Tax Benefits for NGO Donors

April 18, 2024

Registrationwala

If you have ever wanted to make a positive contribution to the world, there’s no better time to do it than now. The tax authorities in India provide tax benefits on the contributions made to the NGOs, trusts, and central/state relief funds.

According to Section 80G of the Income Tax Act of 1961, if a taxpayer makes donations to NGOs and charitable trusts from their total income, they can save tax. In this article, we will discuss income tax benefits for donors of NGOs and other charitable organizations which come under Section 8 Companies.

NGOs and their Scope of Work

Companies registered as non-governmental organizations or NGOs work for the betterment of the society, whether it is done through educating children, protecting the rights of the LGBTQ community or by empowering women in the society. In theory, their scope of work is considered the government’s moral responsibility.

Let’s take an example, an NGO provides education to the needy children in a rural area which benefits the society and paves the path for a brighter future generation. However, there is a constraint on the resources due to which government authorities cannot reach all the needy. Hence, the central government supports the citizens and other individuals to help the needy through a collaborative effort. Collective efforts of individuals to help the needy with finances or any other means such as donating food is a part of the central government’s core objectives and plays an important role when it comes to defining tax codes such as Section 80G of the Income Tax Act.

Section 80G of the Income Tax Act, 1961

Section 80G permits certain charitable contributions made in India to be deducted from an individual’s taxable income. However, it is necessary for companies registered as NGOs and section 8 companies to obtain the necessary paperwork which includes an 80G certificate, in order to qualify for such deductions and tax benefits.

The primary purpose of 80G certificate is to incentivize donors to contribute funds to these NGOs or non-profit organizations which are considered as section 8 companies. To get this certificate, NGOs need to register and validate themselves with the income tax department. The NGOs must take strict measures to ensure transparency and efficiency in their functioning since these organizations attract donations from various corporations and individuals. NGOs having an 80G certificate are provided with various tax benefits and deductions by the government since they work for the welfare of the society.

Giving charity and contributing to society is considered to be a noble thing to do. This is why the government provides tax deductions for donations to the charitable organizations. According to section 80G’s provisions, the contributions made to relief funds to charitable institutions are eligible for deduction. You can take advantage of this deduction under section 80G along with the section 80C to save as much tax as possible.

Who can claim deduction under Section 80G?

Taxpayers who can claim the deduction under Section 80G of the Income Tax Act are mentioned below:

Individuals
Companies or Firms
Hindu Undivided Firm (HUF)
Non-Resident Indian (NRI)

However, it is necessary to know that not all donations are eligible for deductions under this section. Only the donations made to the prescribed NGOs and charitable trusts are qualified for this deduction. Taxpayers who opt for the new tax regime cannot claim this deduction.

Mode of Payment for Donation under Section 80G

The deductions under Section 80G can be claimed by the taxpayers for making donations through various mode of payments mentioned below:

Cheque
Demand draft
Cash for donations less than Rs. 2,000

Contributions such as food, clothes, medicines and donations which exceed Rs. 2000 limit do not qualify for deductions under Section 80G. Therefore, donations which exceed this limit must be made using modes other than cash for claiming deduction in this section. Various kinds of donations which are eligible for deduction are mentioned in this section itself, which range from 100% to 50% with/without restrictions.

Documents Required for Section 80G

Taxpayers who have donated to a non governmental organization or section 8 company having a 80G certificate are required to submit the following documents at the time of filing their returns:

Receipt with NGO’s stamp: Companies registered as NGOs and other charitable organizations that receive donations must provide a stamped receipt for the funds received from the taxpayers. This receipt must be kept in a safe place, as it’ll be required to be submitted while filing ITR to claim exemptions. The receipt must have the following details: name of the NGO, its official stamp, PAN number and the date on which this receipt was issued.
Form 58: This form needs to be submitted as received by the NGO, for the donations made towards funds with 100% exemption. The receipt must contain the 80G registration number. If the registered number is by any chance not already mentioned, the individuals must request for the same.

Eligibility for 80G Certification

There are certain guidelines regarding the eligibility for the 80G certification for NGOs and other charitable organizations. In order to obtain the 80G certification, NGOs and other charitable organizations need to meet the following conditions:

If an NGO or a charitable trust is involved in a business apart from its charitable purpose, they have to segregate such a business before they are eligible to receive the 80G certificate.
The organizations must have company registration under the Companies Act, or the Societies Registration Act to be eligible for 80G certificate.
The donations received in charity towards a specific cause should not be misused in any manner or another purpose, even within the organization. For this, NGOs and section 8 companies must have strict principles and ethics.
An NGO or other non profit organizations under section 8 companies must be an organization that is not engaged in religious preaching or works for a particular caste or creed. Only then such organizations are eligible for an 80G certificate.
NGOs and other charitable organizations must maintain accurate and updated accounting books and records of financial transactions before applying for this certificate.

Tax Benefits to the NGO & Other Charitable Organizations

Donors can reduce their tax liability by 10-50% on the amount donated to the charitable organizations with an 80G certificate. Apart from this, organizations with this certificate also have tax benefits. Such organizations can claim exemption of 10% out of the gross income obtained in the form of donations and contributions. However, the income tax department will solely decide whether to approve or reject such requests.

Process of Obtaining 80G Registration

In order to order 80G registration, the applicant needs to submit an application using Form 10G, which will be processed by the Income Tax Commissioner. The following documents must be accompanied with Form 10G:

Registration Certificate of the NGO or Section 8 Company
Copy of registration granted under section 12A
Copy of notification provided under section 10(23) or section 10(23C)
Memorandum of Association or Trust Deed
No Objection Certificate from the proprietor of the land where the NGO or Section 8 company’s registered office is located
Copy of the charitable organization’s PAN Card
Copy of the latest electricity bill/water bill/property tax receipt
The statement of accounts and balance sheet since the organization’s foundation/last 3 years
List of the NGO’s or Section 8 company’s contributors along with their address and PAN
List of the trustees with their contact details
Proof of welfare activities engaged in by the charitable organization
Progress Report since the NGO’s foundation or from last 3 years

Once the application is received by the commissioner, he will pass a written order for registering the non government organization under section 80G. The registration is valid for a period of 1-3 three years. The commissioner can reject 80G registration if he is not satisfied with the application and documents received.

Conclusion

When it comes to the human rights practice, NGOs are considered to be the central actors. People who donate to the NGOs and other charitable organizations can claim tax benefits for supporting causes that they believe in. Taxpayers not only get the chance to reduce their tax liability but also contribute to the country’s development.

Section 80G of the Income Tax Act enables donations made to specific organizations to be eligible for deduction. While making donations, you must ensure that the organization has a genuine and valid 80G certificate. In addition to this, you must receive a receipt stamp paper of the NGO, as the same is really important to submit while filing for tax returns. By helping the needy through donations and charity, you help to build a better society. If you need help in or filing your ITR interested in setting up an NGO, connect with Registrationwala.