Tax Exemptions for Non-Profits: Section 12A, 80G & CSR-1

By Priya Sharma | Updated March 2026

What Are Tax Exemptions for Non-Profits in India?

Non-profit organisations in India — whether structured as a public charitable trust, a society, or a Section 8 company — can access three distinct tax registrations that together form the foundation of their financial viability: Section 12A/12AB of the Income Tax Act, 1961 (tax exemption on the organisation's own income), Section 80G (enabling donors to claim tax deductions on contributions), and CSR-1 registration under the Companies (CSR Policy) Rules, 2014 (qualifying the entity to receive corporate CSR funds under Section 135 of the Companies Act, 2013). A fourth registration — FCRA under the Foreign Contribution (Regulation) Act, 2010 — is required to receive any foreign donations.

For foreign founders, philanthropists, or multinational corporations looking to support or establish non-profit operations in India, understanding these registrations is essential. Without Section 12A/12AB, the organisation pays income tax at the maximum marginal rate (approximately 30% plus surcharge and cess) on its surplus. Without 80G, domestic donors have no tax incentive to contribute. Without CSR-1, the entity cannot tap India's mandatory corporate CSR spending pool — estimated at over INR 25,000 crore annually. And without FCRA, accepting even a single dollar from a foreign donor is a criminal offence.

Legal Basis

• Section 12A/12AB of the Income Tax Act, 1961 — Provides for registration of charitable and religious trusts/institutions. Section 12AB (effective April 1, 2021) replaced Sections 12A and 12AA. Registration is a prerequisite for claiming income exemption under Sections 11 and 12.
• Section 80G of the Income Tax Act, 1961 — Allows donors (individuals, companies, firms) to claim a deduction from gross total income for donations to approved charitable institutions. The deduction is typically 50% of the donated amount, subject to a qualifying limit of 10% of the donor's gross total income.
• Section 135 of the Companies Act, 2013 + Companies (CSR Policy) Rules, 2014 — Mandates that companies with net worth exceeding INR 500 crore, turnover exceeding INR 1,000 crore, or net profit exceeding INR 5 crore must spend 2% of average net profit (preceding 3 years) on CSR activities listed in Schedule VII. Implementing agencies must hold CSR-1 registration.
• Foreign Contribution (Regulation) Act, 2010 (FCRA) — Regulates acceptance and utilization of foreign contributions by non-profits. The 2020 Amendment Act introduced sweeping restrictions including a mandatory SBI New Delhi account, 20% administrative cost cap, and prohibition on sub-granting.

Section 12A/12AB: Tax Exemption for the Organisation

Section 12AB registration is the single most important registration for any Indian non-profit. Without it, the organisation is treated as a regular taxable entity and pays tax on its entire surplus. Tracking all these deadlines requires a robust compliance calendar.

Registration Process

Applications are filed online through the Income Tax e-filing portal using Form 10A (for new registrations) or Form 10AB (for conversion from provisional to regular, or renewal). The Principal Commissioner or Commissioner of Income Tax must pass an order within 3 months (new provisional) or 6 months (regular conversion).

Registration Types and Validity

The 85% Spending Rule

This is the most critical compliance condition. Under Section 11, the organisation must apply (spend) at least 85% of its income toward charitable or religious purposes in India during the financial year. The remaining 15% may be accumulated. Key rules:

• The 12-month compliance window runs from April 1 to March 31, with an additional 12 months to complete spending
• Qualifying expenditures include direct programme costs, capital asset purchases for charitable purposes, and loan repayments for capital assets used in charitable work
• If the entity wishes to accumulate more than 15%, it must file Form 10 electronically at least 2 months before the ITR due date, specifying the purpose and period (maximum 5 years)
• Accumulated funds must be invested in specified instruments: government securities, bank deposits, or approved immovable property
• Failure to spend accumulated income within 5 years makes it taxable in the year of violation

Consequences of Non-Compliance

If the entity loses 12AB registration or fails to meet conditions, the tax consequences are severe:

• Income taxed at the maximum marginal rate (approximately 30% + surcharge + 4% cess)
• Section 115TD — Tax on accreted income at 30% if assets are transferred to a non-exempt entity or if the entity converts to a non-charitable form
• Anonymous donations exceeding 5% of total donations or INR 1,00,000 (whichever is higher) are taxed at 30%
• Business income exceeding 20% of total receipts for entities with "general public utility" objects triggers full taxation

Section 80G: Donor Tax Deductions

Section 80G registration enables the organisation to issue donation receipts that allow donors to claim income tax deductions. This is a powerful fundraising tool — donors are far more likely to contribute to 80G-registered organisations.

Deduction Categories

Most non-governmental non-profits fall in the 50% deduction with 10% qualifying limit category. This means a donor with a gross income of INR 20 lakh who donates INR 3 lakh gets a deduction of INR 1 lakh (50% of INR 2 lakh, which is the qualifying limit of 10% of INR 20 lakh).

Important Restrictions

• Cash donations exceeding INR 2,000 are not eligible for 80G deduction — payments must be by cheque, bank transfer, or online
• Donations to entities promoting a particular religious community or caste are not eligible
• Donor records (name, address, PAN) must be maintained for all contributions exceeding INR 50,000
• 80G registration must be renewed along with 12AB — the validity period is aligned at 5 years

CSR-1 Registration: Accessing Corporate CSR Funds

Since April 1, 2021, any non-profit entity that wishes to undertake CSR activities on behalf of a company must register on the MCA portal and obtain a unique CSR Registration Number by filing Form CSR-1. Without this, companies cannot channel their mandatory 2% CSR spending through your organisation.

Eligibility for CSR-1

Only the following entities can register:

• Section 8 companies under the Companies Act, 2013
• Public charitable trusts registered under state trust acts
• Societies registered under the Societies Registration Act, 1860

All applicants must hold valid 12A and 80G registrations and demonstrate a minimum 3-year track record in development work.

CSR Spending Thresholds for Companies

Understanding which companies are subject to mandatory CSR helps non-profits target their fundraising:

• Companies with net worth > INR 500 crore, OR turnover > INR 1,000 crore, OR net profit > INR 5 crore
• Must spend 2% of average net profit (preceding 3 financial years) on Schedule VII activities
• Non-compliance penalties: up to INR 1 crore for the company, up to INR 2 lakh for responsible officers
• Unspent CSR amounts must be transferred to a designated Fund within 6 months of the financial year end

FCRA Registration: Receiving Foreign Donations

The Foreign Contribution (Regulation) Act, 2010 requires any organisation accepting foreign contributions to register with the Ministry of Home Affairs. The 2020 Amendment Act (effective September 29, 2020) drastically restricted the framework:

• Designated SBI account: All foreign contributions must be received in a designated account at the State Bank of India, New Delhi Main Branch — no other bank is permitted
• 20% administrative cost cap: Reduced from 50%; administrative expenses (excluding direct programme staff like doctors or teachers) cannot exceed 20% of total foreign contributions received
• No sub-granting: FCRA-registered entities can no longer transfer foreign contributions to other organisations, even if the recipient is also FCRA-registered
• Aadhaar requirement: Office bearers must provide Aadhaar numbers (creates challenges for foreign nationals on the board)
• Renewal: Every 5 years, with the government retaining broad discretion to refuse renewal

Comparison of All Four Registrations

How This Affects Foreign Investors and Founders

Foreign individuals and corporations engaging with Indian non-profits face unique considerations:

• Foreign founders can establish a Section 8 company and serve as directors (at least one director must be an Indian resident). Section 8 is preferred over trusts or societies for foreign-backed non-profits because of its corporate governance structure, statutory audit requirements, and MCA oversight.
• Foreign donations require FCRA registration. A foreign founder's personal contribution to their own Indian non-profit is classified as a "foreign contribution" and triggers FCRA requirements. Plan for this from Day 1.
• CSR partnerships with MNCs: Foreign companies with Indian subsidiaries meeting Section 135 thresholds must spend CSR funds in India. Setting up a CSR-1 registered implementing agency allows you to channel these funds to specific programmes.
• Tax treaty benefits do not apply to non-profit donations. DTAA provisions generally do not provide cross-border deductions for charitable donations — the 80G deduction is available only against Indian-source income.

Common Mistakes

• Filing for 80G without first obtaining 12AB. Section 80G registration requires the entity to already hold a valid 12AB registration. Many new organisations apply for both simultaneously and get the 80G application rejected because 12AB has not yet been granted. Apply for 12AB first, then 80G.
• Treating the 85% spending rule as applying to donations received rather than total income. The 85% rule applies to the organisation's total income — including interest on deposits, rental income from property, and capital gains — not just donations. An organisation that receives INR 50 lakh in donations but also earns INR 10 lakh in bank interest must spend 85% of INR 60 lakh (INR 51 lakh), not 85% of INR 50 lakh.
• Assuming CSR-1 is a one-time registration with no ongoing obligations. While CSR-1 itself does not expire, companies conducting due diligence will verify your 12A, 80G, and FCRA registrations annually. Letting any underlying registration lapse effectively makes your CSR-1 unusable, as companies cannot report CSR spending through an entity without valid tax registrations.
• Accepting foreign wire transfers before FCRA registration. This is a criminal offence under FCRA, not merely a regulatory violation. The penalty includes imprisonment up to 5 years and a fine up to INR 10 lakh. Even a small USD 500 contribution from a foreign friend triggers FCRA — there is no de minimis threshold.
• Not filing Form 10 for accumulation beyond 15%. If the entity cannot spend 85% in a year and wishes to carry forward the surplus, Form 10 must be filed electronically at least 2 months before the ITR due date. Missing this deadline means the entire unspent amount becomes taxable, even if it is later spent on charitable purposes.

Practical Example

GreenBridge Foundation, a Section 8 company established in Bengaluru by two Indian directors and one British co-founder (Sarah Mitchell), aims to promote environmental education in rural Karnataka with support from both Indian corporates and an international foundation based in London.

Year 1 — Registrations:

• 12AB (provisional): Filed Form 10A on the e-filing portal. Provisional registration granted within 3 months, valid for 3 years. Cost: NIL (no government fee for 12AB).
• 80G: Filed after 12AB was granted. Approved within 6 months. Now donors contributing to GreenBridge can claim 50% deduction (up to 10% of their gross income).
• CSR-1: Filed Form CSR-1 on MCA21 portal. Required: PAN, 12A certificate, 80G certificate, CA-certified documents. Registration number issued within 30 days.
• FCRA: Applied to the Ministry of Home Affairs. Processing took 8 months. Designated SBI account opened at New Delhi Main Branch. Sarah's UK foundation can now legally transfer funds.

Year 1 — Finances:

• Indian CSR grant from Infosys Foundation: INR 40 lakh
• Individual Indian donations (80G-eligible): INR 15 lakh
• Foreign grant from London foundation (via FCRA account): INR 25 lakh (approximately GBP 24,000)
• Bank interest: INR 2 lakh
• Total income: INR 82 lakh
• Required spending (85%): INR 69.7 lakh
• Actual programme spending: INR 72 lakh — compliance achieved
• Administrative expenses from FCRA funds: INR 4.5 lakh (18% of INR 25 lakh — within 20% cap)

Had GreenBridge not obtained 12AB, the INR 10 lakh surplus would have been taxed at ~30%, costing INR 3.12 lakh in tax. Had they accepted the London grant without FCRA, the directors — including Sarah — would have faced criminal prosecution.

Key Takeaways

• Section 12AB registration is mandatory for tax exemption — without it, non-profits pay approximately 30% tax on surplus income
• The 85% spending rule applies to total income (not just donations) and must be met each financial year, with a 12-month grace period
• Section 80G enables donors to claim 50% deduction (typically capped at 10% of gross income) — a critical fundraising enabler
• CSR-1 registration is required to receive corporate CSR funds; companies with net profit above INR 5 crore must spend 2% on CSR
• FCRA registration is mandatory for any foreign contribution — the 2020 amendments restrict sub-granting, cap admin costs at 20%, and require an SBI New Delhi account
• Foreign founders should use the Section 8 company structure and plan for FCRA from inception — even personal contributions from foreign nationals are regulated

Setting up a non-profit in India with foreign participation or corporate CSR partnerships? Beacon Filing provides Section 8 company registration, 12A/80G filing, and FCRA compliance support.