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Section 12AB and Section 80G

NGO (Non-Government Organization) is established to serve for the cause of human, nature, animals with a Non-profit motive by forming any type of entity like Charitable Trust/Society/Section 8 Company. Once you get it registered, there are bunch of tax benefits and exemptions for the NGO as well as for the donors. For availing such exemption, it is required to obtain 12AB and 80G registrations, otherwise any income/donation received by an NGO will be taken as normal taxable income.

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Introduction

In union budget of 2020, the honourable finance minister introduced a major change for granting exemption under section 12AA, 12AB and donation under section 80G to trust, society and other charitable establishments etc. But interestingly the point to be noted is that validity of provisions under section 12A will cease to exist after 31.03.2021 therefore, it is important to know the registration process under section 12AB. This new process will bring about a new wave of digitalization and transparency in the process of registration.

Advantages of 12AB and 80G Registration

  • Tax Exemptions for NGO
    If an NGO obtains such certificate, then ways for more capital and donations are increased.
  • Tax Exemption for Donors
    The income donated by the donors also gets an exemption in Income Tax.
  • FCRA Registration
    NGOs can also apply for FCRA Registration and obtain International funding.

Before we proceed further, let’s discuss both the section’s one by one.

What is Section 12AB?

Section 12AB is an amendment introduced by the ministry relating to the compliance and registration process of religious or Charitable Trusts/ Institutions etc. which were earlier registered under section 12AA of the Income Tax Act.

Section 12AB deals with registration of trusts and other not for profit establishments granted by the Income Tax Department. The institution registered under this section is to be exempted from the income tax payment. Section 8 Companies, Trusts and NGOs which have obtained 12AB registration enjoy exemption from paying income tax on their surplus income.

For whom Section 12AB is applicable?

All the currently registered or approved charitable and religious institutions (including NGOs) under the following sections-

  • Section 12A (Earlier section under which NGOs or trusts were required to get registered)
  • Section 12AA (This section deals out with the online system for enlistment of trust)
  • Section 10(23C) (It deals with the specific exemption available to certain government and non-government educational institutions.)
  • Section 80G (This section under income tax deals out with the deduction available for the making donations to various charitable organizations.)

The organizations already registered under above sections are compulsorily required to switch to section 12AB for fresh registration in order to continue availing exemption under section 10 or 11.

Why the new process of registration under Section 12AB is introduced?

The enterprise will be classified as micro, small, or medium enterprise according to the following criteria:

  • The earlier process was manual and time consuming therefore an e-process was required to meet up the need of new digitalized era.
  • Also under the new process government aims to limit the timeframe (i.e., not exceeding 5 years) for which registration is provided as earlier it was perpetual.
  • This limitation of timeframe will also provide the regular check on the NGOs bogus activities.

Registration Process for Section 12AB

Following steps can be followed for getting MSME Registration:

  • 1

    Case 1: - Where a trust or institution is already registered under section 12A or 12AA

    The entity should apply for new registration underneath section 12AB within 30.06.2021, which will be valid for a period of 5 years. It begins from the assessment year from which registration was granted before to the charitable trust or institution.
  • 2

    Case 2: - Where a Charitable trust or institution is provisionally registered under section 12AB, which be valid for 3 years from the grant of provisional registration. It begins from the first assessment year in which provisional registration was granted.

    The application for the above can be applied by filing Form 10A online on the income-tax site www.incometaxindiaefiling.gov.in First login into the portal using your ID and password. The form is available on the income tax website under e file menu tab Income Tax Forms. Fill the required details in the form asking for: -
    • Name of the Trust, Society, Religious and charitable establishments.
    • PAN details of the above applicants.
    • Registered Address of the entity.
    • Select the type of organization: - Religious/ Charitable/ Religious-cum-Charitable
    • E-Mail and Mobile number of the authorized person by whatever name called
    • Legal Status of the entity
    • Objects of the entity
    • Date of Modification of Objects, if any.
    • Whether the application granted or registration earlier is rejected or cancelled? If yes, details of the same should also be provided
    • If the applicant is registered under FCRA, 2010? If yes, then details of the same should also be provided.
    After receiving the application, the Commissioner will verify all the details filled in the form above via online mode. If he is not satisfied with the same he can ask for supporting or additional documents, also if he is not satisfied then he could reject the submitted application. After submission of Form 10A an order must be passed in writing granting registration in Form 10AC and issues a 16digit alphanumeric Unique Registration Number (URN) to the applicants.

Documents required for Registration under Section 12AB

Following documents are required to be annexed with FORM 10A while registration: -

  • Registration Certificate and MOA / Trust Deed (two copies- self attested by the Managing Trustee)
  • No objection certificate from the Landlord where registered office is situated (if place is rented) and electricity bill of the same is required.
  • Copy of PAN card of Trust.
  • Books of Accounts, financial statements, ITR (if any) since inception or last 3 years.
  • List of Governing body or members of the trust/ Institution
  • Trust Deed
  • Activity and progress report / project report for past three years.
  • Donors list along with their details.
  • Bank account statement for last three years.
  • Any other information / document as may be asked by the Income Tax Department.

Registration under Section 80G

Taking registration under section 80G facilitates the registered NGO or charitable institution to benefit its donors to claim exemption under Income Tax. Application for section 12AB and section 80G can either be applied together or can be applied separately just after getting registered under section 12AB.

Points to know before applying under Section 80G

There are certain conditions specified under Section 80G (5) to be satisfied to get the approval u/s 80G:

  • Trust/Society/Section-8 company should be established in India for Charitable purpose.
  • As per sections 11and 12 or clause (23AA) or clause (23C) of section 10, if the Charitable Institution is incurring any income, such income should not be liable to inclusion in its total income.
  • As per Section11, if the charitable institution receives any income, being part of business, the condition that such income would not be liable to inclusion in its total income shall not apply in relation to such income, if:
    • Separate books of account are maintained by charitable institution in respect of such business;
    • The donations are not used directly or indirectly by the charitable institution for the purposes of such business; and
  • The MOA/by-laws of the charitable institution shall not contain any provision for transfer of the income for any purpose other than a charitable purpose.
  • The charitable institution should not work for the benefit of any particular religious’ community or caste.
  • Regular accounts of its receipts and expenditures should be maintained.

Procedure of registration under Section 80G

Following steps can be followed for getting MSME Registration:

  • 1

    Application under Section 80G can be made via Form 10G. Firstly fill the form properly along with all the necessary documents to Jurisdictional Principal Commissioner or Income Tax Commissioner.

  • 2

    After receiving the application, the commissioner can check the documents and worthiness of the NGO activities. Also he can ask for supporting/ additional documents or other relevant information.

  • 3

    After satisfaction he can pass an order in writing confirming the registration under section 80G or non-satisfaction he can reject the application, after giving the applicant a chance to be heard

FAQs on Section 12AB & Section 80G

No, the trust cannot take registration under both the section simultaneously as of now if the organisation already gets itself registered under section 10(23C) and simultaneously applies under section 12AB then the second registration stands null and void.

Ans. No, the person cannot apply under multiple section codes at the same time only one section code can be selected in single application.

The Online application shall be made to the Commissioner or Principal Commissioner of Income Tax who shall pass an order granting approval or rejection within 3 months from the date of commencement of the new provision.

Yes. To claim an exemption under section 11, a trust must get the registration under section 12AB of Income Tax Act, 1961.

To claim an exemption for 80G, the following details have to be submitted in the Income Tax Return-

  • Name of the recipient.
  • PAN number of the recipient.
  • Address of the recipient.
  • Amount of contribution made.

The various donations specified in section 80G are eligible for a deduction up to 100% or 50% without restrictions.

For the purpose of calculation of the amount that is available as a deduction from gross total amount, we can classify the deductions as: deductions without limit and deductions subject to limit.

The various donations specified in section 80G are eligible for a deduction of up to either 100% or 50% with or without restrictions.

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