Summary: Sections 334 to 338 of Income Tax Act, 2025 establish the taxation regime for registered Non-Profit Organisations (NPOs). Under Section 334, specified income is taxed at 30%, while taxable regular income and residual income are taxed at applicable rates. Regular income includes income from charitable or religious activities, income from property, deposits and investments held for such purposes, voluntary contributions, and gains from permissible commercial activities. Under Section 336, taxable regular income is nil if at least 85% of regular income is applied or accumulated for charitable or religious purposes; otherwise, a prescribed portion becomes taxable. Section 337 defines specified income, covering anonymous donations above prescribed thresholds, benefits provided to related persons, prohibited foreign application of income, non-compliant investments, misuse of accumulated income, transfers to other NPOs, application for non-registered objects, excess income determined by the Assessing Officer, and certain non-compliant assets. Section 338 excludes approved foreign applications of income and eligible corpus donations from regular income.
The key provisions of Sections 334 to 338 are outlined below:
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Tax on income of registered NPO [Section 334]
The income-tax payable by a registered NPO on its total income for any tax year shall be the aggregate of the amounts calculated [Section 334 (1)]
- at the rate of 30% on specified income for such tax year and
- at the rate applicable on taxable regular income and any residual income for such tax year under other provisions of this Act.
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. [Section 334 (2)]
Regular income [Section 335]
Regular income of any tax year of a registered NPO means—
a. income from any charitable or religious activity carried out by such NPO for which it is registered
b. income other than income covered in clause (e), derived from any property, deposit or investment held wholly for charitable or religious purposes by such registered NPO in such tax year;
c. income other than income covered in clause (e), derived from any property, deposit or investment held in part for charitable and religious purposes by such registered NPO as referred in section 332(2)(b)(ii)in such tax year;
d. voluntary contributions received by such registered NPO in such tax year; and
e. gains of any commercial activity permissible under sections 344, 345and 346, carried out by such registered NPO in such tax year, computed in such manner, as may be prescribed.
Taxable regular income [Section 336]
The taxable regular income of a registered NPO for any tax year shall be—
a. nil, where 85% or more of the regular income of such tax year has been applied as per provisions of section 341or accumulated under section 342 for charitable or religious purposes, in such tax year as per the provisions of this Part; and
b. in any other case, 85% of the regular income for such tax year as reduced by its application for charitable or religious purposes as per provisions of section 341or accumulation thereof under section 342 in such tax year as per the provisions of this Part.
Specified income [Section 337]
Section 337 provides an exhaustive list of incomes that are treated as specified income of a registered NPO. The provision is intended to ensure that tax exemptions are not misused and that the funds of the NPO are applied strictly for its charitable or religious objects. The following incomes shall constitute specified income and shall be chargeable to tax in the year in which the relevant violation or event occurs:
1. Anonymous Donations
Anonymous donations received by a registered non-profit organisation shall be treated as specified income and shall be taxable in the tax year in which such donations are received, subject to the following conditions.
This provision applies to all registered non-profit organisations except those established:
- wholly for religious purposes, or
- wholly for charitable and religious purposes, other than cases where anonymous donations are received with a specific direction that such donations are intended for:
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- any university or other educational institution; or
- any hospital or other medical institution run by such organisation.
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- A threshold exemption is provided, whereby anonymous donations shall not be treated as specified income to the extent of:
- ₹1,00,000; or
- 5% of the total donations received during the tax year,
whichever is higher.
- Any amount of anonymous donation exceeding the above threshold shall be considered as specified income.
2. Application of Income for the Benefit of Related Persons
Any portion of income applied by a registered non-profit organisation, whether directly or indirectly, for the benefit of any related person shall be treated as specified income. The amount shall be computed in the prescribed manner. Such income shall be taxable in the tax year in which such application is made.
3. Application of Income Outside India
Any portion of income applied outside India in contravention of the provisions of section 338(a) shall be regarded as specified income. Such income shall be taxable in the tax year in which the application of income outside India takes place.
4. Investment or Deposit in Contravention of Provisions
Any investment or deposit made in violation of the provisions of section 350, out of income, accumulated income, deemed accumulated income, corpus, deemed corpus, or any other fund of the organisation, shall be treated as specified income. Such income shall be taxable in the tax year in which such investment or deposit is made.
5. Deemed Corpus Donation – Violation of Conditions
Any deemed corpus donation in respect of which any of the conditions specified under section 340 are violated shall be treated as specified income. Such income shall be taxable in the tax year in which such violation occurs.
6. Misapplication of Accumulated Income
Any portion of accumulated income that is applied for purposes other than the charitable or religious purposes for which it was accumulated or set apart shall be regarded as specified income. Such income shall be taxable in the tax year in which it is so applied.
7. Cessation of Accumulated Income
Any portion of accumulated income shall be treated as specified income where it ceases to remain accumulated or set apart for application to the purposes specified under section 342(1). Such income shall be taxable in the tax year in which it ceases to be so accumulated or set apart.
8. Non-application of Accumulated Income within Prescribed Period
Any portion of accumulated income shall be treated as specified income where such income is not applied in accordance with the provisions of section 341(1) to (4) for the purposes for which it was accumulated or set apart, within the period specified under section 342(1).
Such income shall be taxable in the last of the tax years for which the income was so accumulated or set apart
9. Transfer of Accumulated Income to Another Registered Non-Profit Organisation
Any portion of accumulated income credited or paid to any other registered non-profit organisation shall be treated as specified income. Such income shall be taxable in the tax year in which it is so credited or paid.
10. Application of Income for Non-Registered Objects
Any income applied for purposes other than the charitable or religious purposes for which the organisation is registered shall be regarded as specified income. Such income shall be taxable in the tax year in which it is so applied.
11. Excess Income Determined by the Assessing Officer
Any income determined by the Assessing Officer under section 344, which is in excess of the income disclosed in the books of account of the business undertaking of the registered non-profit organisation, shall be treated as specified income. Such income shall be taxable in the tax year to which such income relates.
12. Holding of Asset in Non-Specified Forms or Modes
Where any asset is not held in the forms or modes specified in paragraph 1(1) to (30) of Schedule XVI, even after the expiry of one year from the end of the tax year in which such asset was acquired, the fair market value of such asset shall be treated as specified income. Such income shall be taxable in the tax year immediately following the expiry of the said one-year period.
13. Deemed Application Not Actually Applied within Prescribed Period
Any deemed application under section 341(5), which is not actually applied by the registered non-profit organisation towards its objects in India within the period specified under section 341(6), shall be treated as specified income. Such income shall be taxable in the tax year by which such application was required to be made in accordance with section 341(6).
Income Not to be Included in Regular Income [Section 338]
While computing the regular income of a registered non-profit organisation, certain categories of income are specifically excluded, subject to prescribed conditions.
1. Income Applied Outside India with Approval
Income applied outside India shall not be included in the regular income of a registered non-profit organisation where the competent authority (the Board) has, by a general or special order, directed such exclusion.
This benefit is available in the following cases:
- Where the organisation was created before 1st April, 1952 for charitable or religious purposes; or
- Where the organisation was created on or after 1st April, 1952 for charitable purposes, and such application of income outside India is intended to promote international welfare in which India has an interest.
2. Corpus Donations
Corpus donations received by a registered non-profit organisation in accordance with the provisions of section 339 shall not form part of its regular income. Such donations are treated as capital receipts and are excluded from taxation, subject to compliance with the prescribed conditions.
DISCLAIMER: The views expressed in this article are strictly of the author. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation by the author. The author does not accept any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.
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