Donations play a vital role in the management and functioning of NGO’s, trusts and charitable organizations. Many NGO’s feel immune to different forms of taxation as they are non profit organizations who work primarily for the betterment of society and backward sections and thus contribute their good work in the nation’s development. However, such exemptions can be claimed only when such organizations are registered under Section 80G and 12A of the Income Tax Act. The Finance Bill 2020 however, have made some changed to this system through which the exemptions can still be availed either by obtaining re-registration under Section 80G and fresh registration under Section 12AB.
Major Requirements to be fulfilled by NGO
Form CSR-1 for CSR Funding
With effect from 1st April, 2021 NGO’s can avail funding for their proper functioning only after getting itself registered through form CSR-1 available on MCA portal as per the notification issued by MCA on 22. January, 2021. This form needs to be digitally signed by the eligible professional and thus NGO can not do it by itself without the aid of designated professionals. The Documents requirement for filing Form CSR-1 are as follows:
Copy of Registration Certificate
Copy of PAN card of Non-profit Entity
Digital Signature of authorized person along with their signatures
All those NGOs that are already registered under Section 80G and Section 12A/12AA and availing the benefit of tax exemption is now required to re-register themselves with the income tax department through Form 10A.
Amendments to section 80 G There are certain recent amendments introduced in Finance Bill 2020 which are applicable from 1st June 2020 under which contributions made to certain relief funds and charitable institutions for charitable purposes can be claimed as deduction under Section 80G of the Income Tax Act.
Principal Commissioner shall be the authority to grant registration Earlier, the institutions who were willing to seek registration under section 80G were required to make an application in Form 10G with the commissioner in accordance with the Rule 11AA.However as per the Finance Bill 2020 the application for approval under section 80G shall now be made to Principal Commissioner or Commissioner. The Principal Commissioner has also been proposed to be added as an authority to grant registration under this section.
Obligation to file statement of donation Deduction under this section shall be allowed to donor only if statement in respect of donation received is presented to the authority by the donee. In the event of failure to do so he shall not be eligible to avail any deduction and shall also be penalized.
Timelines to make an application The bill passed has prescribed a definite timeline for every Institution that wants itself to get registered under Section 80G to apply to commissioner or principal commissioner for seeking approval, failing which the application shall not be accepted.
Concept of perpetual registration withdrawn After the introduction of this amendment only those Institutes were required renewal whose expiry is due before 01-10-2009. For the rest of the cases, the perpetuity of approval has been provided until the exemption gets withdrawn by the commissioner. Further it stated that now there is no need to renew it periodically. The entities shall now seek registration for a period of 5years at a time from the enforcement of this provision.
Grant of Provisional Registration The charitable entities shall be given registration by the commissioner on the validity and authenticity of the documents and activities being undertaken by such entities. However, the charitable Institutes that are yet to start their activities shall be given provisional registration for not more than 3 years as per Finance Bill 2020.
Fresh Registration under section 12AB
To claim exemption under section10 or Section 11, trust is mandatorily required to gain registration under Section 12AB of the act. In case of trusts Or institutions which are already registered under Section 12A, Section 12AA, Section 10(23c) and Section 80Gshall apply for registration under Section 12AB in Form 10-A . The validity of registration under Section 12AB shall be for 5 years however provisional registration shall be granted for 3 years.
However considering the present scenario of pandemic the new registration process which was supposed to be implemented w.e.f June 1 2020 and completed till 31st August 2020 was then deferred and extended to 1st October 2020 till 31st December 2020.But it has again amended and now deferred to 1st April 2021 to 30th June 2021.
Thus the existing provision under Section 12AA has been completely omitted.
Amendments made therein are made with the objective to bring transparency and more accountability towards their activities. Of course it has enhanced the burden digitally but in the long term it will only add up to efficiency in the system.
Lastly, in case of any doubt or dilemma, reach out to Legal Window, our proficient and skilled Chartered Accountants and Company Secretaries are always there to serve you with the best advice and guidance.
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