Introduction:-
Non-profit organizations play a crucial role in addressing societal issues and providing assistance to those in need. To encourage donations and support for such organizations, the government offers certain tax benefits. Two key provisions that govern these benefits are Section 80G and Section 12A of the Income Tax Act. In this article, we will explore the differences between 80G and 12A, shedding light on their distinct features and implications.
Section 12A: Registration of Trust or Institution:-
Section 12A of the Income Tax Act deals with the registration of trusts or institutions. Under this section, non-profit entities can seek registration to avail tax exemptions on their income. Once registered, the organization is considered eligible for tax relief, and its income becomes exempt from taxation. This registration is a prerequisite for applying under Section 80G.
Section 80G: Deductions for Donations:-
Section 80G provides tax deductions to donors who contribute to registered charitable trusts or institutions. Donations made to organizations with 80G registration are eligible for deduction from the donor's taxable income. This encourages philanthropic activities and supports the functioning of these organizations. However, it's crucial to note that not all donations are eligible for deductions, and certain restrictions apply.
Distinguishing Features:-
1.Purpose:
- Section 12A focuses on the registration of the trust or institution itself, granting it tax-exempt status.
- Section 80G, on the other hand, addresses the tax benefits extended to donors who contribute to registered organizations.
2. Eligibility:
- To apply for Section 12A registration, an organization must be a charitable trust, institution, or a university involved in educational or medical activities.
- Section 80G is applicable to individual donors, Hindu Undivided Families (HUFs), companies, and firms, allowing them to claim deductions on their taxable income.
3. Compliance Requirements:
- Entities seeking Section 12A registration must comply with various regulations and demonstrate their commitment to charitable activities.
- For 80G registration, organizations must meet additional criteria, including restrictions on accumulating surplus funds and ensuring that their activities align with the objectives specified in their trust deed.
4. Duration of Benefit:
- Once an organization is granted Section 12A registration, it enjoys tax exemption indefinitely, unless the income or activities violate the conditions set by the Income Tax Act.
- Section 80G approval is granted for a specific period, typically for a period of two to five years, after which the organization must reapply for renewal.
Conclusion:-
In summary, Section 12A focuses on the registration of non-profit organizations, providing them with tax-exempt status, while Section 80G grants tax deductions to donors contributing to registered charitable trusts or institutions. Both provisions work in tandem to promote philanthropy and support the vital work carried out by non-profit entities. Understanding the distinctions between 80G and 12A is essential for both organizations seeking tax benefits and donors looking to make a positive impact on society.