Exemption under section 12a of income tax act

A tax exemption is a privilege to have some or all of one's income free from federal or state taxation. The majority of taxpayers are eligible for a number of exemptions that can be used to lower their taxable income, while certain people and organisations are fully free from paying taxes. Let us understand it with an example. Ramesh has been working in the field of social service for the last 3 years. Someone told him to register an NGO under Indian Trust Act 1882 as he would get more funds and resources for the Government and private sector.

So he got his NGO Registered. Now, Mr. Agarwal, a leading businessman wanted to donate 10 lakhs to his NGO. But the problem was that his NGO did not have 12a and 80g Registration that would grant a 50% tax benefit to the total amount of donation to the donor. 

What is 12a registration?

If your NGO has a turnover of 20 lakhs you will have to pay around 30% tax to the Government. But if you receive a 12a registration certificate from the Government, your NGO becomes tax-free. That means your NGO will not have to pay tax and NGO has been relieved by the Government to pay tax. More ideas at 12a.

Now we come to the main question, What is the purpose of tax exemption?

There is a clause of 80g certification. An NGO having an 80g certificate is applicable to give 50% tax rebate to their donors.

If Mr. Agarwal is donating 10 lakhs rupees to the NGO of Mr. Ramesh, and if R. Ramesh had an 80g certificate, then Mr. Agarwal will get a tax benefit of 50% of his total donation.

Now 50% of the total donation of 10 lakhs comes to 5 lakhs, and if the annual income of Mr. Agarwal is 50 lakhs, then he will have to pay tax only on 50 lakhs - 5 lakhs = 45 lakhs, he gets a tax rebate or tax exemption of Rs. 5 lakhs.

So, 80g certification is a must. Now if your NGO does not have 12a and 80g registration, you can hire us and we will help you to process your certificate within 25 days.

A general problem with all NGOs is that they don't have knowledge of 12a and 80g registration but big donors who want to donate in lakhs and crores would ask for 80g certification. Simultaneously, 12a certificate is mandatory because it makes your NGO Tax free.

You can gather more knowledge at 80g.