Non-Governmental Organizations (NGOs) play a crucial role in social development by addressing various societal issues. To facilitate their operations and encourage donations, the Indian government provides tax exemptions under Section 12A and Section 80G of the Income Tax Act. Understanding these sections is essential for NGOs to maximize their benefits and compliance.
Section 12A of the Income Tax Act provides tax exemption to NGOs on their surplus income. Once registered under Section 12A, NGOs do not have to pay income tax on their earnings, ensuring that more funds are available for their social activities.
• Tax Exemption: The NGO’s income is exempt from taxation.
• Eligibility for Grants: Government and corporate grants often require 12A registration.
• Financial Credibility: Enhances the trustworthiness of the NGO, making it easier to receive funds from donors.
To qualify for Section 12A registration, an organization must:
• Be a trust, society, or non-profit company (under Section 8 of the Companies Act, 2013).
• Have a clear charitable purpose, such as education, poverty relief, medical aid, or other socially beneficial objectives.
• Not engage in profit-generating commercial activities.
• PAN Card of the NGO
• Trust Deed/Memorandum of Association (MOA)
• Financial Statements of the last three years
• Details of activities conducted since incorporation
• List of trustees or governing body members
a. Prepare the required documents and ensure compliance with eligibility norms.
b. File Form 10A online through the Income Tax Department’s portal.
c. Verification by Income Tax Officer: The IT department may request additional information or documents.
d. Approval and Certification: If approved, a 12A certificate is granted, usually valid for 5 years.
Section 80G allows donors to claim deductions for donations made to registered NGOs. This provision incentivizes philanthropy and helps NGOs secure funding.
• Attracts More Donations: Since donors receive tax benefits, they are more likely to contribute.
• Enhanced Credibility: Increases donor confidence in the NGO’s legitimacy.
• Government and Corporate Grants: Many funding agencies prefer NGOs with an 80G certificate.
• The NGO must already be registered under Section 12A.
• The organization must not engage in religious or commercial activities.
• Proper financial records and utilization reports must be maintained.
• 12A Registration Certificate
• PAN Card of the NGO
• Audit Reports and Financial Statements
• Details of past donations received
• Declaration of non-involvement in religious or commercial activities
a. Prepare necessary documents and financial reports.
b. File Form 10G online through the Income Tax e-filing portal.
c. Income Tax Department verification of the NGO’s legitimacy and activities.
d. Approval and Certification: If approved, the NGO receives an 80G certificate, valid for 5 years.
| Criteria | Section 12A | Section 80G |
|---|---|---|
| Purpose | Provides income tax exemption to NGOs on their surplus income. | Offers tax deductions to donors for their contributions to NGOs. |
| Eligibility | Applicable to NGOs, Trusts, Societies, and Section 8 Companies engaged in charitable or religious activities. | NGOs must have 12A registration to be eligible; applicable to NGOs, Trusts, Societies, and Section 8 Companies. |
| Benefits |
- Exemption from income tax on surplus income. - Enhances credibility and trustworthiness. - Eligibility for government/international grants. |
- Donors get deductions up to 50% of donations. - Some donations qualify for 100% deduction. - Attracts more donors. |
| Validity | Valid for 5 years (renewable). | Valid for 5 years (renewable). |
| Application Process | Submit Form 10A with PAN, trust deed, financials, trustee details, etc. | Submit Form 10G post 12A registration with PAN, registration certificate, donor and financial details. |
| Compliance Requirements | Maintain books, audit if income exceeds limit, file ITR annually. | Issue donor receipts with PAN, maintain donation records, file returns. |
| Impact on Donors | No direct impact on donors. | Provides tax benefits to donors, encouraging higher donations. |
| Additional Notes |
- Mandatory for tax exemption. - Enhances credibility and access to funding. |
- Valid 80G required to offer donor tax benefits. - Helps attract more donations. |
• Challenge: Incomplete or incorrect documentation.
• Solution: Double-check all forms and documents before submission.
• Challenge: Lengthy verification process.
• Solution: Regular follow-ups with the Income Tax Department.
• Challenge: NGOs failing to meet financial transparency standards.
• Solution: Maintain proper accounts and submit annual reports timely.
Case Study 1: Education NGO Benefitting from 12A & 80G
An education-focused NGO in Mumbai secured 12A registration, leading to a 100% tax exemption on its income. With 80G approval, the NGO attracted substantial donations from corporates, which were eager to claim tax deductions.
Case Study 2: Healthcare NGO Facing Compliance Issues
A healthcare NGO faced rejection due to incomplete financial records. After restructuring its financial reporting and reapplying, it successfully obtained 12A and 80G certification, resulting in increased donor confidence and funding.
Obtaining Section 12A and 80G registration is crucial for NGOs aiming to achieve financial stability and credibility. While the process can be complex, proper documentation and compliance ensure smooth approvals. NGOs should proactively maintain transparency and adhere to regulations to maximize the benefits of these provisions.
With expert assistance from Return Filings, you can ensure a smooth registration and compliance process for your 12A and 80G registrations. For professional assistance, reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091.
