According to the Income Tax Act of 1961, there are some organisations that are eligible for tax exemptions. Tax exemptions are made available to organisations that do not operate for profit, such as Section 8 businesses, charitable trusts, and NGOs. Institutions formed in India that are not operating for profit are eligible for such exemptions under Sections 12A and 80G of the Income Tax Act, 1961. To be eligible for the exemptions, these organisations must register under Sections 12A and 80G and obtain certificates thereunder; otherwise, they will not be able to take use of the numerous advantages that would otherwise be provided after receiving these certificates.The institution must register as an NGO under the Income Tax Act by submitting Form 10A before it may apply for certificates under the aforementioned sections; only then will it be able to request tax exemptions.
Section 12A Registration
Organizations working without a profit, such as NGOs, charity trusts, religious organisations, and Section 8 corporations, must register under Section 12A. Some organisations are qualified to receive tax exemptions on their surplus revenue after being properly registered under 12A. The certificate of an exemption received under certain circumstances has lifetime validity and requires only one registration. It is advised that NGOs and other non-profit organisations register under this section as soon as they are established in order to take advantage of the advantageous tax breaks.
Documents required to obtain Section 12A registration
- Documents attesting to the trust’s or organization’s formation (trust deed or any other instrument, certificate of incorporation, copies of MOA and AOA for Section 8 companies, MOA and registration certificate for societies)
- a copy of the organization’s PAN
- Form 10A
- The last three years’ worth of annual accounts, if the organisation is a trust
Section 80G Registration
Section 80G Organizations that operate without a profit, such as NGOs, charity trusts, religious organisations, and Section 8 corporations, are granted registration under the Income Tax Act of 1961. This certificate’s main objective is to motivate donors to make gifts. Donors who make these donations are eligible to receive tax breaks. To qualify for the exemption, all they need to do is include the gift receipt, which should include the donor’s name, the date of the donation, and the organization’s PAN.
Documents required to obtain Section 80G registration
- Documents attesting to the trust’s or organization’s formation (trust deed or any other instrument, certificate of incorporation, copies of MOA and AOA for Section 8 companies, MOA and registration certificate for societies)
- a copy of the organization’s PAN
- Form 10G
- NOC from the property’s owner, where the registered office is located
- a copy of the organization’s utility bills
- a list of donors together with their PAN and address information
- documents pertaining to income tax returns and the book of accounts
- Information on the organization’s recent three-year welfare activities
Benefits Of 12A Registration
- Tax Exemption: One of the main benefits of 12A registration is that it allows NGOs to claim tax exemption on their income. Once an NGO is registered under 12A, it becomes eligible for tax exemptions on donations received and income earned.
- Easy Fundraising: 12A registration also makes it easier for NGOs to fundraise as it assures donors that their contributions are tax-exempt. This can help NGOs to attract more donations and raise more funds for their charitable activities.
- Legitimacy: 12A registration gives NGOs a legal status and legitimacy in the eyes of the law. This can help NGOs to build trust and credibility with donors, government bodies, and other stakeholders.
- Access to Government Funding: Registered NGOs may also be eligible for government funding and grants, which can help them to expand their reach and impact.
- Recognition: 12A registration can also help NGOs to gain recognition and visibility in their field of work, which can help them to attract more support and partnerships.
Overall, obtaining 12A registration can help NGOs to achieve their objectives more effectively by providing them with tax exemptions, legitimacy, funding opportunities, and recognition.
Benefits Of 80G Registration
- Tax benefits: One of the main benefits of 80G registration is that donors can claim tax deductions for their donations to the registered organization. The amount of deduction varies based on the nature of the donation and the donor’s income tax slab.
- Attract more donors: Organizations with 80G registration are more likely to attract donors as they are eligible for tax benefits on their donations. This can help organizations raise more funds for their charitable activities.
- Credibility: 80G registration provides credibility to the registered organization as it shows that the organization is recognized by the Income Tax Department and meets certain standards. This can help in building trust with donors, partners and stakeholders.
- Eligibility for government grants: Organizations with 80G registration are eligible to receive grants from the government and other funding agencies. This can help in expanding the scope of their activities and increasing their impact.
- Exemption from paying taxes: Organizations with 80G registration are exempt from paying taxes on any income they receive from their charitable activities. This can help in reducing the financial burden on the organization and allowing them to focus on their charitable work.
Overall, 80G registration can provide significant benefits to non-profit organizations in India, including tax benefits, increased credibility, and eligibility for government grants.
New Standards for Charity Institutions: Section 80G and 12A/12AA Exemptions
The advancement of any other item of general public use is also considered to be a charitable aim, along with the provision of aid for the underprivileged in the areas of education, healthcare, environmental protection, and the preservation of important landmarks and locations. Charity institutions that offer specific types of exemptions under Sections 80G and 12A of the Income Tax Act have always been subject to tax laws in India.
comparison table of the current scenario and new scenario for exemptions under Section 80G and Section 12A in India
| Scenario | Current | New |
|---|---|---|
| Section 80G | Allows for tax deductions on | To be replaced with Section |
| donations made to eligible | 80G(5) which will allow for | |
| charitable organizations | pre-approval of eligible | |
| organizations for tax deductions | ||
| Section 12A | Provides exemption from income | To be replaced with Section |
| tax for eligible charitable | 12AB which will require | |
| organizations | mandatory registration and | |
| revalidation every 5 years | ||
| Eligibility criteria | Eligibility criteria for both | Eligibility criteria for both |
| remain largely the same | remain largely the same | |
| Impact on donors | Donors can claim tax deductions | Donors can claim tax deductions |
| on donations made to eligible | on donations made to eligible | |
| organizations | organizations | |
| Impact on charitable organizations | Eligible organizations will | Eligible organizations will |
| continue to receive tax benefits | continue to receive tax benefits | |
| and exemptions from income tax | and exemptions from income tax | |
| but will need to comply with | ||
| mandatory registration and | ||
| revalidation requirements |
In summary, the new scenario will involve the replacement of Section 80G with Section 80G(5) and Section 12A with Section 12AB. While the eligibility criteria for both exemptions will largely remain the same, eligible organizations will now be required to comply with mandatory registration and revalidation requirements every 5 years under the new Section 12AB. However, donors will still be able to claim tax deductions on their donations to eligible organizations under the new Section 80G(5).
