Income Tax Benefits for NGOs

Introduction

Role of NGOs in India

Non-governmental organisations (NGOs) play an important role in India’s development journey. They help improve lives by working in areas like education, healthcare, environmental awareness, women empowerment, and poverty reduction. Many NGOs also focus on advocacy, aiming to make society more inclusive. 

Since these organisations often depend on public donations and grants, proper financial management and favourable direct tax treatment becomes very important for their long-term work.

Importance of Income Tax Benefits for NGOs

Income tax benefits give NGOs more credibility and financial support. An NGO with approved tax exemption status can attract more donors, since people prefer donating when they can claim tax deductions. For the NGO itself, tax exemption helps reduce liabilities and direct more funds toward social impact.

Eligibility Criteria for NGOs to Avail Tax Benefits

Types of NGOs Eligible (Trusts, Societies, Section 8 Companies)

Different types of NGOs that can apply for tax exemptions include:

• Public charitable trusts
• Registered societies
• Section 8 companies under the Companies Act, 2013

All of these can get NGO donation tax exemption once they meet the legal requirements.

Mandatory Registrations Under Income Tax Act

To access NGO donation tax exemption benefits, the organisation must register under Section 12A or Section 12AB. Without this registration, donations to NGO tax exemption cannot be claimed by donors, and the NGO may lose its own tax benefits.

Key Income Tax Sections Relevant to NGOs

Section 12A: Registration for Tax Exemption

This section helps NGOs register so that their income from donations is exempt from tax. Without Section 12A registration, all donations and grants would be taxed.

Section 80G: Tax Benefits to Donors

When an NGO is registered under Section 80G, its donors can claim deductions under this section. This encourages individuals and corporates to donate more, as the donation to the NGO tax exemption reduces their taxable income.

Section 10(23C): Income Exemptions for Educational and Medical Institutions

Educational and medical institutions run by NGOs can also get NGO tax exemption under this section, provided they meet certain conditions.

Registration Process for Claiming Tax Benefits

How to Register Under Section 12A and 80G

The process of registration under Sections 12A and 80G follows the new guidelines introduced through the Finance Acts of 2020 and 2021. Under this, you first need to file Form 10A for new registration or re-registration (if your NGO was earlier registered under Section 12A, 12AA, or 80G). This re-registration has been applicable from 1st April 2021, under Section 12AB. Steps for filling the form are as follows:

• First, choose the legal structure (trust, society, or Section 8 company) and register your organisation with the appropriate authority.
• Collect all required documents.
• Fill out Form 10A accurately with details about your organisation’s objectives and activities.
• Submit the form online via the Income Tax Department portal.
• The tax authorities will review your application and may inspect your financial records.
• On approval, you will receive a registration certificate under Section 12A and 80G.

Documents Required for Registration

To complete this process successfully and avoid delays, keep the following documents ready:

• Trust Deed / Society Registration Certificate / Section 8 Company Certificate
• Memorandum of Association (MOA) and Articles of Association (AOA) (for Section 8 companies)
• PAN card of the NGO
• Form 10A (for 12A registration) and 10G (for 80G registration)
• Bank account statement
• Audited accounts for the last three years
• List of trustees / members / directors
• List of activities undertaken
• FCRA registration (if applicable)
• NGO Darpan ID (if applicable)

With a valid 12A and 80G registration, your NGO can maintain compliance with the tax laws and manage its financial affairs, including handling of professional tax and donor incentives, more effectively.

Conditions NGOs Must Fulfill to Retain Tax Benefits

Usage of Funds for Charitable Purposes Only

Funds must be used only for the purposes mentioned in the registration documents and align with the organisation’s stated charitable objectives. If used for personal or commercial gain, the NGO tax exemption may be cancelled.

Proper Maintenance of Books of Accounts

NGOs must maintain clear and accurate financial records. Just as companies dealing in stock market advisory services follow strict reporting, NGOs must do the same to meet audit and compliance requirements.

Tax Benefits for Donors Supporting NGOs

Deductions Available Under Section 80G

Donors can claim up to 50% or 100% deduction on donations under Section 80G, depending on the type of NGO and notification status.

How Donors Can Claim These Deductions

To claim a deduction under Section 80G, you need valid proof of donation:

• Always collect a proper donation receipt and Form 10BE from the NGO.
• Cross-check that the donation amount in Form 10BE matches your actual donation.
• Download Form 10BE from the Income Tax Department’s portal to ensure it is valid (manual forms are not accepted). The form should display the department logo and watermark.
• During ITR filing, provide all the details from Form 10BE accurately.
• If any errors appear in the donation certificate, request the NGO to issue a corrected version.

Donors should collect the 80G certificate from the NGO and provide it during income tax calculation on salary or while filing returns. This helps reduce their tax outgo.

Impact of New Income Tax Laws on NGOs

Recent Changes Affecting NGO Tax Exemptions

An NGO must be mindful of two main recent changes:

1. Two audit reports:

• Form 10B is required if your NGO’s total income exceeds ₹5 crore, or if it receives foreign contributions, or earns business income.
• Form 10BB is now mandatory for smaller NGOs with simpler operations under Sections 11 and 12.

2. Updated audit report details in Form 10B include:

• Your NGO’s 12A/12AB registration specific.
• Breakdown of corpus funding, voluntary donations, and their utilisation
• Compliance checks under Section 13 (e.g. no benefit to trustees)
• TDS verification and cross‑check with Form 26AS

Without these disclosures, approval risks delay or denial.

Re-registration Requirements Under New Rules

The government has extended re-registration deadlines to improve oversight:

• Provisional vs. Final: Organisations must register under Section 12AB, with provisional approval valid for 3 years and final registration for another 5 years. Booking renewal six months before expiry is mandatory to maintain tax benefits.
• New Deadline: For a certificate valid until 31 March 2026, NGOs should initiate renewal by 30 September 2025. Late renewal may lead to penalties or even cancellation.
• Form 10A continues to be the official way to apply for fresh registration or renewals.

These updates ensure that NGOs stay compliant, avoid disruptions in their NGO tax exemption, and maintain donor confidence in their financial integrity.

Common Challenges Faced by NGOs for Tax Compliance

Issues in Renewing Registrations

NGOs often struggle with renewing 12A and 80G registrations on time. Common reasons include gaps in document records, lack of clarity on new online procedures, and delays in gathering board resolutions or updated audited accounts.

Audit Requirements for NGOs

For NGOs exceeding ₹2.5 lakh in income (without 12A registration) or crossing higher thresholds under 12A, an audit report is mandatory under the Income Tax Act. Filing Form 10B or 10BB now requires detailed schedules that show the segregation of voluntary contributions, compliance with fund usage norms, and reconciliation with Form 26AS. 

Many NGOs face challenges in ensuring accuracy in these new disclosures. The audit requirements are now more aligned with corporate-style direct tax and professional tax audits, adding an additional layer of compliance work.

Best Practices for NGOs to Maximize Tax Benefits

Maintaining Transparency and Compliance

Good governance and transparent financial records increase credibility. They also make compliance with tax laws easier.

Timely Filing of Returns and Reports

NGOs should ensure timely filing of income tax returns and any related reports. This helps them avoid compliance issues and retain tax benefits.

Conclusion

The Importance of Compliance for Sustained Tax Benefits

Compliance is the foundation for sustaining tax benefits. Regular reviews, timely filings, and accurate documentation not only help maintain eligibility but also strengthen the credibility of the organisation. A disciplined approach ensures NGOs can continue their work without disruption and build lasting trust with donors and partners.

FAQs

What is the validity period of 80G and 12A registrations?

Currently, the validity is five years after which re-registration is required.

Can an NGO lose its tax benefits?

Yes, failure to meet compliance requirements can result in the cancellation of NGO tax exemption status.

Are all donations eligible for 80G deduction?

No, only donations made to NGOs registered under Section 80G are eligible for deduction.

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