NGO

Own an NGO? Here’s How to Claim Tax Exemption for NGO

calendar25 Jan, 2024
timeReading Time: 9 Minutes
Own an NGO Here's How to Claim Tax Exemption for NGO

Non-Proft Organizations in India can be registered as Trust, Society, or Section 8 companies as per the Companies Act, 2013 and can also get income tax exemption for NGO. Non-profit organizations are set up by an individual or company to further charitable work in the fields of education, healthcare, food and Medicare, skill development, women empowerment, etc. NGOs. 12A registration under the Income Tax Act of 1961 allows NGOs and Trusts to avail of tax exemption for NGO on the income earned during the financial year. This is a one-time registration valid for a lifetime; however, after 2021, the validity of this registration has been reduced to 5 years, post which it has to be renewed.

What is an NGO or Trust?

An NGO or trust is a privately owned or government-affiliated entity that does not have the motive to earn monetary profits but promotes social welfare, empowerment, and charitable purpose. They carry out their activities in the fields of education, women empowerment, science and technology, arts, religious customaries, food and essential distributions, rehabilitation and reformation, etc.It can be formed by an individual, group, individuals, community, volunteers, activists or social workers. NGOs can also be formed as charitable trusts in India, which are governed by the Trusts Act of 1882.These organizations are not part of the Government structure and instead have a separate legal status under the Societies Registration Act, 1860. Based on the regulating statute or law or regulatory authority, NGOs and charitable organizations in India can be subdivided into several categories, such as – Registered Societies, Trusts, Cooperatives, Nidhi Companies, Section 8 Companies, Self-Regulatory Bodies, etc. These not-for-profit organizations enjoy sizeable monetary benefits for the governments and are eligible for tax rebates and concessions on contributions, investments, and donations, making them a lucrative business choice for several entities and big corporations looking to maximise tax planning and avail tax exemption in NGO businesses.

How to Register an NGO In India

In order to register an NGO in India, it is important to first ascertain the type of business structure or entity that shall be selected for setting up a non-profit organisation in India.  Out of the available options of Society, Trust, Cooperative Society, or Section 8 Company, the most suitable entity has to be selected, keeping in mind the purpose and objective of the Organization. After selecting an appropriate name and structure for the NGO, the charter documents of the company, such as trust deed, MOA, AOA,and trust deed. In the case of a trust, the Trustee and the Beneficiary should be identified, and all the relevant documents should be drafted and duly registered. After submitting the documents to the local registry or Registrar of Companies, the requisite registration fees should be paid. After the payment of requisite fees and submission of documents, the Registry examines and scrutinises the documents. After verification, the application is completed, and a certificate of incorporation of an NGO, Trust, or Society is granted.

How to Claim Income Tax Exemption for NGO

Section 11 of the Income Tax Act, 1961 provides for income tax exemption for NGO, trusts, and charitable and religious organisations. In order to avail Tax Exemption for NGO, the entity must register under Section 12A of the Income Tax Act. NGOs and charitable trusts work for the welfare of society without any profit motive. If any Not-for-profit organisation has been established or is found to be indulging in profitable activities, it is not eligible for a tax rebate. Similarly, if an NGO is run or funded by a family or private trust, it shall not be eligible for exemption under s. 12A and 80G of the Act.  Under the tax regime of the Union Budget 2020, the government proposed amending Sections 10(23C),11,12A, 12AA, and 80 G of the Income Tax Act, 1961. The said budget also introduced several new changes and conditions of Income Tax Exemption for NGO, including digitization of the process for Registration of NGO., migration of existing registrations to the new regime, the validity of registrations, etc.

Types of Charitable Organisations

Based on the controlling regulation, type, nature, and objective, the types of charitable organisations in India are divided into three broad categories –

Section 8 Companies

Section 8 Companies are regulated by the Companies Act, 2013 and are set up for the purpose of promoting sports, commerce, arts, industry, social welfare, science, religion, and the environment. The benefit of incorporating an NGO or charitable organization as a Section 8 company is that it holds more credibility and recognition from the Government. Also, section 8 companies make it easier to receive investments, donations, and contributions from investors and donors. In order to incorporate an NGO in the form of an NGO, there is a requirement to have at least two directors.

Cooperative Societies

Cooperative societies are established and regulated by the Societies Registration Act, 1860. It is a form of organisation made by individuals united for the furtherance of a common cause or purpose of social welfare and community building. The purpose of cooperative societies is to promote arts, commerce, science, music, industry, religion, and environmental protection.

Trust

Trusts are privately owned funds and organisations that are created for the purpose of community development or funding a social welfare cause, such as schools, colleges, hospitals, or clinics. These are regulated by the Indian Trusts Act, 1882. Trusts are formed by a person known as a “trustor”, who transfers an amount to the trust for the benefit of a beneficiary, whereby the trust is controlled or managed by a trustee. Trusts can be private or public. Trusts meant for private purposes or for the benefit of a practical person or entity cannot claim Tax Exemption for NGO.

Documents Required for 12A Registration

  1. In order to avail tax exemption on NGO income, the following documents are required for 12A registration that are to be submitted by the applicant entity to the Commissioner of Income Tax (CIT) – Certified and self-attested copies of the instruments that were used to incorporate the company, society or trust.
  2. Charter Documents of the Company, such as Certificate of Incorporation, MOA, AOA, and Trust deed, duly signed by the Director or Trustee.
  3. GSTIN, CIN, and DIN of the company, trust or society.
  4. Form 10A, in case 12A registration, and 10G in case of 80G registration required for the purpose of income tax exemption for NGO.
  5. Books of accounts, financial statements and bank statements of the company for the past three years.
  6. Address proof and ownership proof of the organization.
  7. List of contributors, donors, and investors in the organizations along with details of charitable activities taken up by the company, trust of society in the past.

Form 10A

Form 10A is the application form in which the applicant is required to make essential disclosures and provide information about the company/trust/society, directors or trustors,  charter documents of the company/trust, details about the activities, assets and liabilities, contributions and donations, and income. For the purpose of filling Form 10A, the following documents are required to be attached to Form 10A while making submission to the CIT-

  • Certificate of incorporation of company/trust/society
  • Trust deed, AOA, MOA,CIN, DIN
  • Digital Signature of the trustee or director of the company
  • ID details, PAN card, AADHAR card of the directors and trustees
  • PAN card and GSTIN details of the organisation
  • Previous certificate of registration under sections 80G, 12A and 12AA
  • Financial statement of the Company/trust, including annual balance sheets, expenditure proof, book of records, etc, of the past three years.

Benefits of Making 12A Registration

NGOs and charitable organisations are provided a lot of rebates and concessions by the Government. Income Tax Act, 1961 has laid down several provisions under sections 80G, 11, and 12, which provide exceptions on the income of NGOS and trusts meant for charitable organisations. There are a variety of benefits of making 12A Registration, such as –

  • The NGO can use the funds received for religious or charitable purposes without any application of tax by the Government.
  • The income earned by such an organisation is exempted from income tax by the Income Tax Department and NGOs can claim tax exemption for NGO.
  • NGOs are entitled to receive donations and contributions from both domestic and international sources, albeit the same has to be in accordance with the Foreign Exchange Management Act, 1999, and the Foreign Contributions Regulation Act,2010
  • The NGO or charitable organisations receive credibility and recognition as the 12A registration makes the originations eligible for a variety of grants, Government aid, and funding.

Process of 12A Registration

The process of 12A registration for NGO is mentioned below:-

  • The director or trustee shall make an application in form 10A and submit the requisite documents to the Principal Commissioner or Commissioner of Income Tax. The application can be made online as well.
  • The Commissioner examines the applications and satisfies itself with the facts and details stated therein. If the examiner is satisfied with the documents, it issues a written order to the applicant, which allows the applicant to obtain a this registration.
  • If the Commissioner is not satisfied, however, they can reject the application or send it back for rectification.
  • After receiving approval from the CIT, the applicant can obtain Income Tax Exemption for NGO as per section 12A and 80G.
  • Once received, this registration remains valid for a period of 3 years in case of provisional registration and five years in case of permanent registration. Post-expiry of the registration, the same has to be renewed by making a fresh application six months before the date of expiry for tax exemption for NGO.

Registration Services Provided by Corpbiz

12A registration allows Not-for-profit organizations to avail tax exemption for NGO on the donations it received and income earned. It is a very effective instrument for tax planning as well as tax savings for corporations that have surplus income or receive donations/contributions and want to hedge the same. Income Tax Exemption for NGO means that the underlying company/trust/society is exempted from paying income taxon the expenditure or income earned by them through their activities in the domain of social welfare and charity.

Corpbiz is a comprehensive licensing and registration services provider. Our team of compliance and financial experts helps you obtain all the necessary approvals, licenses, permits, and clearances you require to set up an NGO, charitable society, or trust with our expert professional services. With our seasoned and cost-effective services, you are guaranteed to save a lot of money, time, and effort.

Why choose our services

  • Customer-centric approach

We know that there is no one-size-fits-all -all to your business needs. Every enterprise has its own goals and objectives and need a customized approach to achieve the business goals of your organisation. At Corpbiz, our sole objective is to provide you with the best possible set of services that match your entrepreneurial requirements and streamline your long-term financial goals.

  • Dedicated Professional Support

Our 24×7 professional support system would assist you anywhere, anytime you face an issue in your going concern. Our experts are skilled and experienced in providing quality advice beyond which you can rest assured you would not require any further assistance.

  • Competitive price bands

Our services may be cost-efficient, but we never compromise on quality delivery. Our cost-effective services and retainer packages compare to any other player in the market and deliver value for money. 

Frequently Asked Questions (FAQs)

1. What is an NGO?

 

A non-government organisation (NGO) is a privately owned or government-affiliated entity that does not have the motive to earn monetary profits through its but promotes social welfare, empowerment, and charitable purpose. They carry out their activities in the fields of education, women empowerment, science and technology, arts, religious customaries, food and essential distributions, rehabilitation and reformation, etc. It can be formed by an individual, group, individuals, community, volunteers, activists or social workers.

2. What are the different forms of NGOs and Charitable Organisations?

 

An NGO or charitable organisation can be set up either as a Section 8 company, charitable trust, or cooperative society. Such not-for-profit organisations are eligible to receive exemption from tax under sections 11, 12, and 80G of the Income Tax Act, 1961.

3. How can an NGO or Charitable Trust avail tax exemptions?

 

In order to avail tax rebates and exemptions, an NGO must have a valid 12A registration under the Income Tax Act.

4. When can an Organisation apply for 12 Registration?

 

An organization can apply for a 12A registration within 12 months of its incorporation in order to benefit tax exemption for NGO.

5. What are the documents required to make an application to avail Tax Exemption for NGO?

 

The following documents are required to make12A Registration for NGOs for tax exemption for NGO –
Form 10A, Financial statement for the past three consecutive years, PAN card and GSTIN number of the organisation, Certificate of Incorporation, MOA, AOA and Trust Deed, details of the activities performed by the NGO, a certified copy of the agreement which established the NGO along with the Digital Signature Certificate of the directors/ trustees.

6. In terms of expenditure, how does an NGO obtain 12A registration?

 

For the purpose of availing tax benefits under the Income Tax Act, an NGO or charitable organisation must spend more than 85% of its income on religious or welfare purposes, it should have a valid 12A and 80G registration under the Income Tax Act and the main expenditure should be done on education, medical, health, women empowerment or any other purpose for social betterment and improving standards of public amenities.

7. Who is the authority that grants licenses for 12A registration?

 

The Principal Commissioner of Income Tax or Commissioner of Income Tax is the statutory authority that grants 12A Registration certificates to NGOs or charitable organisations.

8. What is the Validity of 12A Registration?

 

A certificate of Tax exemption for an NGO remains valid for a period of 5 years from the date of issuance, while a provisional certificate remains valid for three years. It is required to be renewed 12 months before the date of expiry.

9. What are the benefits available to NGOs and Charitable Trusts having a valid 12A Registration?

 

The NGO or charitable trust can use the funds received for religious or charitable purposes without any application of tax by the Government.
The income earned by such an organisation is exempted from income tax by the Income Tax Department.
NGOs are entitled to receive donations and contributions from both domestic and international sources, albeit the same has to be in accordance with the Foreign Exchange Management Act, 1999, and the Foreign Contributions Regulation Act,2010
The NGO or charitable organisations receive credibility and recognition as the 12A registration makes the originations eligible for a variety of grants, Government aid, and funding.

10. Can a Private Trust qualify for a section 12A registration?

 

Only those trusts that are formed for charitable defined in the Income Tax Act are eligible to avail tax exemption under sections 11 and 12 and hence qualify for this registration.

11. What is the process to make an application for Tax Exemption for NGO

 

In order to make an application for Tax Exemption for an NGO, the applicant is required to make a request application with the Principal Commissioner or Commissioner of Income Tax, along with the required documents and forms. The Commissioner of Income Tax would scrutinise the application made and satisfy itself with all the details and disclosures. If the authority is satisfied, it issues the approval to the applicant to proceed with the application and obtain a 12A certificate.

Read our Article: Tax Exemption For NGOs: Section 12A & 80G

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