Why Charitable NGO shall register under section 80G of Income tax Act and it’s process?

Introduction: Why Registering under Section 80G is Essential

Last month I have discussed about NGO registration in three forms:

1. Section 8 company:

A Section-8 Company, also known as a Not-for-Profit Organization, is incorporated with the objective of promoting commerce, art, science, sports, research, education, religion, protection of the environment, charity, or any other purpose. Such organizations intend to utilize their income and profits for advancing their objectives and prohibit the payment of dividends to their members. This type of company can be incorporated as either a Private or a Public Company.

You may refer to my Taxguru article for detailed explanation about section 8 company registration here https://taxguru.in/company-law/eligibility-process-registration-section-8-company.html

2. Society Registration:

A society in easy words is a group of people who have a continuous social interactions or it is a large group of people who share the same social or spatial territory.

You may refer to my Taxguru article for detailed explanation about society registration https://taxguru.in/corporate-law/eligibility-process-registration-society.html

3. Trust Registration:

Understanding the intricacies of registering a charitable trust in India is essential for those aiming to contribute to social welfare. From defining the parties involved in a trust to outlining the categories and significance of charitable trusts, this guide provides comprehensive insights. It delves into the registration process, including obtaining a digital signature certificate, drafting the trust deed, filing with the Registrar of Trusts, and securing the registration certificate.

You may refer to my Taxguru article for detailed explanation about Trust registration here: https://taxguru.in/income-tax/eligibility-process-registration-charitable-trust-india.html

Now we know all are NGO’s and one thing is common between all three NGO’s, They are required to apply for 10A and 80G registration to claim deductions as an organisation as well as for the individual contributing to them.

Now, first discuss about 80G registration!

80G registration is that provision of the Income Tax Act of 1961 which enables the donors to claim tax deductions on donations that are given to the charitable organisations created as any of the above three forms, that means society, section 8 company or trust.

Organizations which are registered under section 80G of income tax act, can also issue tax exemption certificates to donors, these certificates which are issued by the organisations will serve as proof of donation as well as enable donors to claim tax deductions in their own income tax return.

Why Registration under section 80G is necessary?

This registration helps in getting tax benefits to both the donor as well as recipient. Charitable organisations that are registered under Section 80G are entitled to receive deductions under income tax on the donations given to them by donors, On the other hand donors can claim deductions on the amount donated by them while filing their income tax returns, deduction may vary from 50% or donation amount to 100% of donation amount, it totally depends upon the category or donation.

As per the amendment in Finance Act 2020 relating to the provisions of 80G registration, the requirement to file annual returns was introduced, also by this amendment, the verification of donors by the Income Tax Department, and the possibility of reassessing and revoking registrations for non-compliance was introduced.

The provisions were amended to promote more transparency, accountability, and to ensure donations are made for genuine charitable institutions, and not for tax evasion. Hence the amendment made law strict for donors and institutions.

What is eligibility criteria for Registration under Section 80G of Income tax act? 

Charitable organizations seeking 80G specific eligibility criteria registration must follow below conditions as outlined in the Income Tax Act 1961:

For qualification under 80G, the organization must be duly registered in one of the three prescribed forms as stated above which means as a trust, society, or Section 8 (not for profit) company in accordance with pertinent laws and regulations. This satisfy the condition of holding a valid registration certificate issued by the appropriate authorities.

The organization’s objectives must solely focus on charitable objectives and activities, It shall not contain any provisions which are allowing the utilization of its income or assets for any type of non-charitable purposes or benefit to owners. Activities undertaken must align with the definition of “charitable purposes” as stated in the Income Tax Act, which I am mentioning below. These purposes encompass aiding individuals with low incomes, education, medical relief, environmental preservation, promotion of art and culture, among others.

As per Section 2(15) of the Income Tax Act, the “Organisation for charitable purpose” includes relief of the poor, education, relief for medical activities, or the advancement of any of the general public utility, as well as the preservation of the environment

Hence the organisation is required to comply with all the regulations of income tax act and are required to maintain a proper books of accounts for all its income and expenditure. Also It is required to submit it’s audited financial statements to the income tax department.

The organization must not possess any income that does not qualify for exemption, such as income generated from business activities or we may say income under Profit and gains of Business or Profession (PGBP). In the cases where the NGO generate business income, it must maintain a different accounting records and guarantee that donations received are solely allocated for charitable activities and not diverted for unrelated purposes.

An organisation must not exclusively serve the interests of a particular religious community, caste, or group. Essentially, the organization’s charitable activities should be broad-based and accessible to all, without any form of discrimination based on religion, caste, or group affiliation.

For example, let’s suppose a charitable organization named “Rajput Charitable organisation” the organisation that provides free education and healthcare services to village people. If “Rajput Charitable organisation” exclusively targets and benefits only individuals belonging to a specific religious community, caste, or group, such as providing free services solely to members of a particular religious denomination say Hindu’s, then it would not meet the eligibility criteria for 80G registration.

However, if “Rajput Charitable organisation” offers its services without discrimination, serving people from diverse backgrounds irrespective of religion, caste, or group affiliation, it would meet the eligibility criteria for 80G registration, ensuring that the organization’s charitable activities are inclusive and aligned with the spirit of promoting social welfare without bias or prejudice.

It is mandatory for the organisations which are applying for registration or re-validation to provide their registration number obtained from the Darpan portal of Niti Aayog. This requirement also applies when the organisation which receives or plans to receive grants or assistance from the Government.

What are the Documents that are required for 80G registration along with Form 10A/10AB?

Documents which are required are, firstly the Self-certified copy of the document of Incorporation or Charter relating to the Trust/Society/company, whether created through an deed/instrument or any other manner, next is a Self-certified copy of the registration certificate which has been issued by the Registrar of Companies or Registrar of Firms and Societies, or Registrar of Public Trusts, as the case may be, it depends on the type of organisation, next is a self-certified copy of the registration under the Foreign Contribution Regulation Act, it will be applicable only if the applicant is registered under FCRA Act.

What is FCRA Act?

The Foreign Contribution (Regulation) Act or FCRA was enacted in 2010 with the main objective to regulate the acceptance and utilization of foreign contributions received by individuals, associations, and companies to ensure that such contributions is not used adversely or manner which may affect the country’s sovereignty and integrity.

Next document required is the Self-certified copy of the existing order granting approval under clause (23C) of section 10. That is for the existing entities, copies of the annual accounts for up to three years immediately preceding the year when the application is being made, mainly required for renewal of the registration.

In case the organization’s income contains income under head profits and gains from business activities as per Section 11(4A), it is required to provide copies of the annual accounts and audit report as per Section 44AB for the three years preceding the year of application. Additionally, it is required to furnish the details of the organization’s operations either since its establishment or for the last three years, the lesser duration amongst two shall be considered

Organizations are required to apply to the Principal Commissioner or Commissioner of Income tax through the income tax efiling portal for fresh registration under Section 80G. Provisional registration will be granted for a period of three years. Which means, upon approval by the above authority, the registration will remain valid for three years from the Assessment Year in which the registration is obtained or approved.

Organizations which are seeking renewal of the registration must adhere to either of the following timelines, whichever is earlier, submit the renewal application at least six months before the expiry of the validity period or submit the renewal application within six months from the commencement of mentioned charitable activities of the organisation.

The provisional registration, that has been granted initially for three years, must be renewed upon reaching the above timeline, the renewed registration will be valid for five years and is required to be renewed at the end of each subsequent five-year period that means in span of every 5 years it shall be renewed.

Now, you might be wondering, how long it takes to obtain 80G registration?

The duration for obtaining 80G registration can vary, typically spanning several months, ranging from a few months to a year. This timeframe depends on factors such as the completeness of the application and the processing time of the relevant authorities.

What is the fee to be paid applying for 80G registration?

Apart from the professional fees, there is also a fee associated with applying for 80G registration. The fee amount may vary depending on the type and size of the organization.

What are the issues in case of non-compliance with Section 80G Requirements?

Failure to comply with 80G registration requirements may result in the revocation or cancellation of the registration. This could lead to the organization losing its eligibility for tax benefits, while donors would no longer be able to claim deductions on their contributions. Moreover, non-compliance may incur penalties or other legal ramifications under the Income Tax Act.

In conclusion, it is vital for non-profit groups to register under 80G section of the IT act so that they can receive tax concessions on donations and get backing for their charitable works. Thus enabled, persons contributing are allowed to claim for tax exemption while the organizations continue with their good work without disturbance.

Furthermore, organizations seeking 80G registration need to satisfy several eligibility requirements stipulated in this regard including being duly registered as trusts, societies or section 8 companies and proving that their activities fall within the definition of ‘charitable purposes’ provided by the Income Tax Act.

In addition to this, compliance with financial reporting and transparency regulations will be required to maintain registration status. To have themselves registered, applicants must submit relevant documents via income tax e-filing portal and adhere to timeframes for renewal. The time taken depends on various factors but generally lasts several months until one gets it sanctioned. Also important are charges or punishments that could go up to revocation of registration and loss of exemptions. In conclusion, it is clear that Section 80G provides an enabling environment for many people who want tax exemptions while financing charity ventures.