MEANING OF REGISTRATION UNDER SECTION 12A & 80G
12A and 80G are the two registrations granted by Income Tax Department to NGOs to allow them in Tax Exemption and permitting Deduction on Donations by the donors. A 12A and 80G registered NGO is more acceptable to receive prosperous funding and various tax reliefs.
12A Registration is the most initial step NGO’s need to follow to seek a Certificate of Exemption from Income Tax Department. Companies registered under Section 12A doesn’t need to pay income tax as they are exempted from it.Furthermore, 12A Certificate helps you to seek permission from the government and the organizations abroad as 12A Registration acts as a legitimate proof of your NGO’s existence.12A registration is a one-time registration which is granted by the Income Tax Department to trusts and other not for profit organisations. The purpose of the registration is to be exempted from the payment of income tax. 12A registration is generally applied for immediately after incorporation. Section 8 Companies, Trusts and NGOs which have obtained 12A registration enjoy exemption from paying income tax on their surplus income. The 12A registration facility is available for all non-profit entities. Hence, it is necessary for all Trusts, NGOs and other Not-for-Profit organisations to be aware of Section 12A of the Income Tax Act.
Procedure for registration u/s 12A
- The Principal Commissioner or Commissioner, on receipt of an application for registration of a trust or institution shall
- Call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about
- The genuineness of activities of the trust or institution.
- The compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects and may also make such inquiries as he may deem necessary in this behalf
- After satisfying himself about the objects of the trust or institution and the genuineness of its activities and compliance of the requirements he
- Shall pass an order in writing registering the trust or institution
- Shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution and a copy of such order shall be sent to the applicant Please note that no order shall be passed unless the applicant has been given a reasonable opportunity of being heard.
Eligibility for 12A Registration
- In order to qualify for registration under Section 12A, the organisation should meet the definition of charitable purpose as defined in the Income Tax Act. Charitable purpose means relief to the poor, education, medical relief and activities undertaken with the objective of preserving the environment. The pursuit of any other objective of a public utility will also qualify for a charitable purpose.
- The primary qualifying criterion will be to check whether there is any profit motive involved in the activities carried on by the assessee. In the absence of a profit motive, registration shall be granted.
- If the assessee is carrying on activities related to trade or commerce, then the facility granted under this section is restricted. In such cases, registration is granted exclusively if the receipts from the trade activity are less than twenty per cent of the total receipts of the assessee.
- Also, it may be noted that 12A Registration is not applicable for Private or Family Trusts. The activities of the assessee should be genuinely for the benefit of the public.
Form 10A is a form which should be filed by entities which wish to nake a registration under Section 12A. The process for applying for Section 12A registration and the process of Form 10A filing has been made exclusively online. The process of making online filing is possible only with a digital signature. For making an application under Section 12A, the digital signature of the founder or author of the trust should be affixed. To obtain registration under Section 12A, an application in Form 10A for registration of a charitable or religious trust or institution can be made. The application should compulsorily be made in the online mode. The application shall be addressed to the Commissioner of Income Tax along with the necessary documents.
Documents Required for 12A Registration
- A self-certified copy of the instrument which was used to create the trust or establish the institution shall be submitted.
- The institution or trust may have been created otherwise than by way of drafting and registering an instrument. In such cases, a self-certified copy of the document evidencing the creation of the trust, or establishment of the institution should be submitted to the Income Tax Department.
- It is necessary to submit a self-certified copy of the registration, which was made with the applicable body. The applicable body may be the Registrar of Companies, the Registrar of Firms and Societies or Registrar of Public Trusts.
- A self-certified copy of the documents which provide evidence for adoption or modification of the objectives of the entity shall be submitted.
- Annual financial statements for three preceding financial years
- Note on the activities conducted by the entity
- In certain cases, the Income Tax department may cancel the registration granted under this section. After rectifying the default, the assessee is allowed to make a subsequent application. In such cases, it is necessary to submit a self-certified copy of the existing order granting registration.
- The assessee may have previously applied for registration under this section. The application may have been rejected. In such cases, a self-certified copy of the order of rejection should be attached with the application.
Benefits of 12A Registration
- The fund used for charitable or religious purposes is considered to be the application of the income. The income application refers to the expenses used for charitable or religious purposes for calculating the taxable income of the not-for-profit organisation.
- The income received will be free from the charge of Income Tax.
- The person who is registered under Section 12A can avail benefits for accumulating or setting aside income. However, the income which is set aside should not be more than 15% of the amount applied towards charitable or other non-commercial purposes.
- The accumulation of income which is considered to be the income application shall not be included in the assessee’s total income.
- NGOs are entitled to receive grants as funds from domestic and international sources. These agencies are entitled to provide grants to NGOs which have obtained registration under this section.
- The registration which is granted under Section 12A shall be treated as a one-time registration. Once the registration is made, the registration will be active until the date of cancellation.
- There is no requirement to renew the registration periodically. Hence, the registration benefits can be claimed NGO as and when the requirement arises.
80G Certificate is issued under Income Tax Act, 1961 to NGO’s by Income Tax Department. The primary objective behind the grant of 80G Registration is to motivate more donors to the organizations for donating funds. Furthermore, the donors receive a 50% tax exemption on his total taxable income. To avail this exemption, the donor must attach the stamped receipt against the donation issued by the NGO. 80G is a certificate that exempts you part or fully from paying taxes, if you have made donations to charitable trusts or section 8 company or organizations that are registered to offer you exemptions from taxes. For e.g. A charitable organization or trust registered under section 12 A, allows you to avail tax exemption under section 80G. There is however a maximum allowable deduction criteria. The criterion is if the aggregate of the amount you donate exceeds 10% of the total gross income, then the excess amount will not qualify for tax benefit. 80G certificates made its way into law book in the year 1967-68 and it continues to be an important tax saving certificate.
Procedure for 80G Registration
If an NGO gets itself registered under section 80G then the person or the organisation making a donation to the NGO will get a deduction of 50% from his/its taxable income.
Earlier registration under 80G was given as one-time registration unless any specific restrictions are provided in the registration certificate itself but Finance Act 2020 has made some substantial changes in registration process and period for which approval will be given.
Documents for 80G Registration
Registration under this section will be processed by the Commissioner of Income Tax after receiving an application from the applicant in Form 10G. The application should be accompanied by the following documents:
- Registration Certificate
- MOA /Trust Deed
- NOC from the proprietor of the land where the registered office is situated.
- Copy of the Pan Card of the Trust/Institution.
- Copy of electricity bill, house tax receipt, or water bill
- Proof of welfare activities pursued
- Progress Report since the foundation of the NGO or for the previous 3 years
- The statement of accounts and balance sheet since the foundation/previous 3 years
- List of contributors along with their address and PAN.
- List of governing body of trustees with their contact details
- Copy of registration granted under section 12A or copy of notification issued under section 10(23)or section 10(23C)
Eligibility for 80G Certification
All NGOs or trusts are eligible for 80G certification. There are certain rules which need to be followed to obtain it. Here are the details under which the government can reject your claim for an 80G certification.
- Separation of Business & Charity: As a non-profit organisation, if the entity is involved in any business/financial transactions which do not account for donations alone, you might have to segregate it. If not, your 80G certification request will be rejected.
- No Misuse: The donations received so far, towards the cause should not be misused on any account or used for any other purpose, even within the organisation. A strict accounting is essential to show as proof.
- No Religious Activity: Any NGO/Trust, which is operated as a part of an activity which involves religious preaching, or for a particular caste or creed is not eligible for 80G certification.