The two registrations issued by the Income Tax Department to NGOs are 12A and 80G, which allow organizations to be tax exempt and allow contributors to have deductions on their donations. A 12A and 80G registered non-profit is more likely to acquire lucrative financing and other tax breaks.
In the form of a Charitable Trust/Society/Section 8 Company, an NGO (Non-Governmental Organization) is established solely to serve non-profit humanitarian purposes, and once such entity is formally registered, it is approved of a slew of tax exemptions, benefits, and reliefs, as well as the provision of tax deductions for donors. Any revenue an NGO obtains, such as service/production/donation, shall be treated as regular taxable income without regard to the purpose of such income unless 12A and 80G registrations are obtained. NGOs with 12A and 80G certificates have a higher commercial worth than those without these certificates.
What is 12A certificate?
Trusts, NGOs, and other Section 8 businesses are excluded from paying income tax as a result of their 12A registration. NGOs are non-profit and philanthropic organizations. They do, however, have income and, if not registered under section 12A of the Income Tax Act, would be liable to pay tax at regular rates. There is no distinction between charitable and religious trusts under Section 12A of the IT Act, 1962. As a result, both types of organizations are eligible for 12A registration.
Process of Registration
- As per Rule 17A of the Income Tax Act of 1962, the application must be submitted using Form 10A. The application must be submitted to the Income Tax Jurisdictional Commissioner (Exemptions).
- The Commissioner confirms the validity of the organization’s activity after receiving the Form and documentation. He has the authority to request further papers and information as he sees suitable.
- He will issue a written order for the award of 12A Registration based on the satisfactory report. If the Commissioner is not satisfied, the application will be rejected, and the applicant will be given an opportunity to be heard.
12A Registration can be revoked at any time if proof is provided that the organization’s activities are contrary to the institution’s object, are not genuine, or benefit a particular religion or caste, or that the funds are being invested in prohibited ways, or that the institution’s income is being used for the benefit of specific individuals.
Once received, the certificate will be valid for lifetime.
Documents required
- Form 10A.
- Documental evidence of the creation of the Trust or NGO – Trust Deed of a Trust; Registration Certificate and Memorandum of Association of a society; section 8 companies to submit a certificate of incorporation and copies of MoA and AoA of the company.
- Three-year bank account statement of the Trust.
- PAN card of the organization.
Benefits of 12A certificate
The initial kind of registration for an applicant who wishes to start an NGO is the 12A registration. This is an exemption that applies to all NGOs that are required to apply for a tax exemption under the requirements of the Income Tax Act of 1961. The following are some of the advantages of registering for 12A:
Government aids:
An entity, such as an NGO or a Society, can take advantage of all of the government’s programmes and grants by obtaining an exemption certificate under 12A. If the NGO or society does not accept this kind of registration, this option will be unavailable.
Tax Immunity:
The NGO or Society would be exempt from paying taxes if they claimed this exemption. To claim such an exemption, the NGO would have to provide the 12A certificate.
Existence Proof:
Such a certificate would be a genuine and legible proof of existence for the government, demonstrating that this type of company is registered. Legal proof would be accessible to the entity in order for it to get a government grant or loan.
Applicable for Societies as well:
Another point to note is that this type of certificate would be applicable not just to NGOs, but also to societies that have been registered in accordance with the Societies Registration Act.
What is 80G Certificate?
The Income Tax Department issues an 80G Certificate to a non-profit organisation or non-governmental organisation (NGO), a charity trust, or a Section 8 Company. The goal of the 80G certificate is to inspire more people to give money to charities like these. The donor benefits from contributing to such an NGO in that he receives a tax exemption on 50% of his gift since the donor is able to deduct their donations from their Gross Total Income. To qualify for the tax exemption, the donor must attach a stamped receipt from the NGO to the gift – the document must specify the organization’s name, date, and PAN.
Process of registration
- The application for an 80G certificate must be filed to the Commissioner of Income Tax (Exemption) in the institution’s jurisdiction.
- The Income Tax agency conducts an on-the-premise examination when the form and accompanying documentation for 80G registration are filed.
- Officials may request extra records and proof that the institution is compelled to provide.
- The Commissioner awards the 80G certificate to the institution after acceptable verification and scrutiny of documents and the office of the NGO.
Once received, the certificate will be valid for lifetime.
Documents required
- Form 10G.
- Registration certificate and MoA in case of Section 8 companies and Societies; Trust Deed in case of a Trust.
- No objection certificate from the owner of the property where the registered office of the Institution is located.
- PAN card copy of the NGO.
- Copy of Utility Bills – Electricity bills, water bills or House Tax Receipt.
- Donor list along with their complete address and PAN.
- Book of Accounts & Income Tax Return documents, of last three years.
- List of welfare activities being carried out & the progress report for last three years.
- Detailed list of the board of trustees.
- Deed for Verification – Original RC, MoA or Trust Deed.
Benefits of 80G certificate
After an NGO or organization meets the conditions of section 12A, it can claim benefits under section 80G of the Income Tax Act of 1961. An entity that claims this type of exemption is eligible for the following benefits:
Increment in Reputation:
The presence of an 80G registration certificate enhances the public’s perception of the company. When it comes to giving to a certain NGO, this certificate allows contributors to obtain some type of tax exemption and pay less tax. As a result, the donor will benefit from this certificate.
More Contributors/Supporters:
Having this credential not only improves the NGO’s or society’s reputation, but it also increases the number of contributors. Under this system, more donors would be eligible for tax breaks.
Tax benefits for donors:
Donors can use the NGO’s certificate to save money on taxes while still paying a fixed amount to the appropriate government agencies.
Government aids:
NGO and organizations with these certificates are more likely to get various types of grants and related support from the government.
