Business

Tax Benefits to NGO

Tax Benefits to NGO
31views

An NGO (Non-Government Organisation) is a non-profit organisation that functions independent of Government. There are multiple modes of setting up an NGO in India such as-

  • Society Registered under Society Registration Act, 1860
  • Trust registered under The Indian Trust Act, 1882
  • Section 8 company under Companies Act, 2013(previously it was section 25 company under Companies Act, 1956

Purpose of formation- NGO

NGOs may be engaged in various activities which are primarily targeted towards better ment of society and nation building. Some of which are highlighted below:

  • Promotion of Commerce, Science, art, sports
  • Education to underprivileged children
  • Social welfare
  • Charity and religious work
  • Protection of environment
  • Promotion of Human Rights etc

Benefits of NGO registration:

  1. Tax exemptions: Registering an NGO under section 12A can help in availing tax exemptions, which result in saving money and apply that money in fulfilling their stated objects for the development of society. At the same time, Section 80G helps the donors in availing tax deductions.
  1. Right to acquire and hold property– Once your organisation gets registered it is entitled to acquire and hold property such as land and fixtures in its own name.
  1. No requirement of minimum share capital– To register as NGO there is no mandatory requirement of having any fixed share capital, it is on the will of promoter to register his NGO by any amount.
  1. No personal liability– NGO registered in any form whether as Trust, society, Section8 company is a separate legal entity. Liability of members of NGO is limited to the extent of unpaid amount on their share capital, their personal assets cannot be used to pay off nay debts ort liability of the company in case company’s funds gets insufficient in the event of foreclosure, bankruptcy, court judgement etc.
  1. Exemption on stamp duty– The companies registered under Companies Act, 2013 are exempt from payment of stamp duty, which helps them to sav e more money and apply it in promoting its objects.
  1. Stable entity of NGO-Since NGOs are registered under any of the acts as prescribed for Trusts, Societies, Section 8 company it can be concluded that it has stable identity with proper ownership and management recorded in the record of the government department. It generates trust among public at large and attract more donations and grants.
  1. Perpetual succession: the identity of NGO remains intact irrespective of death or decision to leave the NGO of all promoters or trustees.
  1. Name preservation– Once your NGO (Only section 8 Company) gets registered its name gets registered in the records of government. Nobody can acquire such name unless and until No Objection Certificate to the effect has been obtained from NGO.

HOW CAN AN NGO QUALIFY FOR TAX EXEMPTIONS UNDER INCOME TAX ACT, 1961

As stated above there are multiple benefits for NGO registration in India.

One of the worth noting advantages is “Tax exemptions”.

NGOs which are registered under Section 12A and 80G of Income Tax Act, 1961 are eligible for various exemptions and rebates on its Tax liabilities. Therefore, these NGOs are eligible to attract more donors than the non-registered one.

REGISTRATION UNDER SECTION 12A AND SECTION 80G OF INCOME TAX ACT, 1961

Earlier registration under Section 12A under Income Tax Act, 1961 was one time registration and was valid till its cancellation.

But with effect from April 1, 2021, the registration granted under Section 12AB shall remain valid for 5 years only. However provisional registration is valid for 3 years only.

All existing NGOs and those institutes which are registered under section 10(23C), 12A, 12AA, and 80G of Income Tax Act, 1961 are mandatorily required to register themselves in amended scheme under Section 12AB to claim Tax exemption under section 11 and 12.

BENEFITS OF REGISTRATION UNDER SECTION 12A AND 80G

  • NGOs will receive government grants only if they are registered under Section 12A and Section 80G subject to certain conditions.
  • An NGO can get exemption from tax liability only if it is registered under Section 12A, otherwise its income will be liable for taxation.
  • Any person or entity making donations to NGOs registered under Section 80G can avail tax deduction of such amount.

ELIGIBILITY CRITERIA FOR NGOS REGISTRATION UNDER SECTION 12 A AND SECTION 80G

  • The assets and liabilities are to be used for the promotion of objects of NGO.
  • The books of accounts are to be properly maintained.
  • In case NGOs have business income then separate accounts are to be maintained for the same.

KEY POINTS TO REMEMBER

Donations and grants are to be made through banking means only to claim tax exemptions. The application for registration under section 12A and 80G can be made together or separately under section 12AB. It is up to the commissioner to accept or reject the application for registration.

Thank you for giving your valuable time, hope you liked this write up. If you have any queries or suggestions for us, kindly write us in the comment section. If you yourself looking for professional help regarding company registration and compliances, then kindly write us at Compliance Calendar LLP at info@ccoffice.in or 9988424211 and we will be happy to assist you in your startup journey

 

 

 

 

Leave a Response