Tax benefits for the NGO

Section 12AB and Section 80G

Charitable purposes include relief of the poor, education, medical relief, preservation of the environment and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility. The tax norms in India have always been such for Charitable Institutions that provide certain kinds of exemptions under Section 80G and Section 12AB the Income Tax Act.

What is Section 12AB?

Earlier the registration done by an NGO to get an organization income exempted from tax was done under Section 12AA. All income shall not be taxable after Section 12A Registration. If an NGO does not get 12A Registration, income tax is payable on surplus during the year.

According to the new Compliance with regards to section 12A and section 12AA, All NGOs presently having exemption u/s 12AA of the IT Act shall have to reapply for the same by 31st March, 2022 (As extended). and shall have to obtain new registration under Section 12AB.

Terms and Conditions for Section 12AB Registration

• All the existing registered trusts under the section 12A or section 12AA would move to new provision section 12AB.

• Newly established trusts and institutions applying to income tax for registration for the very first time will be given provisional registration for three years.

• The provisional registration will be valid for three years.

• Prior to 6 months from the completion of three years provisional registration, an application for renewal of provisional registration or rather registration has to be made.

• All the registrations under Section 12A or 12AA once done, will be required to renew their registration at the interval of every 5 years.

• After processing your application, your trust or institution’s registration under section 12AA and 80G may be re-validated by income tax for a period of 5 years.

Benefits of Section 12AB Registration

• Income will be exempted from taxation.

• Benefits in taking grants from government / abroad / other agencies.

• Benefits in FCRA registration.

Documents required for Section 12AB Registration

• Company / Trust / Society registration certificates / registration documents

• 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 of this company, AOA, MOA copies

• Audit reports for all financial years since incorporation

• Audited Financials for all financial years since incorporation

What is Section 80G?

80G Registration under Section 80G of Income Tax Act provides benefits to the donor of an NGO. The donor gets financial benefits in his taxable amount of their income.

Conditions to be fulfilled for Section 80G(5) Registration

• The NGO should not have any income which are not exempted, such as business income. If, the NGO has business income then it should maintain separate books of accounts and should not divert donations received for the purpose of such business.

• The bylaws or objectives of the NGOs should not contain any provision for spending the income or assets of the NGO for purposes other than charitable purposes.

• The NGO shall not work for the benefit of particular religious community or caste.

• The NGO shall maintain regular accounts of its receipts & expenditures.

• Donor-wise details to be maintained and all donors will have to be given a certificate.

• Tax deductions under section 80G will not be available to donors who opt for reduced rate of tax.

Benefits of Section 80G(5) Registration

• Registration under section 80G(5) of the Income Tax Act provides benefits to NGOs.

• If NGO has 80G(5) certificate with them, donor gets financial benefit in his/her taxable amount of their income.

• If an NGO gets itself registered under section 80G(5) then the person or the organization making a donation to the NGO will get a deduction of 50% from his/its taxable income.

• By availing 80G(5) Certificate, NGO can attract more donors.

Documents required for Section 12AB Registration

• Company / Trust / Society registration certificate

• Bye laws of this company, AOA, MOA copies

• Details of activities since its incorporation

• Digital signature of one of the directors/trustees

• Audit reports for all financial years since incorporation

• Audited Financials for all financial years since incorporation

• Section 12AB Certificate