Licencing & Registrations -80G / 12A Registration

Do you know what is 12A Registration ?

 

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. The purpose of the present article is to discuss the procedure for obtaining 12A registration.

Do you eligible 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.

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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.

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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.

 

Do you get any benefits from 12A ?

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• 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.

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• The income received will be free from the charge of Income Tax.

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• 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.

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• The accumulation of income which is considered to be the income application shall not be included in the assessee’s total income.

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• 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.

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• 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.

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• There is no requirement to renew the registration periodically. Hence, the registration benefits can be claimed NGO as and when the requirement arises.

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Annual Compliances for Sole proprietorship

 

• GST Compliance

• Income Tax Return filing

• TDS Returns

• Drafting Financial Statements

• Tax Audit compliance

• Accounting & book keeping

 

What are the documents do you need to submit ?

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• A self-certified copy of the instrument which was used to create the trust or establish the institution shall be submitted.

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• 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.

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• 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.

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• A self-certified copy of the documents which provide evidence for adoption or modification of the objectives of the entity shall be submitted.

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• Annual financial statements for three preceding financial years

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• Note on the activities conducted by the entity

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• 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.

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• 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.

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Do you know what is 80G?

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Contributions made to certain relief funds and charitable institutions can be claimed as a deduction under Section 80G of the Income Tax Act. All donations, however, are not eligible for deductions under section 80G. Only donations made to prescribed funds qualify as a deduction.

This deduction can be claimed by any taxpayer – individuals, company, firm or any other person.

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Do you eligible to apply for 80G?

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Not 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.

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1. 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.

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2. 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.

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3. 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.

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4. Proper Accounting: As mentioned earlier, the accounting books and all transactions should be kept as proof before applying for 80G. These documents will be scrutinised thoroughly before 80G certification is issued.
 

Do you get any benefits from 80G?

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The 80 G certification not only provides the donors with a tax exemption on the amount donated (depending upon the annual income of the donor), but also gives tax benefits to the non-profitable organisation.

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The institution can get an exemption of 10% for the gross income earned through donations and contributions. Moreover, the Income Tax Department has the power to approve or reject such approval upon disqualification of the non-profit organisation or dissatisfaction found by the department towards the NGO’s activities.

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Indeed, the primary role of 80G certification is to encourage donors to donate funds to the non-profit organisation. With the certification, donors can save reduce their tax liability by up to 10% for 50% of the amount donated.

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What are the documents do you need to submit ?

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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:

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1. Registration Certificate

2. MOA /Trust Deed

3. NOC from the proprietor of the land where the registered office is situated.

4. Copy of the Pan Card of the Trust/Institution.

5. Copy of electricity bill, house tax receipt, or water bill

6. Proof of welfare activities pursued

7. Progress Report since the foundation of the NGO or for the previous 3 years

8. The statement of accounts and balance sheet since the foundation/previous 3 years

9. List of contributors along with their address and PAN.

10. List of governing body of trustees with their contact details

11. Copy of registration granted under section 12A or copy of notification issued under section 10(23)or section 10(23C)

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Do you need to keep in mind any important information ?

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1. If a non-profit organisation is undertaking any business, it has to maintain a separate account and should not mix the donations they receive for a social cause.

2. Other than the charitable cause, the organisation or its bylaws should not represent any other cause. None of the donations can be spent toward anything but the charitable cause.

3. The organisation shall not be able to apply for 80G if it supports religion-based, caste- or creed-based activities.

4. The organisation should be registered under the Societies Registration Act, 1860, or registered under section 25 of the Companies Act, 1956.

However, the Income Tax Department has the power to approve or reject such approval upon disqualification of the non-profit organisation or dissatisfaction found by the department towards the non-profit organisation activities.

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For your information

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1. This deduction can only be claimed when the contribution has been made via a cheque or a draft or in cash. But the deduction is not allowed for donations made in cash exceeding Rs 10,000. In-kind contributions such as food, material, clothes, medicines etc. do not qualify for deduction under section 80G. 

2. From Financial Year 2017-18 onwards: Any donations made in cash exceeding Rs 2,000 will not be allowed as deduction. The donations above Rs 2,000 should be made in any mode other than cash to qualify as a deduction under section 80G.

3. Amount of Donation: The various donations specified in section 80G are eligible for a deduction of up to either 100% or 50% with or without restriction, as provided in section 80G.

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