We list the legal and financial benefits of registering as an NGO in India and the tax status of non-profit organizations in the country.
An NGO (non-government organization) is a non-profit association that functions independently. In India, NGOs can be registered as a Society, Trust, and Section 8 companies – depending on their scope of activities.
NGOs may be involved across a wide range of activities, voluntary and group-based or institutional, with the underpinning factor being that they are for the benefit of society at large or some specific or at-risk social group.
Activities performed by NGOs include but are not limited to – environmental, social, advocacy, education, and human rights work.
There are three legal ways an NGO can be registered, which are as follows:
Registering the company as an NGO under the Companies Act, 2013 helps in availing several taxation benefits. NGOs are exempt from several taxes, which helps the organization utilize the saved money in further projects.
When your organization is officially registered, it is permitted to acquire land, own fixed assets, and/or acquire liabilities under its common seal. It is against the law for an unregistered organization to buy, hold, and/or sell land anywhere.
No minimum share capital requirement is needed to function independently. NGOs can be directly funded with the charity made to them. This means that NGOs do not need a higher share capital to function independently.
You can buy, acquire, and register assets and stakes in the name of your NGO. This is a way to protect your organization from unlimited liability due to untoward occurrence, such as foreclosure, bankruptcy, judgment debt, or divorce, etc.
Under the Income Tax Act, 1961, NGOs registered under the Companies Act, 2013 are not restricted from transferring their ownership or claims of the interests earned.
Under the Income Tax Act, section 8 companies as NGOs are exempted from stamp duty, which results in more tax-saving methods for the company. All the taxes saved through stamp duty are then invested in the promotion of the objectives taken up by the company.
Having an NGO can bear a tax-free mechanism for actions you are carrying-on under the registered NGO. NGOs are considered not-for-profit and tax exempted. You can develop a structured financial plan that allows the organization to do business devoid of tax liabilities.
The registration of your organization can suggest that there is effective and responsible leadership in place and the public will perceive the same. Political parties, government, donor agencies, financial institutions, charity organizations, and other NGOs will want to partner with a registered body to further common objectives.
This means an NGO has an unlimited lifetime and will carry on existing even if the founder/trustees die or leave the NGO. The organization’s continuation will only cease if it is formally wound up by the Order of Court of India. Along with other benefits, this may allow perpetual succession.
Registering an NGO can afford access to credit from lenders and financial institutions. You can use a loan facility to promote the organization’s activities, finance a mortgage, acquire land, or fixed assets. Banks will want to see proof of registration with condition precedent to giving a loan.
Once your organization is registered, no one can use the same name or a name similar to it – throughout India. This has the benefit of protecting your corporate image and name from unauthorized use.
Opening a corporate account with a bank for the NGO may signal the fact that it is financially transparent. Some private persons, government, donor agencies, and other NGOs will not be comfortable writing you a check for your organization in your personal name. A bank account for the NGO would signal its corporate existence and its readiness to receive donations. You need to provide proof that your organization is registered to be able to open such an account.
Registering an NGO in India is beneficial for many reasons. The basic reason is the rebate received in income tax under Section 12A and 80G. NGOs with 12A-registration can claim an exemption from the income tax department. NGOs with 80G-certification attract more donors for donating funds to the organization. If NGOs are not registered, they are subject to regular tax rates.
Furthermore, attracting donors for donations becomes difficult. Earlier the registration under 12A was a one-time registration and valid till its cancellation. But with effect from April 1, 2021, the registration granted under section 12AB will remain valid for five years only. However, a provisional registration shall be valid for three years only.
All NGO registration approvals granted under section 12AB shall be subject to renewal as determined under the new scheme of registration. All existing charitable trust and institutions and those registered under sections 10(23C), 12A,12AA and 80G of the Income Tax Act shall be required to register themselves under the new amended section 12AB to claim tax exemption under sections 11 and 12.
Since NGOs attract donations from corporates and individuals, they are required to have stringent measures in place to ensure transparency and efficiency. The government provides such organizations with various tax benefits and deductions as they perform charitable activities / social work.
Sections 12A and 80G have their own implications and offer many benefits to NGOs. Some advantages are listed below:
The basic eligibility criteria to get 12A and 80G certificates are as follows:
To summarize, registration under section 12A provides tax exemption to NGOs and section 80G works for the benefit of individuals and organizations willing to save tax. It is better to make donations by way of check or online banking transfer. The application for 12A and 80G registration can be filed together or separately under section 12AB. It is up to the commissioner to accept or reject the application for registration of NGOs or trust until they are satisfied about genuineness of the activity of the NGO/trust. The document should be adequately submitted to avoid any chances of rejection.
The certification u/s 80G helps donors reduce their tax liability by 100 percent or 50 percent on the amount donated, depending on the nature of activities undertaken by the Trust/NGO. However, the 80 G certification does more than allowing donors to claim tax exemption on their donations.
Dezan Shira & Associates can help you set up your NGO in India and stay compliant with our advisory services. For more information, you may reach us at [email protected]
About Us
India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to [email protected] for more support on doing business in in India.
We also maintain offices or have alliance partners assisting foreign investors in Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Italy, Germany, and the United States, in addition to practices in Bangladesh and Russia.
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