Registration under section 80G provides Income Tax benefits to the donor of the NGO. In contrast, registration under section 12A is for exemption of income tax for NGOs such as Society, Trust and Section-8 Company.
What is 12A and 80G Registration?
Non-Profit Organizations play a vital role in India’s social and economic development. However, they do not have a stable source of income to generate their own revenues. They are majorly dependent on grants, donations, and other forms of unconditional contributions.
These contributions help them sustain their operations and achieve their objectives promptly. 12A and 80G Registrations are means by which the Government seeks to encourage such contributions to non-profit organizations. Let’s understand how!
- 2A Registration: 12A registration is obtained by NGOs under Section 12A of the Income Tax Act, 1961. It provides tax exemption to these organisations on the income they earn from grants, donations, and other forms of unconditional contributions. The registration is mandatory for all NGOs willing to avail the benefits of Section 12A.
- 0G Registration: 80G registration is obtained by NGOs to enable their donors to claim tax deductions on contributions they make to these organisations. The purpose of 80G registration is to encourage more and more donations for NGOs to support their welfare activities. This registration is voluntary and can be obtained only after 12A registration.
Section 12A of the Income Tax Act
Section 12A of the Income Tax Act contains the provisions determining applicability of Sections 11 and 12 on NGOs. Section 11 excludes certain kinds of income from the total taxable income in the previous financial year. Section 12 further clarifies that such income includes any voluntary contributions received as grants and donations for charitable and religious purposes.
Section 80G of the Income Tax Act
Section 80G (1) allows certain kinds of contributions to be exempted while computing the total taxable income of an assessee. Clause (2) enlists all such contributions in detail. It includes any funds transferred to a non-profit entity which has taken the 12A Registration. The non-profit entity must be registered in India, and funds transferred must be solely used for charitable and religious purposes.