Introduction

Non-Governmental Organizations (NGOs) play a crucial role in addressing global social, economic, and environmental challenges. Operating independently of government control, these organizations are typically driven by social, cultural, or environmental objectives.

Tax exemption is critical for NGO operations, allowing them to allocate more resources toward their charitable activities. Under the Income Tax Act, 1961, certain provisions grant tax exemptions to registered NGOs, incentivizing philanthropic initiatives and promoting social welfare. Sections 12A and 80G of the Income Tax Act provide mechanisms for NGO registration and tax exemption under Sections 11 and 12.

Section 12A

Section 12A of the Income Tax Act allows organizations engaged in charitable or religious activities to apply for registration with the Income Tax Department to claim tax exemption. Once registered, the organization’s income, if applied toward charitable or religious purposes, becomes exempt from taxation.

Eligibility Criteria

• The organization must exist solely for charitable or religious purposes.
• It cannot benefit any particular religious community or caste.
• It must apply its income toward its stated charitable or religious objectives.
• The organization should not engage in commercial activities.

Registration Process

1. Application Submission: Fill out Form 10A, which can be downloaded from the Income Tax Department’s website or obtained from the local tax office. Submit this form along with the required documents.
2. Submission to the Commissioner of Income Tax (Exemptions): Submit the completed Form 10A and required documents to the Commissioner of Income Tax (Exemptions) with jurisdiction over the entity’s location.
3. Scrutiny by the Commissioner: The Commissioner scrutinizes the application and documents to ensure compliance with Section 12AA. This may involve verifying the genuineness of the entity’s charitable or religious activities and income utilization.
4. Grant of Registration: If satisfied, the Commissioner grants registration under Section 12A. Once registered, the entity’s income, if utilized for charitable or religious purposes, becomes eligible for tax exemption.

Documents Required to File Form 10A

• Registration certificates/documents of the company/trust/society
• Copy of PAN card of the directors/trustees
• Copy of Aadhaar Card of the directors/trustees
• Digital signature of one of the directors/trustees
• By-laws, AOA, MOA copies
• Audit reports for the past three years
• Activity and Progress/Project Report for the past three years

The Finance Act 2020 introduced Section 12AB, replacing Section 12AA, dealing with fresh registration and re-registration of trusts and institutions. The Commissioner of Income Tax (Exemptions) evaluates the application for registration or renewal under specified conditions.

Section 80G: Tax Deductions for Donors

Section 80G of the Income Tax Act provides tax benefits for donations to specific funds or charities. Donations to eligible NGOs are tax-deductible, encouraging philanthropic activities.

Eligible Donations

• Donations must be made to institutions or funds approved by the Income Tax Department under Section 80G.
• Donors can claim deductions of up to 50% or 100% of the donated amount, depending on the recipient organization and Section 80G provisions.

Submission of Proof

Donors need to obtain a receipt from the NGO specifying the registration details under Section 80G. This receipt is required when filing income tax returns to claim the deduction.

Requirements for Section 80G

• Donations from non-taxable income are not eligible for a tax deduction.
• Donations must be made by cheque or electronic mode; cash, clothes, food, medications, and other items are excluded.
• Only companies can claim deductions for donations to the Indian Olympic Association.
• Only donations to legitimate and registered trusts qualify for tax deductions.
• Donations to foreign institutes or political parties are not eligible.

Documents Required for Section 80G Deductions

• Donor’s name
• Donor’s PAN
• Address
• Amount of donation
• Donation receipt
• Donation Certificate in Form 10B

Compliance Requirements for Registered NGOs

• File annual income tax returns and audited financial statements within the stipulated timeframe.
• Maintain proper books of accounts and records reflecting financial transactions and activities.
• Comply with regulatory guidelines and statutory provisions governing their operations, including fund utilization and reporting requirements.

Benefits of Tax Exemption for NGOs

• Allocate more funds toward charitable activities by being exempt from paying income tax on earnings.
• Enhance donor confidence and encourage contributions from individuals and organizations seeking tax benefits.
• Promote sustainability by reducing financial burdens and enabling focus on social objectives.

Relation Between Sections 12A and 80G

Section 12A deals with the registration of charitable trusts and institutions for income tax exemption. Section 80G deals with the approval of these entities for tax benefits to donors. Registration under Section 12A is a prerequisite for seeking approval under Section 80G. Both sections promote charitable activities and incentivize donations for social causes.

FAQs on Section 12A/80G Registration

1. Can an organization apply for both Section 12A and Section 80G registration simultaneously? Yes, but if applying separately, the application for registration under Section 12A must be submitted first. Registration under Section 12AB is mandatory for applying for Section 80G.
2. What is provisional 12A registration? It is a temporary registration that must be converted into permanent registration within six months before it expires or within six months from the commencement date. The organization must apply for regular approval under Section 10AB for five-year validity.
3. How long does it take to obtain Section 12A registration? The application should be submitted at least one month before the commencement of the previous year relevant to the assessment year for which registration is sought.
4. Can foreign donations be accepted by organizations with Section 12A/80G registration? Yes, subject to compliance with Foreign Contribution Regulation Act, 2010 (FCRA) regulations.
5. Can a revoked Section 12A/80G registration be reinstated? Yes, by submitting a fresh application under Section 12AB and fulfilling necessary requirements.
6. What types of donations qualify for the Section 80G deduction? Only donations to registered charitable institutions qualify. Cash donations are accepted up to INR 2000.
7. Are there any restrictions on the use of funds received by organizations with Section 12A/80G registration? Yes, funds must be utilized for charitable purposes as per the registration objectives. Misuse can lead to penalties and registration revocation.

Conclusion

To register entities like trusts, corporations, or institutions, Form 10A must be filed with the required documents and approved by the Commissioner of Income Tax (Exemptions). Income used for charitable or religious purposes is tax-exempt if Section 12A registration is granted. Section 80G allows donors to deduct contributions from taxes, provided they meet specific requirements and provide supporting documentation for registered NGOs. Compliance includes submitting annual tax returns and following guidelines. Tax exemptions increase donor confidence and available funds for charitable purposes. Sections 12A and 80G together promote charitable endeavors and incentivize donations for social causes.