What is 12A Registration?
Wiki Article
12A Registration Overview
NGOs are important in solving numerous community challenges. To increase their impact, many NGOs get registered under designated parts of the Income Tax Act to avail tax exemptions and benefits for donors. In this article, we will explore the benefits and process of getting registered under section 80g of income tax act and 12A registration, which are important for NGOs wanting financial support and credibility.
What is 12A Registration?
12A registration is a crucial process for an NGO to gain recognition as a non-profit entity under Indian law. The approval permits 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 supports the organization in utilizing more resources for charitable activities. Obtaining 12A registration also increases the credibility of an NGO and is often a requirement for gaining grants and donations from various sources.
To apply for 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.
What is Section 80G?
Section 80G of the Income Tax Act permits donors to avail tax deductions on their taxable income against donations made to eligible NGOs. This section encourages individuals and corporations to contribute to charities, making it an key feature for NGOs seeking public funding. An NGO must obtain 80G registration to offer tax benefits to its donors.
The 80G deduction permits a fraction 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 type of the NGO and the type of donation.
Benefits of 80G Registration for NGOs
Obtaining 80G registration is a great advantage for an section 80g NGO as it helps them to bring in more donors. When donors realize they can get tax benefits on their donations, they are more likely to contribute. This also increases the NGO’s reputation and boosts its funding base, which is essential for achieving 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.
Eligibility and Process for 80G Registration
To be eligible for 80G registration, an NGO must fulfill certain criteria:
Non-commercial Nature: The NGO should not be involved in 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 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 effective 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 encouraging donations. Persons, companies, and other entities making donations to an 80G registered NGO can get tax relief under Section 80G.
The tax 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.
Benefits of Both 12A and 80G
Having both 12A and 80G registration is advantageous for NGOs. 12A registration helps an NGO claim exemptions on income, reducing their tax liability, while 80G registration motivates 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.
Consultancy for NGOs
For NGOs looking to navigate the registration processes and comply with 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 make sure 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 widely used 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 registered with the registrar, making the organization an official entity capable of obtaining 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 enables it to operate as a legal entity under the law.
Summary
Getting registered an NGO under Section 12A and Section 80G is essential for any organization aiming to receive tax exemptions and attract more donors. These registrations provide substantial benefits, both for the NGO and for the individuals or corporations supporting the cause. With 80G registration, donors are encouraged to contribute, knowing they can enjoy tax benefits, while 12A registration guarantees that the NGO’s income is not taxable.
If you are looking to start an NGO or are an existing one looking to benefit from 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 requirements. These measures will not only increase your NGO's credibility but also aid in growing your outreach and financial stability.