The Income-tax Bill, 2025 has been tabled in Parliament on 13th February 2025, marking a significant step toward simplifying the language and structure of the Income tax Act, 1961.This reform includes specific provisions affecting non-profit organizations (NPOs).
Non-Profit Organizations (NPOs) in India are primarily focused on serving social, charitable, religious, educational, or cultural causes rather than generating profit. These include trusts, societies, and Section 8 companies, all governed by different legal frameworks such as the Indian Trusts Act, Societies Registration Act, and the Companies Act, 2013. To promote philanthropy and social work, the Income Tax Act offers tax exemptions under Sections 10(23C), 11, and 12A, and also provides deductions for donors under Section 80G. The newly proposed Income Tax Bill 2025 seeks to simplify and streamline the provisions related to NPOs, aiming to enhance clarity, compliance, and efficiency in their operations.
The Bill also introduces a unified term, “registered non-profit organization,” to refer to all such entities, replacing the use of multiple terms like trusts and institutions, thereby eliminating confusion.
Key Changes for Non-Profit Organizations:
1. Consolidation of Provisions: The new Bill consolidates existing provisions related to NPOs into a single chapter, enhancing clarity and accessibility. Earlier, all the provisions were scattered among various chapters, however in proposed Income Tax Bill, 2025 the same is consolidated in Chapter XVII Part B divided into seven sub-parts.
2. Simplified Tax Exemptions: The Bill outlines clearer guidelines for tax exemptions applicable to NPOs, particularly concerning income derived from charitable activities. Clauses 332 to 355 provide a more straightforward framework for these exemptions.
3. Streamlined Compliance Requirements: The Bill aims to reduce compliance burdens by eliminating redundant provisions and simplifying the language of tax laws. This approach is expected to make it easier for NPOs to understand and adhere to tax regulations.
4. Introduction of ‘Tax Year’ Concept: The Bill replaces the terms ‘assessment year’ and ‘previous year’ with ‘tax year,’ aligning with international tax terminology. This change is intended to simplify the tax assessment process for all taxpayers, including NPOs.
5. No Major Tax Rate Changes: The Bill does not introduce new taxes or alter existing tax rates, ensuring that NPOs continue to benefit from the current tax exemptions and incentives.
6. Will the existing NPOs again be registered under the New Provisions? :
Previously, registered non-profit organizations (NPOs) could claim tax exemptions under two separate rules: Section 10(23C) and Sections 11 to 13 of the Income Tax Act, 1961. Both regimes also shared some common provisions, like Sections 115BBC, 115BBI, 115TD, 115TE, 115TF, and 2(15).
Starting October 1, 2024, the Finance (No. 2) Act, 2024, will no longer accept new applications under Section 10(23C). However, organizations already approved under this section will continue to receive exemptions until their approval expires. After that, they must register under the second regime to keep their tax-exempt status.
The new Income Tax Bill 2025 ensures that NPOs with valid registrations under Sections 12A, 12AA, 12AB, or Section 10(23C) can continue to claim benefits as long as their registrations remain valid. This provision protects existing organizations, allowing them to transition smoothly to the new system without losing tax benefits.
These reforms are designed to create a more transparent and efficient tax environment for non-profit organizations in India. The Bill is expected to come into effect on April 1, 2026, allowing time for stakeholders to adapt to the new provisions.
For detailed information, NPOs should refer to the specific clauses within the Income Tax Bill, 2025, and consult with tax professionals to understand how these changes may impact their operations
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