NGO (Non-Government Organization) is established solely to serve non-profit humanitarian purpose in the form of Charitable Trust/Society/Section 8 Company and once such entity is formally registered it is approved of a bunch of tax exemptions, benefits, reliefs as well as provision of tax deductions for the donors. For that, 12A and 80G registrations are mandatory, otherwise, ANY income an NGO earns, like, service/production/donation, will be taken as normal taxable income without considering the purpose of such income. NGOs with 12A and 80G Certificates gets an upgraded commercial value than its counterparts without such certificates:
- Provision of Government Funding allowed ONLY to such NGOs
- A 12A registered NGO is permitted of utilising tax exempted income for its lifetime
- Being permitted of providing valid donation receipts (printed with 80G registration ID) allowed for tax exemptions, NGOs with 80G Certificate receives more donors
- 12A registration is compulsory part in getting 80G registration
- 12A and 80G registrations can be taken together or separately.
- Private/Family Trust NOT eligible for 12A Certificate
The charitable institutions are eligible for certain tax exemptions and benefits in India. The exemptions and benefits are dealt with under Sections 12A/12AA and 80G of the Income Tax Act, 1961. The institutions availing benefits under Section 12A and 80G had to revalidate their registrations under these two sections before August 2020 to continue to obtain the benefits.
The existing religious or charitable institutions or NGO’s had to re-apply to the Income Tax authorities for revalidation of the existing registrations. The charitable institutions cannot claim the benefits provided to them under 12A and 80G deductions without revalidation. This revalidation process focuses on whether the charitable activities of the institution or trust, or NGO are genuine or not.
The revalidation is necessary due to the changes made by way of amendment to the Finance Act, 2020, which mandates that the charitable institutions registered under Sections 12A/12AA and/or 80G of the Income Tax Act, 1961 are required to re-apply online for approval/registration by 31 August 2020. This amended provision came into force on 1 June 2020.
However, due to the COVID-19 situation, the CBDT (Central Board of Direct Taxes) deferred the start date to 1 October 2020, and the charitable institutions had to re-apply for registration by 31 December 2020. On the 26 of March 2021, the CBDT notified the Income-Tax (6th Amendment) Rules, 2021 that states the procedure for fresh registration and the list of documents required for organisations registered under Section 12A/12AA/80G.
The Income-Tax (6th Amendment) Rules, 2021, came into force on 1 April 2021. Thus, the institutions and trusts with existing registrations under Section 12A/12AA or/and 80G should file the application for fresh registration within three months from 1 April 2021, i.e. before 30 June 2021, as per the Income-Tax (6th Amendment) Rules, 2021.
Section 80G of the Income Tax Act, 1961
Registration of trust or charitable institutions under Section 80G does not provide any direct benefits to them. The trust or charitable institutions register themselves under Section 80G to enable the donors who contribute to them to avail certain tax benefits on their contributions.
The registration under section 80G of charitable institutions is to incentivise their donors to make contributions. However, only the NGOs that have registered under both Section 12A and 80G are eligible for availing of government funding.
Section 12A of the Income Tax Act, 1961
Registration of trust or charitable institutions under section 12A/12AA certifies that the Income Tax authorities recognise the registered institution or trust as having been incorporated or established for a charitable purpose.
The effect of such recognition is that the respective institutions are exempted from paying income tax, subject to the satisfaction of certain other compliance requirements as per law.
Section 12A deals with institutions and trusts registered before 1996, and Section 12AA deals with institutions and trusts registered after 1996. The NGO’s have to obtain a 12A certification to avail tax benefits, regardless of whether they are constituted as a society, trust or not-for-profit company.
Benefits of 12A And 80G Registration
- More capital allowed for charitable activities through tax exemption over NGO income.
- Funds and Grants are permitted from recognized Agencies, Government and International sources.
- ONLY 12A and 80G registered NGOs are permitted to accept International funding with exemptions available under Foreign Regulation Act, 2010 or FCRA.
- Attracts more donors expanding the scope of fulfilling the NGO objectives.
- More operational exposure and status value when the NGO is registered and obtains 12A and 80G registration.
- Both 12A and 80G are one-time registrations and valid for an NGO’s lifetime.
Procedure of Revalidation Under Section 12A and 80G
In order to claim exemption, a charitable or religious trust or institution, including an NGO, should make an application to the Principal Commissioner of Income Tax or Commissioner of Income Tax online in Form 10A. The procedure of applying for revalidation/registration are mentioned below:
- Log in to the E-filing portal of the IT department.
- Go to the ‘Income Tax Forms’ under the e-File tab.
- Choose the Form Name as ‘Form 10A’ and select the relevant Assessment Year from the drop-down list.
- Choose the ‘Prepare and Submit Online’ option in the submission mode.
- Fill in all the details required in the form and attach the applicable attachments.
- Submit the form using EVC (Electronic Verification Code) or Digital Signatures as required during return filing.
The NGO’s applying for registration/revalidation as per the amended provisions of Section 80G are mandatorily required to provide the details of their Registration number with the DARPAN portal of Niti Aayog.
The registration under Section 12A and 80G are also mandatory when the organisations intend to receive or receive any grant or assistance from the Central Government or State Government.
Eligibility for 12A and 80G Registrations
- NGOs working as Public Charitable Trust or u/s 25 of the Companies Act, 1956 working ONLY for the public welfare are allowed for this provision.
- Donation as permitted u/s 80G is allowed for tax exemption
- NGO assets should ONLY be used for charitable purposes.
- NGOs should correctly maintain Books of Account of its expenditures and receipts.
Documents Required for Revalidation
The following are the documents that need to be submitted while applying for revalidation:
- Self-certified copy of the incorporation document of Societies/Trust
- Self-certified copy of the registration with the Registrar of Companies or Registrar of Societies or Registrar of Firms or Registrar of Public Trusts, as the case may be
- Self-certified copy of registration under the FCRA [Foreign Contribution (Regulation) Act], 2010, if the applicant is registered under the respective Act.
- Self-certified copy of the existing order of registration under section 12A/12AA/12AB, as the case may be
- Copies of the annual accounts for a period not exceeding three years immediately prior to the year in which the application is made, in the case of existing entities
- Where the income of the organisation includes the profits and gains of business or where a business undertaking is held by the organisation under the provisions of Section 11(4A), copies of the annual accounts and audit report under Section 44AB for three years immediately prior to the year in which the application is made
- Self-certified copy of the documents showing/evidencing modification or adoption of the objects
- Notes on the activities of the trust or institution
- The details of the DARPAN registration, if the organisation is registered on the DARPAN portal
NGO 80G registration can be cancelled in these cases:
- If NGO runs the promotion/benefit of religion/community/caste.
- If NGO receives funds/gifts from Political Parties/International sources.
- In case, NGO works as a commercial profit based unit.
- NO NGO member is permitted for making commercial profit based earning under NGO’s operational activities. In case, such income is received, it should be separated from NGO income. There should be separate Books of Accounts for such income.
- ANY misuse of the 80G provisions can result in the cancellation of this certificate
Issuance of Certificate of Revalidated Registration
After 1 April 2021, upon filing the application for revalidation, an order granting the revalidated registration is passed within three months. The revalidated registration under section 12A and/or 80G is valid for a period of five years, after which it needs to be revalidated again. The re-application after five years has to be made at least six months before the expiry of the validity period of the registration.
After receiving the revalidation application under 10A, the Principal Commissioner of Income Tax (PCIT) or Commissioner of Income Tax (CIT) will pass an order of granting approval in writing in Form No.10AC and issue a 16 digit Unique Registration Number (URN) to the applicants.
The PCIT/ CIT may reject the application after giving an opportunity of being heard or demand further documents from the applicant if needed. The rejection order is also passed in Form No.10AC.
The applicants must submit the application for renewal after the initial five years of registration in Form No.10AB. Upon receiving the application under Form No.10AB, the PCIT/CIT will make the order of registration or cancellation of registration or rejection in Form No.10AD.
The PCIT/CIT is entitled to demand from the applicant further documents to satisfy the genuineness of the activities of the institution or trust and the compliance of the requirements under any other law for the time being in force by the institution or trust that are material to achieve its objects.
FAQs
Q: How is the 12A certificate different from the 80G certificate?
The 12A certificate provides tax exemption to the charitable organization itself, while the 80G certificate benefits the donors by allowing them to claim deductions on their donations.
Q: Who is eligible to apply for a 12A certificate?
Charitable trusts, religious institutions, and other similar entities engaged in charitable activities are eligible to apply for a 12A certificate.
Q: How long is the validity of 80G and 12A certificates?
These certificates are issued with a perpetual validity. However, the tax authorities may review the eligibility of the organization from time to time.
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