containing relevant details like the organization's name, date, and PAN.
Similarly, Section 12A registration grants tax exemption to trusts, NGOs, and Section 8 companies, freeing them from income tax obligations. NGOs mainly engage in charitable and non-profit activities, and registration under Section 12A is essential to avoid regular income tax rates on their earnings. Notably, Section 12A applies to both charitable and religious trusts without distinction, ensuring fairness in tax benefits.
 

Regulation relating 80G and 12A Registration

The regulations regarding 80G and 12A Registration are as follows:

1. 80G Registration: Section 80G of the Income Tax Act pertains to the registration and approval of certain donations made to NGOs, charitable trusts, and other eligible entities. When an NGO obtains 80G Registration, it enables donors to avail tax benefits on their contributions. The primary objective of this registration is to incentivize individuals and corporations to support charitable causes and contribute to the betterment of society.
2. Benefits for Donors: When individuals or companies donate to an NGO with 80G Registration, they become eligible for tax deductions on their donations. Donors can claim tax exemption on 50% of the donated amount from their Gross Total Income. For example, if a donor contributes ₹10,000 to an eligible NGO, they can claim a tax deduction of ₹5,000, effectively reducing their taxable income.
3. Impact on NGOs: Obtaining 80G Registration can significantly boost an NGO's ability to attract donations. Donors are more inclined to contribute when they can receive tax benefits on their philanthropic activities. As a result, NGOs with 80G Registration are likely to witness an increase in funding, allowing them to expand their charitable projects and make a greater impact in their respective fields.
4. Section 12A Registration: Section 12A of the Income Tax Act deals with the registration and tax exemption for income earned by charitable and religious trusts, as well as NGOs engaged in non-profit activities. NGOs that wish to claim tax exemption on their income need to apply for and obtain Section 12A Registration.
5. Benefits for NGOs: NGOs that successfully register under Section 12A are exempted from paying income tax on the funds they receive for carrying out charitable activities. This exemption enables them to utilize a more substantial portion of their funds for their projects and initiatives, rather than allocating a significant part of it to taxes. As a result, NGOs can focus on their core mission and effectively address the social issues they aim to tackle.
6. Difference between 80G and 12A Registration: While both 80G and 12A Registrations offer tax-related benefits, they serve different purposes. 80G Registration primarily focuses on providing tax benefits to donors, encouraging them to contribute to NGOs. In contrast, Section 12A Registration directly benefits the NGOs themselves by exempting their income from taxation. NGOs often pursue both registrations to maximize their funding potential and demonstrate their credibility to potential donors.

Eligibility of 80G & 12A Registration

The eligibility of 80G and 12A registration are as follows: 
The 80G and 12A Registration status for an NGO is crucial and should be undertaken promptly after its incorporation. To be eligible for these registrations, the NGO must adhere to certain criteria and guidelines. Here are the key requirements:

1. No Business Income: The NGO should not generate any income from business activities. It must primarily focus on charitable or non-profit endeavors.
2. Charitable Trust or Registered Society: The NGO must be either a charitable trust or a registered society. These legal structures are commonly used for running non-profit organizations in India.
3. Exclusive Use of Assets and Income for Charity: The assets and income of the NGO should be utilized solely for charitable purposes and should not be diverted for any other use.
4. Maintenance of Regular Book of Accounts: The NGO must maintain a proper and organized record of all its financial transactions, including receipts and expenses.
5. No Undue Benefit to Trustees or Governing Body: The trustees or members of the governing body of the NGO should not receive any undue benefits from the funds or assets of the organization.
6. Non-Discrimination Based on Caste or Religion: The NGO's activities should not favor any specific caste or religion. It should be committed to serving the broader community without any bias.
7. Separate Accounts for Business Income: If the NGO has any income from business-related activities, it must maintain separate accounts for such earnings. Donations received by the NGO should not be utilized for financing these business activities.

Benefits of 80G and 12A Registration

The benefits of 80G and 12A Registration are as follows:

80G Registration

• Enhanced Reputation: Possessing an 80G registration certificate enhances the entity's reputation in the public eye. This certificate enables donors to receive tax exemptions, encouraging them to contribute more to the specific NGO. As a result, the certificate becomes valuable to donors.
• Increased Donor Base: Having this certificate not only boosts the NGO's or society's reputation but also attracts more donors. The availability of tax exemptions under this system entices more donors to contribute to the cause.
• Tax Savings for Donors: Donors can utilize the NGO's certificate to save on taxes while making contributions to the respective government authorities.
• Access to Government Funding: NGOs and societies with these certificates are more likely to receive various forms of grants and related funding from the government. The certificate enhances the organization's eligibility for government funding opportunities.

12 A Registration

• Benefits of Government Schemes and Grants: Obtaining the 12A exemption certificate allows entities like NGOs or Societies to access various government schemes and grants. Failure to secure this registration may result in the unavailability of such benefits.
• Tax Exemption Privileges: By obtaining this exemption, NGOs or Societies become eligible for tax exemption. To claim this benefit, they must furnish the 12A certificate as proof of their registration.
• Validation of Existence: The 12A certificate serves as valid and clear proof of the entity's existence to the government. It provides the legal documentation required for securing grants or loans from the government.
• Applicable to NGOs and Societies: It's essential to note that this certificate is not limited to NGOs only; Societies registered under the Societies Registration Act can also avail of this privilege.

Requirement under 80G and 12A Registration

Section 80G (5) outlines specific requirements that must be fulfilled to obtain approval under section 80G:

• The organization should be established within India with a charitable purpose.
• If the organization or fund generates income, such income should not be taxable under sections 11 and 12 or clauses (23AA) or (23C) of section 10.
• In case the organization or fund derives business income, the condition mentioned above regarding non-inclusion of income under section 11 will not apply if the following conditions are met:
  • The organization or fund maintains separate books of account for the business income.
  • The donations received by the organization or fund are not utilized, directly or indirectly, for the business purposes.
  • The organization or fund issues a certificate to donors stating that it maintains separate books of account for the business income and assures that the received donations will not be used for business purposes.
• The constitution of the institution should not include any provision for transferring or using the income or assets for purposes other than charitable ones.
• The institution should not serve the exclusive benefit of any religious community or caste.
• The institution should maintain proper records of its income and expenses.
• The institution should be established either as a Public Charitable Trust, a registered society, a company registered under section 8 of the Companies Act 2013, a lawfully established university, or any other educational institution recognized by the Government or an established university. Additionally, it could be affiliated with any lawfully established University or financed wholly or partially by the Government or a local authority.

Documents Required in 80G and 12A Registration

The necessary documents for 80G registration are as follows:

• Memorandum of Association (MoA) and Registration certificate for Section 8 companies and Societies, or a Trust Deed for a Trust.
• No objection certificate from the property owner where the Institution's registered office is located.
• Form 10G.
• A copy of the NGO's PAN (Permanent Account Number).
• Copies of Utility Bills like Electricity bill, water bill, or House Tax Receipt.
• List of donors, including their addresses and PANs.
• Documents related to Income Tax Returns and Book of Accounts for the past three years.
• List of welfare activities conducted and the progress report from the last three years.
• Detailed list of the Board of Trustees.
• Original Registration Certificate (RC), Memorandum of Association (MoA), or Trust Deed.

The necessary documents for 12A registration are as follows:

• Proof of the formation of the Trust or NGO, which could include the Trust Deed for a Trust or the Registration Certificate and Memorandum of Association (MOA) for a society.
• Section 8 companies should submit their certificate of incorporation, along with copies of the Memorandum of Association (MoA) and Articles of Association (AoA) of the company.
• Form 10A.
• Bank account statements for the Trust covering the past three years.
• The PAN (Permanent Account Number) of the organization.

Process of getting 80G and 12A Registration

Procedure for 80G Registration

Obtaining 80G Registration involves the following steps as per Rule 11AA of the Income Tax Rules 1962:

• The institution seeking approval must submit an application in Form No. 10G, which should be verified by the person authorized to verify the income tax return under Section 140, applicable to the assessee.
• Form No. 10G should be submitted electronically:
  • Using a digital signature, if the income tax return is required to be furnished under a digital signature.
  • Through electronic verification code if not covered under clause (i).
• The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) will be responsible for defining the data structure, standards, and process for submitting and verifying Form No. 10G. Additionally, they will implement appropriate security measures and policies for the archival and retrieval of the submitted form.
• The Principal Commissioner or Commissioner may request additional documents or information from the applicant or conduct inquiries as deemed necessary to verify the authenticity of the applicant's activities.
• If the Principal Commissioner or Commissioner is satisfied that all conditions specified in Section 80G (5) are met by the applicant, they will grant written approval under clause (vi) of sub-section (5) of Section 80G.
• In case one or more conditions mentioned in Section 80G (5) are not fulfilled, the Principal Commissioner or Commissioner will provide reasons in writing and reject the approval application after giving the applicant a clarification opportunity.

Procedure for 12A Registration

To obtain 12A registration, you must adhere to the following steps:

• Submit an application using Form 10A, in accordance with Rule 17A of the Income Tax Act, 1961.
• Ensure the application complies with the guidelines provided by the Jurisdictional Commissioner of Income Tax (Exemptions).
• The Commissioner reviews the organization's activities upon receiving the form and documents. Additional documents or information may be requested if necessary.
• Upon a satisfactory report, the Commissioner issues a written order for granting 12A Registration. In case of dissatisfaction, the application is rejected, with the applicant given an opportunity to present their case.
• Please be aware that 12A Registration can be revoked if the organization is involved in any of the following activities:
• Actions contrary to the institution's objectives.
• Activities deemed non-genuine.
• Providing benefits to specific religions or castes.
• Using funds for prohibited purposes.
• Using the institution's income for the exclusive benefit of specific individuals or groups.

Validity of 80G and 12A Registration

Under the updated legislation, NGOs now have the option to apply for provisional registration before initiating their charitable activities. The application for provisional registration must be submitted at least one month before the start of the assessment year. Once granted, the 12A registration remains valid for 5 years, requiring renewal every 5 years. If there are any changes in the NGO's objectives, the application for registration must be submitted within 30 days of such alterations. Regarding 80G provisional registration, it is initially valid for 3 years and needs subsequent renewal. Once renewed, the registration remains valid for 5 years, requiring renewal at the end of each 5-year period.

Renewal of 80G and 12A Registration

For 80G registration the registration remains valid for 5 years, requiring renewal at the end of each 5-year period. The initial registration under 12A is granted for a period of 5 years, and it must be renewed every five years thereafter.

How can ApkaTax Assist You?

FAQs on 80G and 12A registration