Guidelines Updated For NGOs in India

The Government of India has recently revised the regulations and compliance criteria for NGOs in India. They made significant changes to Section 80G and 12A under the Finance Act, 2020. NGOs functions seamlessly to reach their objective but require constant funding to outsource their activities. The government assures both the funding party and NGO numerous tax exemptions to promote donations and encourage NGOs to indulge in developmental activities. The government shifted its stance from a flexible and lenient approach to a more stringent approach to regulate the NGOs funding. They have altered the regulatory laws and approaches to strengthen the existing system.

In this article, we will discuss the significant changes made through Finance Act, 2020, its significance, requirements and a brief discussion around Section 12A and 80G with respect to NGO Registration.

The Ministry of Home Affairs (MHA) has issued an advisory to non governmental organizations, help out them to switch towards the new FCRA regime. The NGOs applying for FCRA registration/renewal can also prompt to automatically obtain Darpan ID, during the registration and renewal process. To access the exemptions entailed by the government, NGOs in India must register u/s 80G & 12A of the IT Act. This registration has lifetime validity.

1. Form CSR-1 for CSR Funding

• Corporate Social Responsibility funding is utilized by NGOs to obtain funds from different organizations to accomplish their activities.
• The government of India has announced to avail such funding, NGOs must register via a Form CSR-1 available at the Ministry of Corporate Affairs, w.e.f 1 April 2021,

Eligibility Criterion for form CSR-1

1. Non-Governmental organization must fall under one of the below listed companies:

• An organization established under u/s 8 of the Act, or a registered as a public trust or society u/s 12A & 80A of the IT Act, 1961.
• A Section 8 entity, be it a registered society or a trust established by the State or Central Government.
• An organization established under a State legislature or an Act of Parliament

2. An organization should have a legit registration under section 80G and 12AA/12AB as of the date of application filing.

It has been made mandatory by the government; a new NGO should register under section 12AB & 80G of the Income Tax Act before availing the CSR funding.

Documents Required for CSR Filing

• Contact Details and Address Proofs
• Digital signature certificate of the authorized member of the organization
• Authorized person’s PAN Card
• PAN card of NGO
• Registration Certificate
• Details of NGO’s Governing Body

2. Re-registering Under Form 10A

NGOs under section 80G & 12A/12AA avail the benefits of tax exemption. To ensure access to this benefit, the NGOs in India are needed to re-register their organization with the IT department via a Form 10A.

New Amendments under Section 80G

• When an organization donates to an NGO, charitable avenues and relief funds, they can claim income deduction under section 80G of the Act.
• This exemption is available only when if the donation is routed to an NGO registered under section 80G.

The Finance Bill 2020 includes some significant changes to the mentioned section which will come to effect from 1 June 2021:

• To possess the right to grant the registration, an entity must seek to the Principal Commissioner, to get recognized under section 80G.
• A compulsion to extract a donation’s declaration statement received has been imposed on the organizations, failure will lead to a penalty.
• Also, the non-availability of the statement will result in, dissolution of the donor’s rights to claim the tax deduction.
• Additionally, the concept of permanent registration has been put out of the equation, and organizations must renew their license under section 80G.
• An interim registration having 3 years’ validity can be claimed by charitable organizations that have not begun their charitable activities.
• This ensures the charitable organizations to get registered on the basis of details defer to the CIT (exemptions).
• The registration is rendered, when the Principal commissioner is satisfied with the legitimacy of the organization.

Four Easy Steps for 80G Registration

*It is granted as per the Rule 11AA of the Income Tax Act,1962

Step I: Submit Online Application for 10G Form

The 10G Form must be completed via online process and attach the relevant documents to verify the income tax return under section 140 of the Income Tax Act, 1962.

Step II: Verification

The Principal Commissioner will verify the details submitted via application form like documents, organizational details etc. They may ask for additional information and documents, be very quick and honest through the process. Failing to satisfy the demands will lead to the rejection of the application.

Step III: 80G Certificate Granted

Followed by a successful verification process, an NGO will be granted an 80G certificate with lifetime validity.

Step IV:  Enjoy the Benefits

You have successfully achieved your lifetime provision of tax exempt entity under section 80G. Avail the benefits and expand your network.

Documentation to be submitted for Form No. 10A

• Copy of an applicant is created under an instrument
• Copy of the document highlighting the establishment of the applicant, if the applicant is created other than an instrument,
• Copy of the ROFs or ROCs & Societies or Registrar of Public Trust
• Copy of registration under FCRA, 2010
• Self-certified copy of prevailing order conferring approval under clause 23C of section 10;
• Copy of the application rejection’s order for grant of approval u/c 23C of section 10, if any.
• Proof of business undertaking as per the provisions of subsection (4) of section 11.
• Note on the activities of the applicant.
• Self-certified copies of the annual accounts of preceding business as per the provisions of sub-section (4A) of section 11

3. New Registration under section 12AB

Non- governmental organizations are now mandated to re-register under Section 12AB. To avail the benefit sanctioned under Sections 11 and 12 with effect from 1 April 2021.

• An NGO earlier listed/registered under Section 12A/12AA, they are mandated to re-register under Section 12AB within the period of 3 months.
• An NGO not listed/registered under the Section 12A/12AA, they are mandated to apply for registration under the Section 12AB at least before the start of the previous year relevant to the organization’s assessment year.
• Moreover, for fresh registrations, interim registration for the period of 3 years from the assessment year, by which registration is pursued.

Four Easy Steps for 12A Registration

*Only registered NGOs, can apply for 12A Registration

Step I: Submit Online Application for 10A Form

The 10A form must be completed via online process and attach the relevant documents as per the rule 17A of the Income Tax Act, 1962.

Step II: Verification

The Principal Commissioner will verify the details submitted via application form like documents, organizational details etc. They may ask for additional information and documents, be very quick and honest through the process. Failing to satisfy the demands will lead to the rejection of the application.

Step III: 12A Certificate Granted

Followed by a successful verification process, an NGO will be granted a 12A certificate with lifetime validity.

Step IV:  Enjoy the Benefits

You have successfully achieved your lifetime provision of tax exempt entity under section 12A. Avail your benefits and expand your network.

Significance of 12A and 80G Registration

• There is will be an expansion of capital assigned for charitable activities through tax exemption from the NGO income.
• Under new amendments, funds and aids are welcomed from recognized agencies, organizations, government and international sources.
• The NGOs registered under 12A and 80G, are only permitted to avail the foreign aids and funding with tax exemptions under the Foreign Regulation Act, 2010 or FRCA.
• It will attract more donors and eventually lead to surplus funding for the NGOs in India.
• It will increase the operational exposure and status of non-governmental organizations registered and obtained a 12A and 80G registration certificates.
• 12A and 80G are one time registrations and have lifetime validity.

 Key Points

•  Government funding can only be availed by NGOs who have registered as per new guidelines
• NGO who have registered under 12A are permitted of utilizing the benefits of tax exemptions for a lifetime.
•  NGOs registered under 80G are authorized to provide valid donations receipts with 80G registration ID, allowed for tax exemptions.
•  NGOs with 80G certificates will attract more donors.
• 12A registrations are mandatory for getting an 80G registration
• 12A and 80G registration can be done collectively or separately
•  Private or a family trust are not eligible to get a 12A certificate.

Concluding Note:

Non-governmental organizations, charitable trusts entities have the provision of tax exemptions in India. Government applaud their work by providing them extra benefits like tax exemptions, funding, flexibility in rules and regulations so that they can work more efficiently to achieve their end goal. New registrations have made it essential for NGOs to claim these exemptions as of 1 April 2021. 

This article has broadly discussed all the aspects of new guidelines and updates regarding tax exemption and new registrations for NGOs in India. We consider these changes as a reward for NGOs, they can avail financial benefits by securing foreign funds and aids. The big corporate players are always looking for NGOs, best suited for their ventures for mainly two reasons; firstly, they can contribute to the social cause through these NGOs, and secondly, they can avail tax exemptions on donations. Some organizations are 100% exempt from tax, while some prevail are 50% tax deduction on donation to the NGOs, Gross total income of the company is the deciding parameter for the percentage for a tax deduction.

Social entrepreneurs who are looking for expert advice regarding and service to meet the hassles of these new amendments and updates, MUDS Management Consultancy will ensure you best of assistance, hand over your hassle of hefty documentation procedure and the stress of a lengthy application process to our experts.