Non Profits who undertake charitable activities require TWO types of Registration. ONE is where the organization’s income is tax exempt as it carries out charitable activities as defined under Sec 2(15) of The Income Tax Act. This tax exemption application and a process can be viewed here.
This Blog is on the SECOND tax exemption of registration under Section 80G, whereby the Donors be it Individuals, companies, Partnerships, etc can avail of their donations as a tax deduction at 50% subject to the extent of 10% of their respective Gross Taxable Income. These TWO tax registrations require to be done sequentially. First under Section 12 A and then under Section 80G.
Who can apply for an 80G Registration :
An organization which is constituted either as i) a Public Charitable Trust or ii) A Registered Society under The Societies Registration Act, 1860 or iii) a Company formed under Sec 8 as a Non Profit under The Companies Act 2013 or iv) A university or institution recognized by Government or established by law or v) An institution financed wholly or in part by the government or a local authority.
4 Essential qualifying criteria
There are some essential conditions to be met to qualify for making an 80G application. The Do’s and Don’ts are:
- Money for a charitable purpose only – the income or assets of the institution or fund should not be used for any purpose other than a charitable purpose
- Dual Activities – Charitable & Business –Where the Organisation does Charitable work and also some form of business of sale of goods or services as an incidental object to the charity then separate set of books of accounts is expected to be kept and money managed separately to avoid any diversion of funds.
- Secular Nature – The charitable work should be genuinely secular and not confined based on any particular religious community or caste.
- Books of Accounts –the institution or fund maintains regular accounts of its receipts and expenditure. Sec 8 companies are to follow the accrual system of accounting.
Procedure for making an 80G application :
Under Rule 11AA of the Income Tax Rules, 1962 provides a procedure for applying for registration under section 80G. The application for approval of any institution shall be made in form No. 10G online and the application submitted online. In addition, triplicate hardcopies of the application, online form, and the following documents are to be submitted to the Commissioner of Income Tax having jurisdiction.
11 Types of Documents to be submitted:
- Covering letter along with a brief background of the organization, mission, vision and key activities undertaken. Covering letter format.
- Application in form 10G to be filed online. The format of Form10G.
- List of members of the governing body with their contact details as part of Form 10G. The format of List of Members.
- Copy of registration granted u/s. 12A or a copy of notification issued u/s. 10(23) or 10(23C). See blog on Sec 12 A.
- Copy of formation/incorporation such as a certificate of incorporation, MOA and AOA or Trust Deed or Memorandum Deed and Bye-Laws for Societies
- Copy of PAN
- Notes on activities of institution or fund since its inception or during the last three years, whichever is less. The format of List of Events/Activities
- Copies of Annual report and Income tax returns since its inception or during the last three years, whichever is less.
- List of Donations received since its inception or during last three years, whichever is less. The format of List of Donations.
- Copy of registered office such as rental/lease agreement, NOC, Tax paid and any latest utility bill copy
- In-principle letters from prospective donors of their interest to make donations should the applicant organization have an 80G registration. The format of prospective donor letter.
The Income Tax Commissioner may call for such further documents or information from the organization as he deems necessary to satisfy himself about the genuineness of the activities of such institution and whether it meets the Charitable activity clause under Sec 2(15).
When the Income Tax Commissioner is satisfied that all the conditions are fulfilled, he shall grant approval u/s.80G. When the Commissioner has reservations on the application, he may reject the same. However, no order of rejection of an application shall be passed without giving the organization an opportunity of being heard.
What is the time limit to approve the application
The time limit within which the Commissioner shall pass an order either granting the approval or rejecting the application shall not exceed six months from the end of the month in which such application was made.
Provided that in computing the period of six months, any time taken by the applicant is not complying with the directions of the Commissioner under sub-rule (3) of Rule 11AA shall be excluded i.e., time taken for providing documents or information shall be excluded.
Whether there is a validity period for the certificate granted
No, once the registration is granted, it will hold good till the cancellation of registration. Cancellation of registration can be done voluntary by the charitable organization or by the Income department for non-compliance.
General guidelines and precedents for obtaining 80G Registration
- Meeting the Charity definition under Sec 2(15) –
The charitable purpose has been defined u/s. 2(15) of the Act to include:
- Relief of the poor,
- Medical relief,
- Preservation of environment (including watersheds, forests, and wildlife)
- Preservation of monuments or places or objects of artistic or historic interest and
- Any other object of general public utility
- Indian Territory – Tax exemption is only accorded for charitable work being carried out only in India and not work done outside the country.
- Ability to establish a charitable connect – The nature of charitable work being done and it’s social touch points, outcomes should be as explicit as possible. The nature of social work should not be either vague or so remote that the connection between the work done by the organization and social good is too distant for the layman to make any connection.
- Object of general public utility and business income – Should the nature of charitable activity come under an object of a general public utility under sec 2(15) and the income from the business should not exceed 20% of the total income after aggregating the donation income, else the entire income would suffer tax. If one envisages that the business income would exceed 20%, then it may be advisable to set it up as a distinct social enterprise which can well be a Non Profit but not seek tax exemption under either Sec 12A or Sec 80G.
- Membership Bodies – Principle of mutuality – At times organisations are set up to serve the very same constituents who contribute, like any membership body such as a Resident’s welfare association, or an Apartment owners association or a club, in which case the activity may not be charitable but may be established as a Society and derive service income which may be subject to GST and can be tax exempt on the grounds of mutuality rather than claiming to be charitable.
Non Profit organizations working on social causes would do well to have themselves registered under both Sec 12A and Sec 80G and ensure ongoing compliance with the tax regulations under them. They should also publish their registrations in their respective websites as public information as it lends to improving their credibility in society. For those NGO’s whose objects fit within the general public utility definition and also carrying out a business incidental to its main object, the extent of revenues to total income needs to be carefully managed to ensure that your tax exemption does not slip away.