In the past time, the government had a more resilient and moderate approach toward NGOs. However, in recent times, the government has reconstructed by opting more stringent system. Through the Finance Bill 2020, necessary changes came into force where re-registration under Section 80G and new registration under Section 12AB are now required. Also, a new procedure has been put in place to claim CSR funding too. This write-up will pen down the new registration compliances for NGOs as per Finance Bill 2020.
Understanding the New registration compliances for NGOs as per Finance Bill 2020
Getting the NGO registered is one thing and managing it successfully is a whole new ball game. As per The Finance Act, 2020, new registration compliances for NGOs are introduced. Also, certain amendments have been which came into force on 1 June 2020. The registration process is now a completely online process. All the NGOs will receive a unique registration number to help build a database of all the NGOs working in India. This move will help the NGOs in bringing some much-needed order to the system. Let us now take a quick look in understanding the Prerequisites NGOs should follow to avoid the trouble in availing the exemption-
1. New Registration Compliance for NGOs Under Section 12AB
Registering under section 12 AB is one of the prerequisites NGOs should follow to avail of the exemption.
All Non-government organizations are now required to register under Section 12AB. Registration under Section 12AB is required to avail of the benefits provided under Sections 11 and 12, effective from 1 April 2021.
As per Finance Act, 2020, extensive alterations are made regarding the provisions related to NGOs exempt u/s 11 or u/s 12 of the Income Tax Act, 1961. The changes in the Finance Act regard with the
- New Registration compliances for NGOs already registered under section 12AB,
- Renewal of registration,
- Approval for deduction u/s 80G and,
To avail, the existing exemption u/s 10 or 11, all the existing non-Government organizations registered under Sections 12A, Section 12AA, Section 10(23C), Section 80G are mandatorily required to get a new registration done under section 12AB.
However, in new registration compliance for NGOs, they will have to apply for registration under section 12AB of the Income Tax Act, 1961.
- If the NGO is already registered under Section 12A/12AA, it must get freshly registered under Section 12AB within three months.
- In the case of new registration, provisional registration for three years from the assessment year from which registration is sought will be given.
All these changes made by the authority are implied as to the new registration compliances for NGOs. NGOs should follow as they have caused concerns among Non-Government Organizations. It has also resulted in more strict compliance than before.
2. Re-registering the NGOs Under Form 10A
NGOs registered under Section 80G and Section 12A/12AA have the advantage of availing tax exemption. Now, As per the Finance Act 2020-Registration compliance for NGOs, all NGOs are required to re-register themselves with the income tax department through Form 10A.
CBDT has notified Form 10A to enable NGOs to move their existing registration to the new registration scheme under section 12AB. Henceforth any application for NGO registration shall be required to be made in form 10A. For registration or provisional registration, Form 10A can be filed electronically.
3. New Registration compliance for NGOs under Section 80G
A donor can claim income deduction under Section 80G of the Act while making donations to certain relief funds and charitable institutions. The deduction is available to the donor only when the donation is made to non-government organizations approved under Section 80G. Further, the Finance Bill 2020 has made changes to this section that are applicable from 1 June 2021:
- An obligation to state donations received has been imposed on the charitable organizations, failure of which might result in a penalty. Also, the donor will not be able to claim a tax deduction.
- The perpetual registration concept has been withdrawn, and institutions henceforward need to seek renewal every Five years.
- A provisional registration valid for three years can be pleaded by NGOs that haven’t initiated their charitable activities.
- The Principal Commissioner or Commissioner has the authority to grant the registration under section 80 G.
Note- Form 10A has to be submitted to get approved under Section 80G. Form No. 10A is required to be furnished for registration under section 12AB and approval under section 80G. However, Form 10A is required to be filed twice for both section 12 AB and 80G. In a nutshell, Form 10A is one of the prerequisites NGOs should follow. For the same, separate Form 10A has to be filed for different provisions.
As per the amendment, Filing CSR-1 is one of the prerequisites NGOs should follow to avail of the exemption. For registering the entities undertaking CSR Activities, Form CSR-1 is to be filed with the Registrar of the Companies.
Criteria for filing Form CSR-1
NGO should be one of the following institutions
A Company registered under Section 8 of the Companies Act, or an established public trust or a registered society shall be registered u/s 12A, and 80 G of the Income Tax Act, 1961, by the Central and State Government or as per the enactment of Parliament or a State legislature.
If the NGOs mentioned above wish to perform any Corporate Social responsibility activities shall register themselves with the Central government. NGOs can get the registration done by filing form CSR-1 electronically.
As of the date of applying, NGO should have a valid registration under Section 80G and Section 12AA/12AB
Before setting up a new NGO, an applicant needs to register under Section 12AB and Section 80G of the Income-tax Act before getting CSR funding.
For filing Form CSR-1, an applicant requires the below-mentioned documents
- PAN card of the organization and authorized person.
- DSC of the authorized person.
- Mobile Number and Email Id
- Particulars of governing body members
- Registration certificate.
Prerequisites NGOs should follow to get the certification of Form CSR
- Based on the certificate by Practicing Professional-He/she should obtain an engagement letter for the certification of Form CSR-1 from the entity.
- Before affixing the DSC certifying the CSR-1 Form, the documents should be verified from the original records prepared by the Company.
- Make sure that the records have been properly prepared and signed by the required officers.
Competent NGOs input to the process of public policy formulation increases the applicability of legislation and the seriousness of governmental decision-making. According to the government, these changes aim to bring transparency in the working of NGOs, and NGOs need to maintain a high degree of transparency in not just their work but also their financials. Also, to maintain their credibility, NGOs need to keep their income and expenditure open to public scrutiny. These amendments are the new registration compliances for NGOs that they should follow to maintain accountability.
Read our article:An Outlook: Registering an NGO in India