Comparison among Trust, Society and Non Profit Company
Since the services of the NGOs are supplemental to the similar function of state, these entities are eligible for certain tax benefits. Even the donors/sponsoring authorities have been encouraged by the Government by way of allowing tax benefit for contribution to these entities. The NGOs/donor can claim tax benefit under the following section of Income Tax Act, 1961.
Tax Benefit under Section 12A – to NGO
Any voluntary contribution received by NGO or income out of property held under Trust is exempted from Income Tax provided such NGO is registered u/s 12A of Income Tax Act, 1961.
The NGO getting itself registered u/s 12A of the Act needs to apply to the Director of Exemption, Income Tax in the prescribed form (10A) along with following documents:-
Registration Certificate and MOA/Trust Deed.
Rent Agreement of the Property where the Office of NOC is situated along with Electricity Bill/House Tax Receipt/Water Bill
Copy of PAN card of NGO
Evidence of welfare activities carried out & Progress Report since inception or last 3 years
Balance Sheet & ITR (if any), Since inception or last 3years
List of donors along with their address and PAN
List of governing body/board of trustees members with their contact details & PAN
Original RC and MOA /Trust Deed for verification
The Income Tax Department on being satisfied about the charitable character of the NGO will grant registration certificate u/s 12A of the Act. The registration so granted is valid for indefinite period until unless it is cancelled by the Issuing Authority.
Tax Benefit under Section 80G– to Donor
An NGO can avail income tax exemption by getting itself registered u/s 12A as stated above, but such registration does not provide any Tax benefit to the persons making donations. The Income Tax Act has certain provisions which offer tax benefits to the "donors" also.
All NGO's should avail the advantage of these provisions to attract potential donors. Section 80G is one of such sections. If an NGO gets itself registered under section 80G then the person or the organisation making a donation to the NGO will get a deduction of 50% from his/its taxable income. The NGO can apply for necessary Registration u/s 80G of the Act in Form No. 10G simultaneously while filing the application in Form 10A for tax exemption u/s 12A of the Act.
An NGO is eligible for registration u/s 80G of the Act on fulfilment of following conditions:
The NGO should not spend any income or assets for any purpose other than a charitable purpose.
The NGO should not be for the benefit of any particular religion, Community, or caste.
The NGO should maintain regular accounts.
Tax Benefit under Section 35AC – NGO & Donor
Section 35AC grant tax benefit to both the donor and done. The NGOs notified u/s 35AC of the Act is eligible for 100% tax exemption on its income u/s 10(21) of the Act and simultaneously the done also receive 100% rebate of Income Tax on the donated amount.
REGISTRATION UNDER SECTION 35AC
The Central Government approves certain NGOs and notifies them as eligible for project or schemes for the purposes of section 35AC. Central Government has constituted a National Committee to identify projects and schemes to be notified under section 35AC, such committee normally consists of eminent persons. All NGOs are entitled to apply to the National Committee to get its projects or schemes approved. The application for approval should be made to the Secretary, National Committee for Promotion of Social & Economic Welfare, Dept. of Revenue, Govt. of India, North Block, New Delhi – 110001 along with necessary enclosure as prescribed in the applicable Rules of the Act.
THE FOLLOWING PROJECTS ARE ELIGIBLE FOR APPROVAL: -
1. Construction and maintenance of drinking water projects in rural areas and in urban slums, including installation of pump-sets, Digging of wells, Tube wells and laying of pipes for supply of drinking water.
2. Construction of dwelling units for the economically weaker sections.
3. Construction of school buildings primarily for children belonging to the economically weaker sections of the society.
4. Establishment and running of non-conventional and renewable sources of energy systems.
5. Construction and maintenance of bridges, public highways and other roads.
6. Any other programme for uplift of the rural poor or the urban slum dwellers, as the National Committee may consider fit for support, like :- Promotion of sports, Pollution control etc.
7. Establishment and running of educational institutions in rural areas, exclusively for women and children up to 12 years of age
8. Establishment and running of hospitals and medical facilities in rural areas, exclusively for women and children up to 12 years of age
9. Establishment and running of crèches and school for the children of workers employed in factories or at building sites
10. Encouraging the production of bacteria induced fertilizers
11. Any programme that promotes road safety, prevention of accidents and traffic awareness
12. Construction of hostel accommodation for women or handicapped individuals or individuals who are of the age of sixty-five years or more
13. Establishment and running of institutions for vocational education and training in rural areas or towns which consist of population of less than 5 lakhs.
14. Establishment and running of institutions imparting education in the field of engineering and medicine in rural areas or towns which consist of population of less than 5 lakhs.
15. Plantation of softwood on degraded non-forest land.
16. Any programme of conservation of natural resources or of a forestation.
CERTIFICATE TO BE ISSUED TO THE DONOR
All approved NGOs are required to issue a certificate in Form 58A to the donor for all contributions & receipts under section 35AC.
This certificate will enable the donor to claim exemption from its taxable income
Tax Benefit Under Section 35 (1) (ii) & (iii)
Any scientific research association/organization which has its objects, Carrying out the scientific research or social science research or social science research can be approved under section 35 (1) (ii) and 35(1) (iii) in accordance with the guidelines and other conditions as may be notified in the official gazette of the central government. On the one hand income of these institutions are exempt under section 10(21) of the act whereas on the other hand, donor will receive weighted deduction up to 175% on the donated amount as per amendment by the Finance Act 2010.
Application: - The application for approval under section 35(1) (ii)/(iii) of IT Act 1961 may be submitted to the Director of Income Tax (Exemption) IT of the jurisdiction of the assesses association in the prescribed form along with various information such as: -
Details of past research projects undertaken by the applicant, Such as research projects completed
underway/ any publication of research projects
Past research activities such as whether any new product/process developed, Approved, Any product of import substitution
List of assets/facilities owned used for scientific research/Social science research by the applicant
Details of conferences/ seminars etc. held
Proposed research project to be undertaken
List of the donors and amount received as donations
Amount utilized in such research activities
Tax Benefits u/s 10(23)(A) of the Act. - NGOs
Income of all institutions established in India having their objects for encouragement of profession of law/medicines/accountancy/engineering/architects or other professions is exempt u/s 10(23)(a) if they are approved by the Central Government as per the prescribed procedure.
Tax Benefits u/s 10(23)(C) of the Act. - NGOs
Income of Universities/Hospitals established in India for non-profit purpose can be claimed as exempt u/s 10(23)(C) if they are approved by the Central Government as per the prescribed procedure.
12 A Registration
When NGO (trust, society or non-profit company) get registered with Income Tax department under Income Tax Act 1961, to claim tax exemption for their income, it called the 12A registration.
From the Date of establishment of an NGO, should apply for registration with Income tax department to get 12A certificate. If delayed in applying for registration then the NGO should submit Audit Reports as may be available.
The Income tax officers have the rights to grant or to refuse registration to your application. Also, note that, 12A registration of an NGO shall be cancelled by the Income tax department, if it feels that NGO is not fit as per law at any point of time.
80 G Registration
As we already know that, NGO can avail income tax exemption by getting itself registered and complying with certain other formalities, but such registration does not provide any benefit to the persons making donations. The Income Tax Act has certain provisions, which offer tax benefits to the "donors". All NGO's should avail the advantage of these provisions to attract potential donors. Section 80G is one of such sections.
If an NGO gets itself registered under section 80G then the person or the organization making a donation to the NGO will get a deduction of 50% from his/its taxable income. The NGO has to apply in Form No. 10G As per Annexure 29 to the Commissioner of Income Tax for such registration. Normally this approval is granted for 2-3 years.
CONDITIONS TO BE FULFILLED UNDER SECTION 80G
For approval under section 80G the following conditions are to be fulfilled:
i) the NGO should not have any income which are not exempted, such as business income. If, 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.
ii) 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.
iii) The NGO is not working for the benefit of particular religious community or caste.
iv) The NGO maintains regular accounts of its receipts & expenditures.
v) 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.
The FCRA was enacted with the primary purpose of regulating the inflow of foreign contributions and ensuring that the received foreign contributions are not utilized for illegal purposes. All charitable organizations in India receiving foreign contributions come under the purview of this Act. Over the last few years, the Home Ministry has been scrutinizing the flow of foreign funds to all charitable organizations in India and the Ministry has also cancelled the licenses of over 8000 charitable organizations due to non-compliance with the reporting requirements stipulated under the Act.
Object of the Act
Foreign Contribution and Regulation Act 2010 (FCRA) is enacted with the following objects:
To regulate the acceptance and utilization of foreign contribution or foreign hospitality by certain individuals or associations or companies and
To prohibit acceptance and utilization of foreign contribution or foreign hospitality for any activities detrimental to national interest and for matters connected therewith or incidental thereto.