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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. 

 

 

Answers to Frequently Asked Questions

(Source: Official FAQs also released by CBDT.CBDT)

 

Q1. When was the current Income-tax Act passed?

Ans: The current Income-tax Act was enacted in 1961 and came into existence with effect from 01.04.1962. It has been amended nearly 65 times with more than 4000 amendments, year on year through Finance Acts, based on the evolving requirements of modifications in taxation policy.

Q2. What concerns have been raised regarding the Income-tax Act 1961?

Ans: Tax administrators, practitioners and taxpayers have acknowledged the contribution of the Income-tax Act, 1961 in overall tax governance and economy. However, over the time concerns have also been expressed over the accumulation of amendments, the intricate language, detailed provisions, redundancies and the heavy structure of the Income-tax Act.

Q3. What are the reasons for regular amendments in the Income-tax Act as against other Acts?

Ans: The Income-tax Act is dynamic legislation requiring regular updating and amendments to reflect the nation’s changing economic, social, and political realities. Criminal and other civil laws do not undergo such frequent updating and amendments whereas the Income-tax Act is regularly updated (on annual basis) to reflect the economic changes, fiscal policies, and government priorities. It adapts to changes in the economy, business environments, inflation rates, income sources, and global financial trends. The government has introduced tax reforms to encourage specific sectors while balancing revenue collection and widening/deepening of the tax base.

Examples: i. To promote exports, specific provisions such as 80HH, 80HHC were brought into the statute. ii. To promote infrastructure development, section 80IA was introduced. iii. Sections 80HHE, 10A and 10AA were introduced for software exports. iv. Section 80IAC was introduced to encourage start-ups.

Q4. Why has the Income-tax Act 1961 become bulky over time?

Ans: The law has become bulky due to traditional drafting style, numerous amendments, explanations, provisos, clarifications issued over time, and retention of non-operational provisions due to pending claims from earlier years.

Q5. What simplification efforts have been made in the past?

Ans: Past efforts include attempts in 2009 and 2019. Their recommendations have been partially implemented through policy changes made over the years.

Q6. Has the present simplification exercise considered international experience?

Ans: Yes. UK and Australia undertook similar exercises between 1994–2010 and 1994–1997 respectively. Simplification often led to longer but clearer tax codes. These experiences guided structural and linguistic simplification in the new Bill.

Q7. What is the scope of the exercise undertaken for the new Income-tax Bill?

Ans: The goal is to make the Act concise, lucid, and easy to read and understand, as announced in the 2024 Budget Speech.

Q8. What ground rules were set for simplifying provisions?

Ans: i. Redundant provisions removed, reducing length by nearly half. ii. Clear drafting style with over 57 tables. iii. Removal of about 1200 provisos and 900 explanations. iv. Simplified cross-referencing system. v. Removal of ‘previous year’ and ‘assessment year’, replaced with ‘tax year’.

Q9. Were stakeholders consulted during drafting?

Ans: Yes. Over 20,976 online suggestions were received. Consultations were held with industry bodies, field officers, UK and Australian tax authorities, and reference materials from 2009 and 2019 were reviewed.

Q10. What processes were followed in the simplification exercise?

Ans: Inputs were gathered from taxpayers, industry, officers. A committee of ~150 officers prepared drafts which were vetted by the Ministry of Law and Justice. Over 60,000 man-hours were spent.

Q11. How has readability improved?

Ans: Simpler language, enumerated sections, extensive tables, relocation of long clauses (like old section 10) to schedules, and reduced size of the Bill.

Q12. What is the treatment of provisos, explanations, and procedures?

Ans: All provisos and explanations have been removed; their content is now placed as subsections or clauses. Procedural aspects will be moved to Rules.

Q13. Have redundant provisions been removed?

Ans: Yes. Obsolete provisions such as section 10A (which ended AY 2012-13) have been removed. Old-year applicability is protected under Repeal and Savings.

Q14. What other steps enhance clarity?

Ans: Use of formulae, tables, aggregation of provisions scattered earlier, consolidation of definitions, and restructuring of NPO-related text into 7 sub-parts.

Q15. How have principles of tax certainty been ensured?

Ans: a. Important judicially interpreted terms retained. b. Use of short sentences. c. Sections simplified using tables. d. Removal of provisos and explanations. e. International taxation provisions made clearer. f. NGO chapter rewritten in plain language. g. Exemption-related provisions placed in schedules. h. Use of formulae and consolidation of definitions.

Q16. Comparison of new Bill with the 1961 Act

Chapters: 47 → 23 Sections: 819* → 536 Words: 5.12 lakh → 2.60 lakh *Effective sections (including alpha-numeric sections). About 1200 provisos and 900 explanations removed.

Q17. Why does the Act have 819 sections when numbering stops at 298?

Ans: Numerous insertions over time (e.g., 115AC, 115AD, 115JB, 115VP etc.) created alpha-numeric sections, increasing effective count.

Q18. Why does the new Bill still have 536 sections and 2.6 lakh words?

Ans: The Income-tax Act covers administration, assessments, procedures, enforcement, penalties, and commitments under existing regimes. Many provisions continue until sunset dates, requiring inclusion.

Q19. Has simplification led to ‘no material change’?

Ans: Material structural changes exist—removal of redundancies, simplification of language, use of tables, consolidation of related provisions. No major policy changes were made since policy changes are updated annually through Finance Bills.

Q20. Will mapping of old and new sections be available?

Ans: Yes, on the Income Tax Department’s website.

Q21. How are ‘previous year’ and ‘assessment year’ treated?

Ans: Replaced by ‘Tax Year’ for income computation. ‘Financial Year’ remains for timelines and procedure.

Q22. How are TDS/TCS provisions simplified?

Ans: Presented in tables, separated for residents and non-residents. Example (rent): Income by way of rent → Person other than specified person → 2% → Rs. 50,000/month threshold.

Q23. How have NPO provisions been simplified?

Ans: Earlier provisions from multiple sections have been consolidated into Part B of Chapter XVII titled “Special Provisions for Registered Non-Profit Organisation”.

Q24. What simplification has been done for salaried employees?

Ans: Salary provisions consolidated; deductions under old section 10 moved into salary chapter; allowances placed in Schedule II; perquisite valuation shifted to Rules; redundant provisions removed.

Q25. What changes are made to exemptions for incomes and persons?

Ans: Moved to Schedules II–VII.

Examples:

  • Schedule II – Exempt incomes (e.g., agricultural income)
  • Schedule III – Persons eligible for exemption (e.g., HUF partners)
  • Schedule IV – Non-resident exemptions
  • Schedule V – Business trusts, sovereign funds
  • Schedule VI – IFSC exemptions
  • Schedule VII – Persons fully exempt

Example:

  1. Any regimental or non-public fund of armed forces → For welfare of members or dependants.

Q26. What are the next steps after introduction of the Bill?

Ans: Stage 1: Passage by Parliament. 

Stage 2: Notification of Rules and Forms; software system updates for administrative and quasi-judicial functions.

Q27. How will old and new provisions co-exist?

Ans: Repeals and Savings clause protects rights and liabilities for earlier years.

Q28. Are there changes in rates or policy?

Ans: No rate changes. All amendments up to Finance Bill 2025 have been incorporated. Structural changes only.

Q29. Why do some provisions (e.g., virtual digital assets) seem different?

Ans: The Bill includes amendments already proposed in Finance Bill 2025. Comparisons must be made with the updated 1961 Act including 2025 proposals.

Q30. Which chapters saw the largest reduction in words?

Examples: Exemption provisions: 30000 → 13500 (reduction 16500) TDS/TCS: 27453 → 14606 (reduction 12847) Non-profit organisations: 12800 → 7600 (reduction 5200)

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