What Defines an NGO?

In accordance with the World Bank, a Non–Governmental Organisation which is also known as an NGO, is defined as a private organisation that conducts activities that assist in relieving pain or sufferance with the purpose of benefiting the poor, providing protection for the environment, other social issues or taking responsibility for undertaking community development.

The following mentioned below are key essential factors that determine whether any organisation in an NGO –

• The Non–Governmental Organisations do not have the motive of benefiting profits.
• The Non–Governmental Organisations opt to fulfil the responsibilities that the Government of the country fails to comply with. Hence such organisations are known as Non–Governmental Organisations.
• The Non–Governmental Organisation hosts charitable events for the purpose of spreading awareness, obtaining financial aid, or other resources which are completely selfless in nature and have zero expectations of any benefits to be gained.

In accordance with Section 2, Clause 15of the Income Tax Act, 1961, a Non–Governmental Organisation is defined as a “Charitable Purpose”, which states that such organisations need to be serving the purpose of –

• Providing Relief for the Poor
• Providing Aid for Educational Purposes
• Providing Medical Aid
• Providing Developmental Aid for Utilities that benefit the Public’s Interests

Taxation Liabilities of NGO

In accordance with Section 2 (15) of the Income Tax Act, 1961, all Non–Governmental Organisations are liable for payment of applicable Service Taxes based on their income with the exemption for donations that were specified under the term “Corpus” if submitted in writing by the doner, although the interest or dividend gained from the “Corpus” funding is not to be exempted.

In accordance with the Income Tax Act, 1961, eighty–five per cent is utilised, and the remaining 15 per cent is accumulated to be used later from the total amount of income received by a Non–Governmental Organisation, along with the “Corpus” Funding being additionally inclusive as a part of the fifteen per cent accumulated income. The entire amount of the income that is accumulated needs to be mandatorily utilised by the Non–Governmental Organisations within the next applicable five years; otherwise, the amount is considered is to be considered as the income of the Non–Governmental Organisation of the eleventh applicable financial year.

Criteria for grant of registration for NGOs

The following factors mentioned below list the eligibility criteria for a Non­–Governmental Organisation to be eligible for the grant of exemptions–

• Exemptions under Section 12 A or Section 80 G are only granted to Non­–Governmental Organisations that are registered under the applicable Act.
• Usually, charities or Non­–Governmental Organisations that operate for benefiting any religious or business organisation are got granted the Certification of Registration under 80 G.
• Gifts that are contributed to Non­–Governmental Organisations that are being operated outside India are not to be granted exemptions under Section 12 A and Section 80 G.
• Any individual donating to a Private Trust or Non­–Governmental Organisation who does not have the grant of issuance for applicable registration under Section 12 A and Section 80 G, or if the doner is a political party, cannot utilise any exemptions for any taxes for the amount of the donation but will be applicable as a part of their taxable income.

Registration of an NGO under Section 12 A

For a Non­–Governmental Organisation to be registered under Section 12 A of the Income Tax Act, 1961, they need to firstly submit an Application Form to the Jurisdictional Commissioner of the Income Tax Department. Secondly, upon approval by the department, the applicable NGO can start the registration procedure under Section 12 A of the Income Tax Act, 1961.

Upon submission of the Registration Application with the duly attested necessary documentation to the Commissioner, an inspection is to be conducted for the purpose of determining if the Applicant Non­–Governmental Organisation is genuine and if there is no activity being conducted that may be in violation of the Indian Law. During the Inspection Period, the Authorised Personnel has the full authorisation for demanding additional documentation as deemed necessary, with the Non­–Governmental Organisation having to mandatorily comply accordingly. In case the Non­–Governmental seems the demand for the additional documents is unnecessary and for whatsoever the reason refuses to provide the applicable additional documentation, then the Non­–Governmental Organisation is permitted with an option of a hearing to be conducted before passing of the final judgement. The validity of the approval or rejection period is of six months from the date of the submission of the application form.

Advantages of Registration of an NGO under Section 12 A

The essential advantage for a Non­–Governmental Organisation to be registered under Section 12 A of the Income Tax Act, 1961, are the reduction and exemption from taxes. In cases of voluntary donations, donations for religious purposes, and a lot more reasons, taxes are exempted, and a few cases such as donations exceeding more than five per cent of the total donations or one-time donations more than one lakh obtained by the Non­–Governmental Organisation are applicable with a thirty per cent tax.

Registration of an NGO under Section 80 G

In accordance with Section 80 G of the Income Tax Act, 1961, select “Charitable Organisation is registered under the section is deemed eligible for a reduction of taxes. Non­–Governmental Organisations can take advantage of this provision by registering for the Certification of 80 G Registration. If the Non­–Governmental Organisation is registered under the 80 G Act, then the doner contributing to the organisation receives a financial benefit on their taxes which is a deduction of fifty per cent of the donor’s taxes.

Advantages of an NGO under Section 80 G

The Certification of 80 G Registration benefits Non­–Governmental Organisations for utilising this registration as an incentive to attract more donors as the applicable donors are provided with the benefit of the exemption on their taxable income of fifty per cent.

Account Auditing of NGOs

For the purpose of claiming any exemptions under the above–mentioned sections of the Income Tax Act, 1961; if the total amount of income from donations is more than INR 2,50,000 in their immediate previous fiscal year, then by default, the accounting of the Non-Governmental Organisation for that year is to be audited.

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