Non-Governmental Organizations (NGOs) play a crucial role in addressing social, economic, and environmental challenges globally. To enhance their impact, NGOs often seek 12A and 80G registration, which provides tax benefits and recognition, operating independently of government control and driven by social, cultural, or environmental objectives.
Tax exemption is a critical aspect of NGO operations, as it enables them to allocate more resources towards their charitable activities. Under the Income Tax Act, 1961, certain provisions grant tax exemptions to registered NGOs, thereby incentivizing philanthropic initiatives and promoting social welfare. Sections 12A and 80G of the Income Tax Act, 1961, provide mechanisms for NGO registration and tax exemption under Section 11 and 12 Income Tax Act, 1961.

Section 12A

Section 12A of Income Tax Act provides that the organizations engaged in charitable or religious activities can apply for registration with the Income Tax Department to claim tax exemption. Once registered, the income of the organization, if applied towards charitable or religious purposes, becomes exempt from taxation.

Eligibility Criteria

• The organization must exist solely for charitable or religious purposes.
• It cannot be for the benefit of any particular religious community or caste.
• It must apply its income towards its stated charitable or religious objectives.
• The organization should not engage in any commercial activities.

Section 80G: Tax Deductions for Donors

Section 80G of Income Tax Act largely deals with charitable gifts, with the goal of providing tax benefits to those who engage in philanthropic activities. Donations to specific funds or charities are eligible for tax deductions under this clause. When an individual pays any amount for a donation or a charity at that time, an individual can claim that amount as a tax deduction under section 80G of the Income Tax Act.

• Eligible Donations: Donations made to NGOs registered under Section 80G are eligible for tax deductions. The donations must be made to institutions or funds approved by the Income Tax Department under Section 80G.
• Donation Limit: The Income Tax Act prescribes the maximum limit up to which donations are eligible for deduction. Donors can claim deductions of up to 50% or 100% of the donated amount, depending on the nature of the recipient organization and the provisions of Section 80G
• Submission of Proof: Donors need to obtain a receipt from the NGO for their donation, specifying the registration details under Section 80G. This receipt serves as proof while filing income tax returns to claim the deduction, ensuring compliance with the provisions of Section 80G.

Relation between Sections 12A and 80G

• Section 12A of Income Tax Act deals with the registration of charitable trusts and institutions for exemption from income tax on surplus income generated from charitable activities.
• Section 80G deals with the approval of such trusts or institutions for tax benefits to donors contributing to them.
• Registration under Section 12A is a prerequisite for seeking approval under Section 80G. Approval under Section 80G further enhances the credibility of the trust or institution and encourages donations by providing tax benefits to donors.

Application for registration under section 12AB and 80G can be applied together or it can be applied separately. If an organization wants to apply for both registrations separately, the application for registration u/s 12AB will be applied first. Getting 12AB Registration is mandatory for application of registration u/s 80G of Income Tax Act, 1961. Thus, both sections work in attempt to promote charitable activities and incentivize donations for social causes.