What is the Difference Between 12A and 80G?

Non-profit organizations in India play a crucial role in addressing social issues, promoting education, and supporting underprivileged communities. To encourage philanthropy and provide tax relief to donors, the Indian government offers tax exemptions to non-profits through 12A and 80G certificates. These certificates are granted under the Income Tax Act, 1961, and serve distinct purposes. While the 12A certificate helps organizations secure tax exemptions on their income, the 80G certificate provides tax benefits to donors contributing to these organizations. Understanding the difference between these two certifications is essential for NGOs and donors alike.

What is a 12A Certificate?

The 12A certificate is a registration granted by the Income Tax Department to non-profit organizations such as NGOs, charitable trusts, and societies. Once an NGO obtains this certificate, its entire income becomes exempt from tax. This certification is a one-time registration and remains valid unless it is canceled by the authorities.

Benefits of 12A Registration:

1. Tax Exemption: The primary benefit of 12A registration is that NGOs do not have to pay income tax on their earnings.

2. Eligibility for Government Grants: Many government agencies and international funding organizations require NGOs to have 12A registration to be eligible for funding.

3. Increased Credibility: Having a 12A certificate enhances an NGO’s credibility, making it easier to secure grants and donations.

What is an 80G Certificate?

The 80G certificate is issued to non-profit organizations to encourage donations from individuals and corporations by providing tax deductions. Under Section 80G of the Income Tax Act, donors can claim tax benefits on their contributions to eligible NGOs.

Benefits of 80G Registration:

1. Tax Benefits for Donors: Individuals or companies donating to an NGO with an 80G certificate can claim deductions on their taxable income.

2. Encourages Philanthropy: The tax benefits associated with the 80G certificate encourage more people and businesses to contribute to charitable causes.

3. Enhanced Donor Trust: NGOs with an 80G certificate are more likely to attract donations, as contributors can claim tax deductions on their contributions.

Key Differences Between 12A and 80G

How to Apply for 12A and 80G Certificates?

Both certificates require NGOs to follow a structured application process. Here’s how organizations can apply:

Steps to Apply for 12A Registration:

1. Prepare Documents: NGOs must submit PAN, registration certificate, trust deed (if applicable), and financial records.

2. Online Application: File Form 10A online via the Income Tax Department’s website.

3. Verification by Authorities: The Income Tax Department reviews the application and may request additional documents.

4. Approval and Certification: Upon successful verification, the 12A certificate is issued, granting tax exemption to the NGO.

Steps to Apply for an 80G Certificate:

1. Eligibility Check: The NGO must be registered under the Societies Registration Act, Indian Trusts Act, or Companies Act.

2. Prepare Required Documents: PAN, registration certificate, trust deed, financial statements, and 12A registration proof.

3. Online Submission of Form 10G: Apply through the Income Tax portal.

4. Verification Process: The Income Tax Department examines the application and may conduct an inspection.

5. Approval and Issuance: If approved, the 80G certificate is issued, enabling donors to claim tax deductions.

Validity and Renewal of 80G Certificate

Previously, the 80G certificate was granted for a lifetime. However, as per recent regulations, it is now issued for a specific period and requires renewal. NGOs must ensure they comply with all conditions to maintain their certification.

Who Should Obtain These Certificates?

• NGOs and Charitable Organizations: To gain tax exemptions and increase credibility.

• Donors and Corporate Entities: To claim tax benefits while contributing to social causes.

• Philanthropic Foundations: To enhance trust and attract more funding.

Conclusion

Both 12A and 80G certificates play a crucial role in the non-profit sector. While 12A helps NGOs save on taxes, the 80G certificate incentivizes donors by offering tax deductions. Having both certifications significantly enhances an NGO’s ability to receive donations and funding while ensuring financial sustainability. Therefore, it is highly recommended for NGOs to secure these registrations to maximize their impact and credibility in the social sector.