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For nonprofits and charitable organizations in India, obtaining 12AB and 80G registrations is instrumental in their journey to make a positive impact on society. These registrations not only confer tax benefits to donors but also provide credibility and transparency to the organizations. This guide navigates through the significance, process, and key considerations associated with obtaining 12AB and 80G registrations.
Non-Profit Organizations play a vital role in India’s social and economic development. However, they do not have a stable source of income to generate their own revenues. They are majorly dependent on grants, donations, and other forms of unconditional contributions.
These contributions help them sustain their operations and achieve their objectives promptly. 12A and 80G Registrations are means by which the Government seeks to encourage such contributions to non-profit organizations. Let’s understand how!
Section 12A of the Income Tax Act contains the provisions determining applicability of Sections 11 and 12 on NGOs. Section 11 excludes certain kinds of income from the total taxable income in the previous financial year. Section 12 further clarifies that such income includes any voluntary contributions received as grants and donations for charitable and religious purposes.
Section 80G (1) allows certain kinds of contributions to be exempted while computing the total taxable income of an assessee. Clause (2) enlists all such contributions in detail. It includes any funds transferred to a non-profit entity which has taken the 12A Registration. The non-profit entity must be registered in India, and funds transferred must be solely used for charitable and religious purposes.
12 A Registration is applicable to trusts or institutions established wholly for charitable or religious purposes only. Charitable purposes are defined under Section 2(15) of the Income Tax Act as relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife), preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility. The organisation's activities must be directed towards these purposes.
The organisation must be engaged in activities that fulfil its charitable objectives. These activities should not be aimed at generating profits for the benefit of any particular individual or group.
The organisation should be registered as a trust or a society under the appropriate laws. Alternatively, if it is a Section 8 company, it must be constituted under the Companies Act, 2013. Proof of their constitution needs to be submitted as part of the application for 12A registration.
The organisation should not apply its income or assets, directly or indirectly, for the benefit of its members or any other specific individuals. The income should be utilised solely for charitable or religious purposes.
The organisation is required to maintain proper books of accounts and other relevant documents to reflect its income, expenses, and activities.
The organisation must file its annual income tax returns under section 139 of the income tax act in a timely manner, even if it's eligible for exemption. This is necessary to maintain its tax-exempt status.
The organisation should not engage in any political activities or support any political party or candidate. Engaging in political activities can lead to the cancellation of Section 12A registration. Section 80G provides for the registration of charitable or religious non-profit organisations, allowing their donors to claim tax exemptions on their donations made to such organisations.Here are the key conditions that need to be fulfilled for obtaining Section 80G registration:
80G Registration is only applicable to non-profit organisations like registered trusts, societies, and section 8 companies established for charitable or religious purposes. These purposes must be adhered to the public and not to any private individual or group of individuals. Refer to the meaning of Charitable purposes under Section 2(15).
The income of organisations seeking 80G registration must be tax exempted under Sections 11 and 12 of the Income Tax Act. For this the organisation must possess the 12A registration certificate.
The constitution or governing rules of the institution or fund should explicitly restrict the use of its income and assets. This restriction ensures that the funds generated through charitable activities are dedicated solely to those activities.
For an institution to be eligible for Section 80G registration, it should not be established solely for the benefit of a particular religious community or caste. This condition is in place to ensure that the benefits of charitable activities are spread across a broader spectrum of society, rather than being limited to a specific group.
Organisations seeking 80G registration are required to maintain proper and regular accounts of their financial transactions. This practice is fundamental to demonstrating transparency and accountability in the use of funds. By maintaining comprehensive records of income received and expenditures incurred, the organisation provides a clear overview of its financial activities.
As per the new changes introduced under Finance Acts of 2020 and 2021, Form 10A is now the primary application form for obtaining registrations under Sections 12A and 80G of the Income Tax Act. We have explained the new and updated 12A and 80G registration process online in the step wise guide below. If you face any difficulty in understanding, avail a free consultation from our experts.
Note: Older provisions for Registration under Section 12AA have been replaced by newer provisions under Section 12AB. So, every NGO previously registered under Section 12A, Section 12AA, and Section 80G will have to re-register under Section 12AB of the Act, effective from April 1, 2021.
To begin, decide on the legal framework for your NGO, choosing between a trust, society, or Section 8 company based on your state’s laws. Once you’ve determined the legal structure, formally register your organisation with the relevant authority, whether it’s the Registrar of Societies, Registrar of Companies, or other appropriate governing body.
Collect essential documents that will be needed for filing the 12A and 80G registration applications in form 10A. These documents generally include your organisation’s registration certificate, MOA / Bye Laws / Trust Deed, audited financial statements, FCRA Registration, NGO Darpan ID, and so on. These documents will serve as supporting evidence of your NGO’s existence and legitimacy.
Complete Form 10A, the official application form for seeking registration under Section 12A & 80G of the Income Tax Act. This form can be obtained from the Income Tax Department’s official website or the local Income Tax office. Ensure accurate and comprehensive details while filling out the form, including information about your organisation’s objectives, activities, and governing body members.
Submit the duly filled Form 10A along with the necessary documents to the Office of the Income Tax Commissioner or on the Income Tax Website. This submission marks the formal initiation of your 12A/80G registration process. Keep copies of all submitted documents for your records.
Upon receiving your application, the tax authority will review its contents to verify that your NGO aligns with the conditions for Section 12A/80G registrations. In some instances, they may conduct an inspection of your organisation’s activities and financial records to ensure compliance and authenticity.
Depending on the review and inspection outcomes, one of two scenarios will occur. If your application meets the requirements and passes scrutiny, the tax authority will grant your NGO registration under Section 12A/80G. On the other hand, if issues or discrepancies arise, your application could be rejected. In this case, you’ll have the opportunity to address concerns and respond accordingly.
Upon successful registration, you will receive an official registration certificate from the tax authority. This certificate confirms your NGO’s eligibility for tax exemption under Section 12A / 80G of the Income Tax Act. It’s a crucial document that establishes your organisation’s legal standing and allows you to avail of tax exemptions for your NGO as well as its donors.