Compliance requirements under 12AA and 80G application

Registration under Income Tax

BACK GROUND

The activity of an NGO is towards the society and is normally for public utility and charitable purpose. It is very difficult if not impossible to arrange funds for such noble work. It is precisely because of this income of NGOs are normally exempted from Income Tax. However, there are certain rules and regulations,and guidelines which an NGO must follow to get such exemption. The most important rule relating to this is registration of the NGO under the Income Tax Act. Section 12A of the Income Tax Act deals with application for registration. Section 12AA of the income tax deals with actual
process of registration.

WHY REGISTER

An NGO needs to register itself with Income Tax Department U/s 12AA for availing exemption of its income from income tax.

REQUIREMENT FOR REGISTRATION U/s 12AA

To get yourself register U/s 12AA you need to apply to the Commissioner of Income Tax of your area. Such application should be made within one year of the creation of the Trust. Such an application should be made in Form no. 10A. In case, such an application is delayed, and the registration will be allowed from the financial year in which such application is made i.e. for earlier years the society will have to pay the Income Tax at the usual rate.
CHECK LIST FOR REGISTRATION:

Before you apply for Registration U/s 12AA, you should ensure that you have the following with you:

• Rules and Regulation of the Society.
• Memorandum of the Society.
• List of members of Governing body, their addresses with their designations.
• Copy of Registration Certificate under the Society Registration Act.
• Short note on the activities of the Society.
• Audited accounts of the Society as applicable.
• Form no. 10A duly filled up in four copies.

FILING OF FORM NO. 10A

The Form No. 10A is a simple form and easy to fill. Along with the form no.10A attach various documents mentioned above. Please submit the form by hand at the counter of Commissioner office and obtain a proper receipt of the same. This form requires that the last three years accounts should be attached. However, after the amendment this form must be submitted to the Income Tax Officer within one year of the formation of the society. In most of the cases, the Society will not hold audited accounts for the last three years. A suitable note should be written for this on the form no. 10A itself.

PROCEDURE FOR REGISTRATION

After receipt of your application, the Commissioner will ask for a report from Income Tax Officer. Income Tax Officer may depute an Inspector to your office or may issue a notice for providing necessary documents and books of records for verification.

Since, now a days, most of the Societies apply for registration immediately after creation of the Society practically they do not have any records and books of accounts. It is advised that along with the application proper books of accounts should be made side by side. This will satisfy one of the important areas of the Income Tax formalities. You should update your minute book also. This should also contain first resolution of members for forming society.

After inspection, the Income Tax Officer will submit a report to the Commissioner. The commissioner will issue approval for registration or his refusal based on such report. Hence take care that this report is promptly send by your Income Tax Officer to the Commissioner.

It is also provided that in case, the Commissioner intends to refuse registration to your organization, he will issue a notice to you and you will be given an opportunity to justify your case.

It is now provided in the Act that the Commissioner of Income Tax will take a decision within six months of the month in which application was made.

The approval letter of the Commissioner is a very important document and in the long run, the society will need it badly on many occasions. This is required to be submitted to various agencies where you have invested money for no deduction of tax at source. There are many other uses also. Hence, it is emphasize that you should try to get an approval letter from the Commissioner Office even through it requires a lot of visits,Physical labour, monetary cost on your part. this approval letter contain your registration serial number.

AFTER REGISTRATION

Once you get approval letter, you should make several copies of the same and give one copy each to your Auditor, Tax Consultant, important members of the governing council. Copies of the same should also be placed on files containing important documents relating to your organization.

In extreme cases the Commissioner has power to withdraw the Registration Granted to you. Hence, you should comply with all the formalities of this Income Tax Act including submission of your Income Tax return in time. You should carry out activities of the society as provided in your Rules and Regulation.

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What is section 12-A of Income Tax Act. ?

Income of an organization is exempted if  NGO has 12-A registration. All income shall not be taxable after 12-A registration. This is one time registration.

What Is section 80-G of Income Tax Act. ?

If an organization has obtained certification under section 80-G of Income Tax Act then donors of that NGO can claim exemption from Income Tax. This is not one time registration.  This needs to get renewed after validity period.
FAQ

Q. When an organization can apply for registration under section 12A and BUG of Income Tax Act?

A. Application for registration under section 12A and 80G can be applied just after registration of the NGO.

Where to apply for registration under section 12A and 80G of Income Tax Act?

Application for registration under section 12A and 8OG can be applied to the Commissioner of Income-tax (Exemption) having jurisdiction over the institution.

Can both the applicatlons under section 12A and 80G of Income Tax Act be applied together?

Yes ! Both applications can be applied together or it can also be applied separately also. If some organization is willing to apply both applications separately, then application for registration u/s 12A will be applied first. Getting 12A registration is must for applying application for registration
u/s 80G of Income Tax Act.

Generally what is the timeline for getting registration under section 12A and 80G of Income Tax Act?

If application for registration under section 12A and 80G will be applied through NGO Factory, it should take 3 to 4 months.

What is the procedure for getting registration under section 12A and 80G of Income Tax Act?

Step-1: Dully filled-in application will be submitted to the exemption section of the lncome Tax Department.
Step-2: NGO will receive notice for clarifications from Income Tax Department in 2-3 months after applying.
Step-3: Reply of notice will be submitted by the consultant along with all relevant desired documents to the Income Tax Departments.
Step-4: Consultant will personally visit the Income Tax Departments to follow-up the case on behalf of the applicant organization.
Step-5: Exemption Certificates will be issued.

What is the validity period of the registration under section 12A and 80G of Income Tax Act?

12A registration : Lifetime validity
80G registration : 1 to 3 years validity

What application forms are being used for applying for registration under section 12A and 80G of Income Tax Act?

12A registration : Form 10A
80G registration: Form 10G (For New Application and Renewal both)

What are the conditions on Section 80G?

There are few conditions to be fulfilled under the section 80G:

• The NGO should not have any income which are not exempted, such as business income. lf, the NGO has business income then it should maintain separate books of accounts and should not divert donations received for the purpose of such business.
• The bylaws or objectives of the NGOs should not contain any provision for spending the income or assets of the NGO for purposes other than charitable.
• The NGO is not working for the benefit of particular religious community or caste.
• The NGO maintains regular accounts of its receipts & expenditures.
• The NGO is properly registered under the Societies Registration Act 1860 or under any law corresponding to that act or is registered under section 25 of the Companies Act 1956.

What is Tax Exemption limit on donations?

There is a limit on how much money can be exempted from the Income Tax.

• If the amount of deduction to a charitable organisation or trust is more than 10% of the Gross Total Income computed under the Act (as reduced by income on which income-tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), then the amount in excess of 10% of Gross Total Income shall not qualify for deduction under section 80G.
• The persons or organisation who donate under section 80G gets a deduction of 50% from their taxable income. Here at times a confusion creeps in, that the tax advantage under section 80G is 50%, but actually it is not so. 50% of the donation made is allowed to be deducted from the taxable income and consequently tax is calculated.
• The ultimate benefit will depend on the tax rates applicable to the assessee. Let us take an illustration. Mr. X an individual and M/s. Y Pvt. Ltd., a Company both give donation of Rs.1,00,000/- to a NGO called Adarsh. The total income for the year 2003-2004 of both Mr. X and Ms. Y Pvt. Ltd. is Rs. 2,00,000/-. Now assuming that the rates are 30% for the individuals and 40% for the Companies without any minimum exemption limit.

Documents reguired for registration u/s 12A AND 80G:

1. Dully filled in Form - 10A for registration u/s 12A registration;
2. Dully filled in Form - 10G for registration u/s 80G registration;
3. Registration Certificate and MOA /Trust Deed (two copies - self attested by NGO head);
4. NOC from Landlord (where registered office is situated);
5. Copy of PAN card of NGO;
6. Electricity Bill / House tax Receipt /Water Bill (photocopy);
7. Evidence of welfare activities carried out & Progress Report since inception or last 3 years;
8. Books of Accounts, Balance Sheet & ITR (if any), since inception or last 3years;
9. List of donors along with their address and PAN;

10.List of governing body I board of trustees members with their contact details;

11.Original RC and MOA /Trust Deed for verification;

12.Authority letter in favor of NGO Factory;

13.Any other document I affidavit / undertaking I information asked by the Income Tax department