There are nearly 2.5 million NGOs/NPOs (non-governmental or not for profit) functioning in India that employ an estimated 4.5% of the working population. As such organizations work mainly for the welfare of the downtrodden and the economically marginalized sections of the society, their activities are mainly of a non-commercial nature. Hence NGOs can file for indemnity or exemption from income tax under section 80G of the Income Tax Act.

For availing of the tax benefits, a typical NGO or NPO has to first get registered by duly filling up a document (Form 10G under Annexure 29A) and submitting the same to the Commissioner of Income Tax. The NGO applying for registration for claiming exemption from income tax also has to fulfil other specific obligations or formalities. All NGO concerns that received registration certificates after 1st October, 2009 will not have to renew their registration status at any time in the future unless otherwise specifically mentioned in the certificate.

The applicant (the NGO) will have to submit an IT registration certificate facsimile, particulars of activities since its establishment or the past three years any of which is less, and duplicates of annual audited statements for the same period. These documents have to be submitted along with triplicate copies of Form 10G in the office of the IT Commissioner.

To successfully qualify for tax exemption u/s 80G, the NGO will have to meet the following criterions:-

  • 1.The organization’s activities should be exclusively charitable or altruistic in nature which means it should work purely with a non-profit end and should not engage in commercial activities
  • 2.In case the entity earns revenues from its activities it should keep a separate ledger or books of accounts
  • 3.Donations received by the establishment for charitable activities cannot be channelized into other areas
  • 4.The statutes that govern the functioning of the NGO should not have any clause that permit the entity to spend money on any activity besides charity
  • 5.The organization must regularly revise and update its books of accounts
  • 6.The NGO must file its yearly income tax returns in time
  • 7.The NGO must spend at least 85% of its proceeds or receipts on activities for which the body was conceptualized
  • 8.The NGO should be duly registered as per the provisions of the Societies Registration Act of 1860 or under Companies Act, 1956 (u/s 25)

A person or institution making a donation or contribution to a registered NGO/NPO is eligible to receive a 50% tax waiver from his/its total income. For calculating the total tax exemption amount (after computation of the assessee) as per section 80G, first the total amount of donation has to be aggregated. Thereafter, the qualifying amount (50% of the total donations) is worked out and if it is less than or equivalent to 10% of the gross total revenues, then that amount will qualify for tax deductions. In case, the figure exceeds the 10% mark then the excess or surplus will not be eligible for waiver u/s 80G.

*Salaries are subject to change with time and may vary with company policies, general economic scenario and other factors mentioned above