Key provisions for Charitable Trusts under New Income Tax Act, 2025

Charitable Trusts and institutions : Now named as Regd. NPO w.e.f. 1-4-2026 (RNPO) | Key provisions for RNPO under New Income Tax Act, 2025 

The Income Tax Act, 1961 is proposed to be repealed and replaced by the New Income Tax Act, 2025, which shall come into force with effect from 1 April 2026. Under the 1961 Act, the provisions relating to charitable trusts, institutions and other entities were scattered across various chapters. In the new Act, these provisions have been consolidated into a single chapter, namely Chapter XVII-B. Consequently, Chapter XVII-B may be regarded as a complete code in itself, and the provisions contained therein have an overriding effect over other provisions of the 2025 Act.

Further, entities earlier referred to as charitable trusts, charitable institutions, institutions created for charitable or religious purposes, and other similar entities or legal obligations under the 1961 Act have now been collectively termed as “Registered Non-Profit Organisation (RNPO)” under tsectionhe 2025 Act.

In this article, I have discussed certain key provisions of the New Act in a question-and-answer format, which, in my view, will assist in understanding the new framework for taxation of RNPOs under the Income Tax Act, 2025. It is pertinent to note that the new Act does not introduce any major policy changes as compared to the 1961 Act; however, several explanations, provisos and redundant provisions have been removed. The law has now been presented in a simplified manner through structured sections, sub-sections and user-friendly tabular formats, thereby enhancing clarity and ease of compliance.

The provisions relating to charitable and religious trusts and institutions in the Income-tax Act, 1961 comprised approximately 12,800 words. These have now been rationalised and reduced to about 7,600 words under the provisions relating to Registered Non-Profit Organisations (RNPOs) in the Income-tax Act, 2025. The simplified language, use of clear phrases, and improved tabular presentation make the provisions easier to understand. This is a welcome step that will significantly enable ease of compliance and will be beneficial for taxpayers, tax professionals, and tax administrators alike.

1. Is there any change in definition of Charitable Purpose under new Income Tax Act, 2025 as compared to I.T. Act, 1961?

No, there is no change in definition of Charitable purpose. Earlier in 1961 Act the definition was U/s. 2(15) now in the New Act the definition is U/s. 2(23). The definition is, “Charitable purpose includes:- (a) relief of the poor; (b) education; (c) yoga; (d) medical relief; (e) preservation of environment (including watersheds, forests and wildlife); (f) preservation of monuments or places or objects of artistic or historic interest; (g) the advancement of any other object of general public utility.” Earlier there was a proviso U/s. 2(15) regarding restriction on business activities by trust or institution carrying out any other object of general public utility, the said proviso is now U/s. 346 of New Income Tax Act, 2025.

2. Earlier under I.T. Act, 1961 trust or institution or any other legal obligation words were used for entities eligible for exemption, now under the New I.T. Act, 2025 which words/nomenclature are used ?

Under the New Income Tax Act, 2025 it is stated that, the entities eligible for registration to be treated as Registered Non-profit Organisation are:-

(a) public trust or

(b) Society or

(c) Sec. 8 company or

(d) a University established by law or any other educational institution affiliated thereto or recognised by the Government; or

(e) institution financed wholly or in part by the Govt. or a local authority; or

(f) (Sch. III Table S. No. 27 to 29)- Investor Protection Fund, Sch. III S. No. 36 –[Old Sec. 10(46)], Sch. VII Table S.No. 42 (Old Sec. 10(46A), Sch. VII S.No. 10 to 19 [Old Sec. 10(23C)(i to iiiaaaa) PMCARES FUND, PM Fund (for folk art), PM Aid to students fund, Swachh Bharat Kosh, Clean Ganga fund, CM Relief Fund, [Old Sec. 10(23C)(iiiab, iiiac, iiiad, iiiae)] Sch. VII Table S.No. 17. University or other educational institution wholly or substantially financed by Govt., 18. hospital or other institution wholly or substantially financed by Govt., 19(a, b) university or other educational institution, hospital or other educational institution solely for education, hospital solely for philanthropic purposes, not for profit, aggregate annual receipts not exceed Rs. 5 Crores.

(g) Any other person notified by the Board in this behalf.

3. What are other conditions for entities referred above in S. No. (a to g) as per Sec. 332(1), to be eligible for registration as Registered Non-Profit Organisation (RNPO)?

The entities to be eligible for registration under New Act, if:- (a) such person is constituted or registered or incorporated in India for carrying out one or more charitable purposes, as referred to in section 2(23) or one or more public religious purposes; and (b) the properties of such person are held for the benefit of the general public under an irrevocable trust- (i) wholly for charitable or religious purposes in India; or (ii) partly for charitable or religious purposes in India, if such person was constituted prior to commencement of Income-tax Act, 1961.

Earlier under the 1961 Act words, “irrevocable trust”, were not there now specifically included in above condition.

4. Whether provisions for Regd. NPO (RNPO) contained in Chapter XVII-B Sec. 332 to 355 can be treated and considered as complete code in itself as compared to provisions specified under various chapters of I. T. Act, 1961?

Yes, Provisions relating to RNPO are consolidated at a single place in Part B of Chapter XVII of New Income Tax Act, 2025, and it is affirmed in Sec. 334(2) for Part-B of Chapter XVII, “The provisions of this Chapter shall apply irrespective of anything to the contrary contained in any other provision of this Act other than sections 96 to 98.” Whereas in the I. T. Act, 1961 provisions relating to charitable and religious trusts and institutions were under different chapters. Under I. T. Act, 1961 it was stated U/s. 11(1), “Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income”. From comparison of above provisions of 1961 Act and new 2025 Act, it is clear that under new Act Sec. 334(2) specifies that provisions of Chapter XVII-B shall have overriding effect over all other provisions of the Income Tax Act 2025.

5. Under Sec. 332(2)(b) of Income Tax Act 2025 it is specified that person eligible to be as Regd. NPO should be under an irrevocable trust wholly for charitable or religious purposes in India. Does it mean that trust should be either for charitable or for religious purposes and cannot be for mixed purposes i.e. cannot be for charitable and religious purposes both under one trust?

No, to remove this ambiguity, there is given an interpretation (like definition) of, “wholly for charitable or religious purposes”, U/s. 355(p) of the ITA, 2025:- “wholly for charitable or religious purposes” shall mean “wholly for charitable purposes or wholly for religious purposes or wholly for charitable and religious purposes”.

6. Earlier under ITA, 1961 requirements and conditions for claiming exemption U/s. 11 and 12 were given U/s.12A(1)(ac) (i to vi) by specifying that to claim exemption when to register and period of validity etc., are there similar provisions under ITA, 2025? Is there any major change as compared to ITA, 1961?

Yes, similar provisions are there given in tabular format U/s. 332(3) of ITA, 2025, with welcome changes of relaxing time limit to apply in two situations i.e. in table at S. No. 1 and 6.

Table 

If the application made for S. No. 1 to 7 in the table under Sec. 332(3) is made beyond the time allowed, the PCIT/CIT may, if he considers that there is a reasonable cause for delay in furnishing the application, condone such delay and such application shall be deemed to have been made within time.

If delay is not condoned in cases at S. No. 3, 4, 5, 7 then as per Sec. 332(6) such person shall be liable to pay tax on accreted income under section 352.

If the total income of applicant at S. No. 3 to 7 in the table at Sec. 332(3), without giving effect to the provisions of this Part (i.e. Chapter XVII-B), does not exceed 5 crore rupees during each of the two tax years, preceding the tax year in which such application is made, the registration shall be granted for 10 years.

7. Can any trust registered earlier under ITA, 1961 U/s. 10(23C) or 12AB can be called and treated as RNPO under ITA, 2025 on or after 1-4-2026 until its old registration expires? Or Will the existing registered non-profit organisations (registered under 1961 Act) be again required to get themselves registered under the new provisions?

From the following interpretations in Sec. 355 it is clear that until old registration granted under ITA, 1961 expires there is no need to apply under new provisions of ITA, 2025 and even though on and from 1-4-2026 the old registered trusts and institutions will be called and treated as Regd. NPO (RNPO).

Sec. 355(f): “registration” includes provisional registration, provisional approval or approval, as referred to in the second proviso to section 10(23C) or 12AB (1) of the Income-tax Act, 1961 and under section 332, but shall not include approval under the second proviso to section 80G(5) of the said Act or section 354.

Sec. 355(g): Registered Non-profit Organisation (RNPO) means any person having a valid registration under any specified provision and such registration has not been cancelled.

Sec. 355(l): “specified person” means any person which is registered under any specified provision at any time since its incorporation or creation.

Sec. 355(m): “specified provision”, means section 12A, 12AA or 12AB or section 10(23C) of the Income-tax Act, 1961 or section 332.

8. How to compute taxable regular income and regular income under new ITA, 2025 of a RNPO?

Tax on taxable regular income at the rate applicable on taxable regular income (Sec. 335) and any residual income for such tax year under other provisions of this Act. Regular income means:-

(a) income from any charitable or religious activity, for which such NPO is registered;

(b) income derived from property, deposit or investment held wholly for charitable or religious purposes;

(c) income derived from any property, deposit or investment held in part for charitable and religious purposes 332(2)(b)(ii);

(d) voluntary contributions received, and

(e) gains of any commercial activity permissible under sections 344, 345 and 346, computed in such manner, as may be prescribed.

Taxable Regular Income means:-

(a) nil, where 85% or more of the regular income applied as per provisions of Sec. 341 or accumulated U/s. 342 for charitable or religious purposes; and

(b) in any other case, 85% of the regular income as reduced by its application for charitable or religious purposes as per provisions of Sec. 341 or accumulation thereof U/s. 342.

9. What is specified income under new ITA, 2025, is there any specified rate of tax for this?

Specified income is taxable @30% U/s. 337 of ITA, 2025. Such incomes are

(i) Anonymous Donation :- Donation Received by RNPO for charitable purposes (excluding Rs. 1 Lakh or 5% of total donations whichever is higher), exclude donation received for religious purposes (because donation received for religious purposes can be anonymous),

(ii) Income applied directly or indirectly for benefit of related person,

(iii) investment or deposit made in contravention of Sec. 350,

(iv) Income accumulated – applied to other than charitable or religious purposes for which it is accumulated or set apart,

(v) Income not received hence could not be applied [Sec. 341(5)], treated as deemed application, prescribed form furnished on or before ITR due date, such income could not be applied in the immediately succeeding year in which derived or in the immediately succeeding year in which received, such income we be specified income of the immediately succeeding year in which derived or of the immediately succeeding year in which received.

(vi) accumulated income: not applied to purposes for which it is accumulated but credited or paid to any other RNPO,

(vii) income applied to purposes other than charitable or religious purposes for which it is registered,

(viii) income determined by AO U/s. 344 in excess of income shown in the books of account of the business undertaking,

(ix) FMV of any asset, not converted in modes specified in paragraph 1(1) to (30) of Schedule XVI (permitted modes of investment Sec. 350) even after the expiry of one year from the end of the tax year in which such asset is acquired (Taxable in the year immediately following the expiry of one year),

(x) income applied outside India by charitable NPO in contravention (without CBDT approval, which does not promote international welfare in which India is interested): Sec. 338(a).

10. What is Corpus donation? Whether corpus donation is defined under ITA, 2025?

As per Sec. 339 Corpus donation means:- any donation made with a specific direction by the donor that it shall form part of the corpus of the RNPO, provided that such donation is invested or deposited in any of the modes permitted U/s. 350 maintained specifically for such corpus.

As per Sec. 338 Corpus donation received by RNPO not to be included in regular income.

11. How to compute application of income under new ITA, 2025?

Application of income is:-

(i). Sum applied for charitable or religious purpose in India for which NPO is registered and such sum is paid during the tax year,

(ii). 85% of donation paid to other RNPO,

(iii). Amount invested or deposited back into corpus in modes permitted U/s. 350 maintained specifically for such corpus,

(iv). within five years from end of the tax year in which such application (after 31-3-2021) of income was made from the corpus,

(v). amount repaid, during the tax year, towards any loan or borrowing, within five years from end of the tax year in which such application (after 31-3-2021) of income was made from the loan or borrowing.

12. What is deemed application under new ITA, 2025?

Sec. 341(5): Where regular income applied by RNPO towards charitable or religious purposes in India, is less than 85% of regular income, the shortfall, at the option of RNPO, may be treated as deemed application. Any deemed application under sub-section (5) shall be applied by RNPO for its objects in India,-

(a) during the tax year in which the income is received or in the tax year immediately succeeding such tax year, where such shortfall is for the reason that the whole or any part of the income has not been received during that tax year;

(b) in the tax year immediately succeeding the tax year in which the income was derived, where such shortfall is for any other reason.

Such option shall be exercised on or before the due date specified in section 263(1) for furnishing the return of income for such tax year. (Under I.T. Act, 1961 the due date to furnish form 10 was 2 months before the due date of ITR, now under I.T.Act, 2025 the due date is relaxed upto ITR due date.)

13. Claims not allowed as application under new ITA, 2025.

The following are not allowed as application:-

(i). Deduction or allowance by way of depreciation or otherwise claimed in respect of an asset acquisition of which has been claimed as an application of income in the same or any other tax year,

(ii). set off or deduction or allowance of any excess application of any of the years preceding the tax year,

(iii). corpus donation to any other RNPO.

14. Capital Gain from Transfer of Capital Asset under ITA, 2025?

Sec. 341(9) Whole of such capital gain is deemed as application of income if whole of the net consideration is utilised in acquiring the new capital asset, if part of net consideration is utilised then excess of amount utilised over cost of transferred asset is treated as application of income.

15. What is accumulated income in case of RNPO under new ITA, 2025?

(i). As per Sec. 342 RNPO can accumulate or set apart any part of its regular income by furnishing a prescribed form on or before Sec. 263(1) due date (ITR due date), stating therein the purpose and period, not exceeding five years, [As per ITA, 1961 under Sec. 11(2) the due date was two months prior to due date of 139(1) in Form 10].

(ii). Amount credited or paid out of above, to any other RNPO shall not be treated as application of income.

(iii). U/s. 343 deemed accumulated income is stated, to the extent of 15% of regular income, shall be considered as deemed accumulated income, the deemed income is to be invested or deposited in modes specified U/s. 350 (Sch. XVI).

16. Are there any income of certain specified RNPO exempt under any chapter or schedule of ITA, 2025?

Sec. 11(3) of ITA, 2025- The persons enumerated in Schedule VII (S. No. 1 to 48 of table) [e.g. old Sec. 10(23C)(iiiab, iiiac, iiiad, iiiae), SAARC, CERC, PMCARES, Rec. PF, APMC, ESIF, MF] shall, subject to fulfilment of conditions specified therein, not be chargeable to tax on total income.

Sec. 11(4) of ITA, 2025- Wherever conditions referred in Schedule VII are not satisfied in respect of persons enumerated in said Schedule in any tax year, the income of such person shall be charged to tax under the provisions of this Act for that tax year.

17. What are the provisions under ITA, 2025 regarding books of account and audit and ITR ?

Sec. 347 to Sec. 349: specifies to Maintain prescribed books of account if total income exceeds maximum amount not chargeable to tax, and get audited and furnish by such date audit report in prescribed form and Return of Income [Old Sec. 139(4A), 12A(1)(ba)]: Where the total income of RNPO, without giving effect to the provisions of this Part (Chapter XVII PART B), exceeds the maximum amount which is not chargeable to income-tax, it shall furnish the return of income as per provisions of Sec. 263(1)(a)(iii) and (2) [income exceeding maximum amount not chargeable to tax], within the time limit allowed under section 263(1)(c) [Due date 31^st October].

18. What are other violation and tax implication under new ITA, 2025?

As per Sec. 353 if RNPO (a) fails to maintain books of account Sec. 347; or (b) fails to get books of account audited Sec. 348; or (c) fails to furnish its return of income Sec. 349; or (d) carrying out advancement of any other object of GPU, carries out any commercial activity in contravention of provisions of Sec. 346, in such cases regular income for such tax year as reduced by the expenditure referred to in Sec. 353(3) shall be taxable regular income which shall be chargeable to tax as per the provisions of Sec. 334 (Earlier in ITA, 1961 Sec. 115BBI and Sec. 13 had similar provisions).

19. What are allowable expenditure in case of other violation U/s. 353?

In such case following are allowable expenditure (other than capital expenditure):-

(a) such expenditure shall be incurred in India;

(b) such expenditure shall be for the objects;

(c) such expenditure is not made from the opening balance of corpus

(d) such expenditure is not out of any loan or borrowing;

(e) the claim of depreciation is not in respect of an asset, acquisition of which has been claimed as application of income, in the same or any other tax year;

(f) such expenditure is not in the form of any contribution or donation to any person;

(g) such expenditure is not on account of a payment or aggregate of payments made to a person in contravention to the provisions of section 36(4), (5), (6) and (7); (cash payment exceeding specified limit)

(h) such payment is allowable under section 35(b)(i) (payment without TDS)

20. What are the provisions relating to business activities by RNPO?

(i). Business undertaking held as property Sec. 344 [Old Sec. 11(4)]:- income from business undertaking held as property under RNPO is eligible for benefits available to RNPO, AO shall have power to assess income of business undertaking as per provisions of the act.

(ii). Restriction on commercial activities of RNPO Sec. 345 [Old Sec. 11(4A)]:- Any RNPO can carry out commercial activities only when (a) such commercial activity is incidental to the attainment of the objectives; and (b) separate books of account are maintained for such activities.

(iii). Restriction on commercial activity by RNPO carrying out advancement of any other object of GPU Sec. 346 [Old Sec. 2(15) proviso]:- Any RNPO carrying out activities of advancement of any other object of GPU can carry out such commercial activity (not exceeding 20% of total receipts) undertaken in the course of actual carrying out of advancement of any object of the GPU; separate books of account to be maintained for such activities.

21. What changes and what was need of new Chapter of NPOs in New Income Tax Act, 2025?

In FAQs issued on Income Tax Bill in Feb. 2025 CBDT has stated that:-

Total E-filed ITR for Charitable and Religious trusts and institutions in AY 2023-24 is 2.50 Lakh and total amount applied by these trusts and institutions in F.Y. 2022-23 is Rs. 10 Lakh crores, Therefore, it was considered necessary to simplify and consolidate all the provisions relating to non-profit organisations for ease of understanding and compliance.

In the Income Tax Act, 1961 there are 12800 words about NPOs which have been reduced to 7600 words in the New Income Tax Bill 2025 (Now became Act).

Overall 5.12 Lakh words of Income Tax Act, 1961 has been reduced to 2.60 Lakh words in New Income Tax Bill, 2025 (Now became Act).

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