NGOs [ Nongovernmental Organizations ]
1. Section 8 Company: A Section-8 Company, also referred to as a Not-for-Profit Organization, is established with the primary goal of promoting various sectors such as commerce, art, science, sports, research, education, religion, environmental protection, charity, or any other specified purpose. These organizations aim to utilize their earnings and profits for advancing their objectives and are prohibited from distributing dividends to their members. This type of company can be registered as either a Private or a Public Company.
2. Society Registration: In simple terms, a society is a collective of individuals engaged in ongoing social interactions, or it can be described as a sizable group of people sharing the same social or geographical territory.
3. Trust Registration: Familiarizing oneself with the processes involved in registering a charitable trust in India is crucial for individuals looking to contribute to social welfare. This guide provides comprehensive insights, from defining the parties involved in a trust to outlining the categories and significance of charitable trusts. It delves into the registration procedure, which includes obtaining a digital signature certificate, drafting the trust deed, submitting to the Registrar of Trusts, and obtaining the registration certificate.
All three types of NGOs share a common requirement: they must apply for 10A and 80G registrations to qualify for deductions, benefiting both the organization and individual contributors.
Section 80G Registration
The provision of Section 80G in the Income Tax Act of 1961 allows donors to claim tax deductions for donations made to charitable organizations registered under any of the aforementioned forms: society, Section 8 company, or trust.
Entities registered under Section 80G can issue tax exemption certificates to donors. These certificates serve as proof of donation and enable donors to claim tax deductions when filing their income tax returns.
Why is Registration under section 80G necessary?
The provision of Section 80G in the Income Tax Act of 1961 allows donors to claim tax deductions for donations made to charitable organizations registered under any of the aforementioned forms: society, Section 8 company, or trust.
Entities registered under Section 80G can issue tax exemption certificates to donors. These certificates serve as proof of donation and enable donors to claim tax deductions when filing their income tax returns.
What are the eligibility criteria for Registration under Section 80G of the Income Tax Act?
Charitable organizations aiming for 80G-specific eligibility must meet the following conditions specified in the Income Tax Act of 1961:
1. The organization must be registered in one of the three specified forms: trust, society, or Section 8 (not-for-profit) company, in compliance with relevant laws and regulations. This includes holding a valid registration certificate issued by the appropriate authorities.
2. The organization’s objectives must solely focus on charitable purposes and activities. It must not permit the utilization of its income or assets for non-charitable purposes or benefit to owners.
3. Activities undertaken must align with the definition of “charitable purposes” as per the Income Tax Act, which includes aiding individuals with low incomes, education, medical relief, environmental preservation, promotion of art and culture, among others.
4. The organization must comply with all regulations of the Income Tax Act and maintain proper books of accounts for income and expenditure, submitting audited financial statements to the income tax department.
5. The organization must not possess income that does not qualify for exemption, such as income generated from business activities ( Profit and Gains of Business or Profession – PGBP ). If the organization engages in business income, it must keep separate accounting records ensuring that donations are solely used for charitable activities.
6. The organization must not serve the exclusive interests of a particular religious community, caste, or group. Its charitable activities should be broad-based and accessible to all without discrimination based on religion, caste, or group affiliation.
For example, consider a charitable organization named “Rajput Charitable Organization” providing free education and healthcare services to villagers. If this organization exclusively benefits a specific religious community, caste, or group, it would not meet the 80G registration criteria. However, if it serves without discrimination, it would qualify, ensuring inclusive charitable activities.
Organizations applying for registration or re-validation must provide their Darpan portal registration number from Niti Aayog, especially if receiving government grants or assistance.
What are the Documents that are required for 80G registration along with Form 10A/10AB?
The required documents include a self-certified copy of the Incorporation or Charter document pertaining to the Trust/Society/Company, whether established through a deed/instrument or by any other means. Following that is a self-certified copy of the registration certificate issued by the Registrar of Companies, Registrar of Firms and Societies, or Registrar of Public Trusts, depending on the organization type. Additionally, a self-certified copy of the registration under the Foreign Contribution Regulation Act is needed, applicable only if the applicant is registered under the FCRA Act.
What is FCRA Act?
The Foreign Contribution ( Regulation ) Act ( FCRA ) was established in 2010 with the primary goal of overseeing the acceptance and utilization of foreign contributions received by individuals, associations, and companies. Its purpose is to ensure that such contributions are not used in a manner that could negatively impact the country’s sovereignty and integrity.
The next document required is a self-certified copy of the existing approval order under clause (23C) of section 10. For entities already in existence, copies of the annual accounts from up to three years before the application year are necessary, primarily for renewal purposes. If the organization’s income includes profits and gains from business activities under Section 11(4A), copies of the annual accounts and audit report as per Section 44AB for the preceding three years are also needed.
Moreover, detailed information about the organization’s operations is required, either from its establishment or for the last three years, with the shorter duration of the two considered. Organizations must apply for fresh registration under Section 80G through the income tax e-filing portal to the Principal Commissioner or Commissioner of Income Tax. Provisional registration is granted for three years, starting from the Assessment Year in which the registration is approved.
For renewal, organizations must adhere to one of two timelines: submit the renewal application at least six months before the validity period expires or within six months from the commencement of mentioned charitable activities. Provisional registration, initially granted for three years, must be renewed every five years thereafter.
How long does it take to obtain a Section 80G registration?
The time required to obtain 80G registration can vary, typically ranging from a few months to a year. This duration is influenced by factors like the thoroughness of the application and the processing speed of the relevant authorities.
What is the cost associated with applying for 80G registration?
In addition to professional fees, there is a fee linked to applying for 80G registration. The fee amount can vary based on the organization’s type and scale.
What are the issues in case of non-compliance with Section 80G Requirements?
Failing to meet the requirements for 80G registration could lead to the cancellation of registration, resulting in the loss of tax benefits for the organization and the inability of donors to claim deductions on their contributions.
Additionally, non-compliance may result in penalties or legal consequences under the Income Tax Act. Therefore, it is crucial for non-profit entities to register under Section 80G of the IT Act to access tax concessions on donations and support for their charitable activities.
Conclusion
Once registered, donors can claim tax exemptions, allowing organizations to continue their charitable work smoothly. To obtain 80G registration, organizations must meet specific eligibility criteria, including being registered as trusts, societies, or Section 8 companies, and ensuring that their activities align with the definition of “charitable purposes” in the Income Tax Act.
Furthermore, compliance with financial reporting and transparency regulations is necessary to maintain registration status. Applicants must submit required documents via the income tax e-filing portal and follow renewal timelines. The timeframe for approval varies but generally takes several months.
It is important to note that failure to comply may lead to penalties or even the revocation of registration and loss of exemptions. Overall, Section 80G facilitates tax exemptions for those supporting charitable initiatives, creating a favorable environment for philanthropy.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
Want to explore further? Check out our related book here:
A Practical Approach to Taxation and Accounting of Charitable Trusts, NGOs & NPOs
