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Navigating the Income Tax Act 2025 for Charitable Institutions

Present provisions in ITA 1961

  • Chapter III: Incomes which do not form part of total income
    • Sections 11-13 (section 10(23C approval entities merged)
      • Section 11-Income from property held for charitable or religious purpose
      • Section 12-Income of trusts from contributions-conditions 12A and registration 12AB
      • Section 13-Section 11 not to apply in certain cases
  • Chapter VI-A-80G-Deduction in respect of donations to certain funds, charitable institutions, etc
  • Chapter XII-Section 105BBC Taxation of Anonymous donations 115BBI Specified income of certain institutions
  • Chapter XIIB-Section 115TD Exit tax on accreted income of charitable institutions

 

Income Tax Act 2025 (effective 1.4.26)

Consolidation of Provisions for NPOs into a Single Chapter: Chapter VIIB-Special Provisions for Registered NPOs-(Sections 332-355). This chapter is divided into seven structured subparts:

  1. Registration of NPO Section 332-333:

    • “Registered Nonprofit Organization” (Registered NPO) as a unified definition for all charitable entities i.e. society, Trust, S8, Univ etc. Definition of charitable object in section 2(23) is same except 2 provisos to seventh limb (GPU) removed from definition and taken to a separate Section 346.

    • Properties should be held under irrevocable trust for general public.

    • Seven types of registrations-activities not commenced, activities commenced but not claimed exemption benefit, provisional registration and activity commenced, provisional registration but activity not commenced till validity period, renewal for expiry of existing registration, inoperative clauses and modification of object. Table specifies timelines for making application, approval timeline by Department and validity of registration (3/5/10 years).

  2. Income of registered NPO-Section 334-343:

    • Regular income has been defined in 4 parts Section 335-receipts from charitable/religious activity, receipt from property/investment, voluntary contribution (donation), incidental business income.

    • Taxable regular income Section 336-85% utilisation or accumulated under Section 342.

    • Specified income will be taxable @30%-section 337-anonymous donation beyond allowable limits, benefit to related person, income applied outside India, investment contravening clause 350, inter charity donation of accumulated income, accumulated income not applied within timelines, not applied for charitable or religious purpose etc. Table provided. 

    • Corpus as defined in Section 339 (direction from donor that it be towards corpus) is not income Section 338. 

    • Application of income section 341-normal provisions, 85% for inter charity, replenishment of corpus, return of loans when replenished or returned, nil for corpus donation etc. 

    • Accumulated income section 342-5 years, invested in modes under clause 350, repurpose allowed, no inter charity donation, in case of dissolution income transferred to similar object organisation.

    • Deemed accumulated income section 343-15% income set apart from income, invested in modes specified in section 350.

  3. Commercial Activities –section 344 for business undertaking same as section 11(4).

    • No registered NPO will take up commercial activity (except GPU) unless it is incidental and separate books maintained section 345.

    • Registered NPO carrying on GPU can do commercial activity as per the 2 provisos-it is to fulfil advancement of GPU, ceiling of 20% and separate books Section 346.

  4. Compliance section 347-350: Books of accounts, Audit, ITR, Modes of investment.

  5. Violations section 351-353: Specified violations, cancellation and accreted tax. Specified non compliance (non maintenance of books of accounts, non filing ITR, commercial receipts in excess of 20%) tax calculation as per Section 13(10) and (11) of ITA 1961.

  6. Deductions for donations Section 133 (erstwhile 80G) – conditions, registrations.

  7. Interpretation: Definitions and explanations of key terms used in the chapter include: anonymous donation (applicable only for religious institutions now), donation (VC), commercial activity, registered NPO, related (specified) person.

Section navigator between ITA 1961 and 2025 released by CBDT. FAQs also released by CBDT.

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