An 80G Certificate is issued by the Income Tax Department to a non-governmental organization (NGO) such as a charitable trust, or a Section 8 Company. The 80G Certificate is granted to encourage the donors to donate funds into such non- profit organizations. Furthermore, the donor gets a tax exemption of 50% when they make donations to such organization, as they become eligible to deduct such amount from their Gross Total Income. Additionally, in order to avail the exemption, the donor needs to attach the stamped receipt of the donation made. Such a receipt must contain the donor’s name, date of donation, and PAN of the organization.
Section 12 A of the Income Tax Act, 1961, is a onetime tax exemption provided to trusts, NGOs and Section 8 Companies. Organizations holding a registration under section 12A are exempted from paying taxes on their surplus income.
NGOs are organizations involved in charitable and non-profit activities. However, they do earn income and they are required to pay tax as per normal rates if not registered under section 12A, Income Tax Act.
Both applications can be applied together or it can also be applied separately also. If some organization is willing to apply both applications separately, then application for registration u/s 12A will be applied first. Getting 12A registration is must for applying application for registration u/s 80G of Income Tax Act, 1961.
80G and 12A registrations apply only to NGOs and Charitable Organizations if they fulfil the following conditions:
· They must not have any income generated from a business
· They should either be a charitable trust or a registered society
· Also, such organizations should not be using their assets or income for any other purpose other than making charity
· Furthermore, they must maintain a regular book of accounts in favor of their receipts and expenses.
· The trustees or any other body governing the organization should not be involved in deriving any undue benefits from these funds
· They should not be working for the benefit of any particular caste or religion
· Also, in the case of business-related income, the organization should maintain a separate book of accounts. However, the donations received by the NGO must not be used for such businesses.
An NGO Must Apply For 12A And 80G Registration Immediately After Its Incorporation.
· Income shall be exempted from taxes.
· Benefits of taking grants from the Government, Abroad, any additional agencies.
· Benefits of FCRA Registration.
· The donor is qualified for availing deduction from its taxable earnings.
· Attracts the donor towards making a donation.
Application for 12A registration is made in Form 10A. It is prescribed in Rule 17A of the income tax rules’ 1962. Below is the step by step procedure for applying Section 12A registration:
The application for registration has to be filed with the jurisdictional Principal Commissioner or commissioner of Income Tax (exemptions).
· Self-certified copy of Trust Deed or Instrument, where the trust is created under an instrument.
· Self- certified copy of the document evidencing the creation of the trust, where the trust is created, otherwise than under an instrument.
· Self-certified copy of registration with Registrar of Companies (RoC) or Registrar of Firms and Societies or Registrar of Public Trusts.
· Self-certified copy of the documents evidencing adoption or modification of the objects, if any;
· Where the trust has been in existence for during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of the trust relating to such prior year or years (but not more than 3 years immediately preceding the year).
· Note on the activities of the trust or institution.
· Self-certified copy of the existing order granting registration under section 12A or section 12AA, if any.
· Self-certified copy of the order of rejection of an application for grant of registration under section 12A or section 12AA, if any.
Note:
Form No. 10A shall be furnished electronically:
(i) Under digital signature, if the return of income is required to be furnished under digital signature;
(ii) Through electronic verification code in a case not covered under clause (i)
Form No. 10A shall be verified by the person who is authorized to verify the return of income under section 140, as applicable to the assesse.
Section 12AA of the Income Tax Act’ 1961 prescribes procedure for registration of Trusts or institution as follows:
1. The Principal Commissioner or Commissioner, on receipt of an application for registration of a trust or institution shall
(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about
(i) The genuineness of activities of the trust or institution; and
(ii) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects and may also make such inquiries as he may deem necessary in this behalf
2. After satisfying himself about the objects of the trust or institution and the genuineness of its activities and compliance of the requirements he
(i) Shall pass an order in writing registering the trust or institution
(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution and a copy of such order shall be sent to the applicant
Please note that no order shall be passed unless the applicant has been given a reasonable opportunity of being heard.
As per Section 12AA(2) every order granting or refusing registration shall be passed before the expiry of six months from the end of the month in which the application was received.
The Supreme Court on February 16’2016 held in the case of:
CIT vs. Society for The Promotion of Education, Adventure Sport & Conservation of Environment
“S. 12AA: Non-disposal of an application for registration before the expiry of six months as provided u/s 12AA (2) results in deemed grant of registration”
CBDT Instruction:
The CBDT has issued Instruction No. 16 of 2015 dated 06.11.2015 in which it has taken a stern view of the fact that the time limit of six months specified in s. 12AA(2) of the Income-tax Act 1961 for passing an order granting or refusing registration under s. 12AA are not being adhered to by the Commissioners of Income Tax (Exemptions). The CBDT has directed the Chief Commissioners to monitor that the Commissioners are adhering to the time limit and to take suitable administrative action in the case of laxity.
Section 80G (5) prescribes certain conditions to be satisfied to get the approval u/s 80G:
♠ The Institution should be established in India for Charitable purpose.
♠ If the Institution or fund is deriving any income, such income should not be liable to inclusion in its total income under the provisions of sections 11 and 12 or clause (23AA) or clause (23C) of section 10.
♠ If the institution or fund derives any income, being profits and gains of business, the condition that such income would not be liable to inclusion in its total income under the provisions of section 11 shall not apply in relation to such income, if:
(a) The institution or fund maintains separate books of account in respect of such business;
(b) The donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and
(c) the institution or fund issues to a person making the donation a certificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business;
♠ The instrument under which the institution is constituted shall not contain any provision for transfer or application of the income or asset for any purpose other than a charitable purpose.
♠ The institution should not be for the benefit of any particular religious community or caste.
♠ The institution should maintain regular accounts of its receipts and expenditures.
♠ The institution should be either constituted as a Public Charitable Trust or a registered society or a company registered u/s 8 of the Companies Act’2013 or is a University established by law, or is any other educational institution recognized by the Government or by a University established by law, or affiliated to any University established by law, or is an institution financed wholly or in part by the Government or a local authority.
The following documents are required for 80G registration is as follows:
· MoA and Registration certificate in case of Section 8 companies and Societies and a Trust Deed in case of a Trust
· No objection certificate from the owner of the property where the registered office of the Institution is situated
· Form 10G
· A copy of the PAN of the NGO
· Copy of Utility Bills such as Electricity bill, water bill or House Tax Receipt
· A list of the donors along with their address and PAN
· The documents related to Income Tax Returns and the Book of Accounts of the past three years
· The list of the welfare activities being carried out & the progress report of the last three years
· A detailed list of the Board of Trustees
· Original RC, MoA, or Trust Deed.
Rule 11AA of the Income Tax Rules’1962 provides procedure for seeking approval under section 80G.
(1) The application for approval of any institution shall be made in form no. 10G which shall be verified by the person who is authorized to verify the return of income under section 140, as applicable to the assessee
(2) Form No. 10G shall be furnished electronically,—
(i) Under digital signature, if the return of income is required to be furnished under digital signature; or
(ii) Through electronic verification code in a case not covered under clause (i).
(3) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall lay down the data structure, standards and procedure of furnishing and verification of Form No. 10G and shall be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the said form so furnished.
(4) The Principal Commissioner or Commissioner may call for such further documents or information from applicant or cause such inquiries to be made as he may deem necessary in order to satisfy himself about the genuineness of the activities of the applicant.
(5) Where the Principal Commissioner or Commissioner is satisfied that all the conditions laid down in section 80G(5) are fulfilled by the applicant, he shall record such satisfaction in writing and grant approval under clause (vi) of sub-section (5) of section 80G.
(6) Where the Principal Commissioner or Commissioner is satisfied that one or more of the conditions laid down in section 80G(5) are not fulfilled, he shall record the reasons in writing and reject the application for approval after giving the applicant an opportunity of being heard.
The order granting approval under section 80G(5) or rejecting the application shall be passed within the period of six months from the end of the month in which such application was received.
In computing the period of six months, any time taken by the applicant in not complying with the directions of the Commissioner shall be excluded.
Important Note:
Amendment by Finance Act’2017
“No deduction shall be allowed under this section in respect of donation of any sum exceeding TWO thousand rupees unless such sum is paid by any mode other than cash.”
Finance Act 2017 amended section 80G so as to provide that no deduction shall be allowed under the section 80G in respect of donation of any sum exceeding Rs. 2,000/- unless such some is paid by any mode other than cash. Earlier this limit was 10,000/-.Government has taken this step in order to provide cash less economy and transparency.
Q. What is the timeline for getting Registration under Section 12A and 80G of Income Tax Act?
If an application for registration under section 12A and 80G
would be applied through NGO , it should take 3-4 months.
Q. What is the validity period of the registration under section 12A and 80G of Income Tax Act?
12A registration: no expiry; 80G registration: 1 to 3 years validity
Q. Can both the applications under Section 12A and 80G of Income Tax Act be applied together?
Yes, both applications could be applied together or it could be also applied separately. If some organization is willing towards applying both applications separately, the application for registration u/s 12A is required to be applied first. Getting 12A registration is necessary for applying application for registration u/s 80G of Income Tax Act.
Q. Where to apply for registration under Section 12A and 80G of Income Tax Act?
Application for registration under section 12A and 80G could be filed before the Commissioner of Income Tax (Exemption) having jurisdiction over the institution.
Q. What applications Form are being used for applying for registration under section 12A and 80G of Income Tax Act?
For 12A registration: Form 10A, For 80G registration: Form 10G (For New Application and renewal both)
Q. When an organization can apply for registration under section 12A and 80G of Income Tax Act?
Application for registration under section 12A and 80G can be applied just after registration of the NGO.
For more information visit www.taxaj.com
Posted by Pooja
Team Taxaj