(Sections 354 and 354A, Income Tax Act, 2025 – Part B of Chapter XVII: Special Provisions for Registered Non-Profit Organisations) Note: As part of the transition to the Income Tax Act, 2025, the concepts of "previous year" and "assessment year" have been replaced with a single concept of a "tax year". Throughout the series, "tax year" refers to the financial year beginning on 1 April and ending on 31 March. Introduction This is the seventh and concluding issue in a series explaining how the Income Tax Act, 2025 ("the Act") taxes Registered Non-Profit Organisations ("RNPOs"). The earlier issues dealt with registration, the classification of income, application of income, commercial activities, compliance requirements, and the consequences of violations. This issue covers two remaining provisions: Approval to receive tax-deductible donations (Section 354): Registration as an RNPO makes the organisation's own income eligible for exemption. To provide tax deduction relief to donors against their donations, a separate approval is required. Section 354 sets out who may apply, the conditions to be met, and the time limits and validity of the approval. Mergers between RNPOs (Section 354A): This provision explains when a merger does not trigger the tax on accreted income discussed in Issue 6: Violations, Registration Cancellation, and Tax Consequences for RNPOs. The two provisions are connected by a common theme: both depend on the RNPO keeping its approvals current and its structure consistent with its charitable purpose. Tax Deduction for Donors: Approval under Section 354 In Issue 1: Registration of Non-Profit Organisations under the Income Tax Act, 2025, we discussed how an organisation registers as an RNPO in order to claim exemption on its own income. Registration under Section 332 is what brings the organisation within the RNPO framework and determines how its income is taxed. Section 354 deals with a separate approval that determines whether a donor can claim a deduction for a donation made to the organisation. For RNPOs that raise funds from taxpayers, and corporations, maintaining a valid approval is essential. A loss of the approval obtained under Section 354 can affect donors' ability to claim a deduction and, in turn, the organisation's fundraising. Section 354 sets out the conditions an RNPO must meet , to allow its donors to claim a deduction, when and how it should apply for this approval, how long the approval lasts, and how the tax authority decides the application. The application is made to the Principal Commissioner or Commissioner ("PCIT/CIT") in the prescribed form and manner. Conditions to be Satisfied to Receive Approval under Section 354 To be eligible for approval, an RNPO must meet the following conditions: No community or caste preference: It must not be set up for the benefit of any particular religious community or caste. Charitable purpose: It must be established in India for a charitable purpose. Limit on religious spending: Its religious expenditure in a tax year must not exceed 5% of its total income. Charitable use of assets: Its constitution or governing rules must not allow any of its assets to be transferred, at any time, for a purpose other than a charitable purpose. Regular accounts: It must maintain regular accounts of its receipts and expenditure (as discussed in Issue 4: Compliance Requirements Applicable to an RNPO) Statement of donations: It must file the statement of donations in Form 113 with the income-tax authority, by 31st May immediately following the end of the relevant tax year. The organisation shall issue each donor a certificate in Form 114, specifying the amount donated. The certificate shall be generated and issued only after the RNPO has duly filed Form 113, enabling donors to claim the applicable tax deduction. When and How to Apply: the Five Cases The time limit for applying, the time within which the PCIT/CIT must pass an order, and the period for which the approval remains valid all depend on the RNPO's stage. The Act groups these into five cases. Case Situation When to apply Order to be passed within Validity of approval 1 Activities have not commenced At any time during the tax year from which approval is sought One month from the end of the month in which the application is made Three tax years, commencing from the tax year of application (provisional approval) 2 Activities have commenced At any time during the tax year from which approval is sought Six months from the end of the quarter in which the application is made Five tax years, commencing from the tax year of application 3 Provisional approval held and activities have commenced Within six months of commencement of activities Six months from the end of the quarter of application Five tax years, commencing from the tax year of application 4 Provisional approval is about to expire and activities have not commenced At least six months before the provisional approval expires Six months from the end of the quarter of application Five tax years, following the tax year of application 5 Existing approval is about to expire (renewal) At least six months before the approval expires Six months from the end of the quarter of application Five tax years, following the tax year of application How the PCIT/CIT Decides to Grant Approval under Section 354 The procedure depends on the case. Case 1 (activities not commenced). The PCIT/CIT must pass an order granting provisional approval. No inquiry into genuineness is required at this stage, since there are no activities yet to examine. Cases 2 to 5. The PCIT/CIT may call for documents or information, or make inquiries, to satisfy himself about: the genuineness of the activities; and compliance with those requirements of any other law in force that are material to achieving the RNPO's objectives. The outcome is one of the following: Satisfied: a written order approving the application. Not satisfied: after giving the RNPO a reasonable opportunity of being heard, a written order rejecting the application. Mergers between RNPOs (Section 354A) The General Position As explained in “Issue 6 -Violations, Registration Cancellation, and Tax Consequences for RNPOs”, certain events trigger tax on accreted income, which is a one-time exit tax on the RNPO's accumulated net assets at the maximum marginal rate. One such event is a merger with an entity that is not an RNPO, or with an RNPO that does not have the same or similar objects. In that case, the date of the merger is the date for calculating the tax. Section 354A provides relief for mergers between two RNPOs. When the Exit Tax does not Apply The provisions on tax on accreted income (Section 352) do not apply to the merger of one RNPO into another RNPO if both of the following are met: Same or similar objects. The RNPO into which the merger takes place has the same or similar objects as the RNPO that is merging. Prescribed conditions. The merger fulfills the conditions prescribed under the Rules. Note: Section 354A requires the merger to fulfil "such conditions as may be prescribed". As on the date of this primer, these conditions have not yet been specified in the Income Tax Rules, 2026. Until they are notified, an RNPO cannot be certain that a merger will qualify for relief. RNPOs planning a merger should monitor the notification of these conditions and take professional advice before proceeding. Key Takeaways Registration as an RNPO and approval for donor deduction are separate. An RNPO needs both if it wants its donors to be able to claim a deduction. To qualify for approval, religious expenditure must stay within 5% of total income in every tax year, and the constitution must not allow any assets to go to a non-charitable purpose. Donation statements (Form 113), correction statements and donor certificates (Form 114) are continuing obligations, to be met every year the approval is held. A new organisation begins with a three-year provisional approval and must apply for regular approval within six months of starting activities. Renewal applications must be filed at least six months before the approval expires. The expiry date should be diarised as soon as the approval is granted. A merger between two RNPOs with the same or similar objects, where the prescribed conditions are met, does not attract tax on accreted income. A merger with an entity that is not an RNPO, with an RNPO of different objects, or with an RNPO of similar objects where the prescribed conditions are not met, does attract the tax (Refer Issue 6: Violations, Registration Cancellation, and Tax Consequences for RNPOs) Conclusion of the Series This series was written to help RNPOs understand what the Income Tax Act, 2025 requires of them, and when. The table below mentioned what each of the issue covered: Issue Theme Question it answers 1 Registration of Non-Profit Organisations under the Income Tax Act, 2025 How does an organisation become an RNPO? 2 Classification of Income of RNPOs Which income is regular, specified or residual, and how is each taxed? 3 Application of Income of an RNPO What spending counts towards the 85% requirement? 4 Permitted Commercial Activities for an RNPO What Commercial Activities Are Permitted for an RNPO under the Income Tax Act, 2025 5 Compliance Requirements Applicable to an RNPO What books, audit, returns and investment rules must it follow? 6 Violations, Registartions, Cancellations and Tax Consequences for an RNPO What happens if it fails to comply, or if it ceases to be an RNPO? 7 Donor approval and mergers How can it keep donors eligible for deduction, and how can it merge without an exit tax? The common message of the series is that exemption is conditional. Registration, application of income, record-keeping, donor-deduction approval and structural changes each carry their own requirements and timelines. RNPOs are best served by building these into a single annual compliance calendar and by reviewing their status before, not after, any significant change in activities, funding or structure. This issue is the seventh (final) part in a seven-part series on the Income Tax Act, 2025, effective 1 April, 2026. Read the Previous Issues in This Series: Part 1: Registration of Non-Profit Organisations under the Income Tax Act, 2025 Part 2: Classification of Income of Registered Non-profit Organisations (RNPOs) under the Income Tax Act, 2025 Part 3: Application of Income of RNPO: What Expenditure Qualifies as Application of Income Towards RNPO’s Charitable/Religious Purposes Part 4: What Commercial Activities Are Permitted for a Registered Non-profit Organisation (RNPO) under the Income Tax Act, 2025 Part 5: Compliance Requirements Applicable to an RNPO Part 6: Violations, Registration Cancellation, and Tax Consequences for RNPOs

(Sections 347–350, Income Tax Act, 2025 — Part B of Chapter XVII: Special Provisions for Registered Non-Profit Organisations) Note: As part of the transition to the Income Tax Act, 2025, the concepts of "previous year" and "assessment year" have been replaced with a single concept of a "tax year". Throughout the series, "tax year" refers to the financial year beginning on 1 April and ending on 31 March. Introduction This is the fifth issue in a seven-part series explaining how the Income Tax Act, 2025 ("the Act") taxes Registered Non-Profit Organisations ("RNPOs"). In the previous issue, Commercial Activities Undertaken by an RNPO, we discussed how commercial activities undertaken by an RNPO are treated under the Act, and the conditions that must be satisfied for income arising from such activities to continue to qualify for exemption. This issue looks at the compliance requirements for RNPOs under the Income Tax Act, 2025. An RNPO's tax exemption is conditional upon certain compliance requirements: Certain RNPOs (whose income crosses a particular threshold) must maintain proper books and records, have their accounts audited, and file a return of income. RNPOs may invest or deposit their funds only in permitted modes. This requirement is independent of the RNPO's income crossing the prescribed threshold. When Do Compliance Requirements for RNPOs Apply? The Act uses a common income threshold to determine when the requirements relating to books of account, audit of accounts, and filing of return of income apply to an RNPO. The principle: If an RNPO's total income (computed without giving effect to its exemptions) exceeds the maximum amount not chargeable to tax in a tax year, it must comply with the requirements under maintaining books of account (Section 347), Audit of Accounts (Section 348), and filing return of income (Section 349). Illustration ABC Foundation, an RNPO, has a receipt of ₹ 85 lakh in a tax year, with the following breakup: Program fees - ₹ 20 lakh Interest on savings - ₹ 4 lakh Rent Income - ₹ 5 lakh General Voluntary contribution - ₹ 15 lakh Grant - Rs 10 lakh Incidental business income - ₹ 6 lakh Corpus donation (with specific written direction) - ₹ 25 lakh First step: Compute the total income of RNPO without giving effect to any exemption. For this. We need to classify each receipt under the Act's ordinary provisions first, asking: if the RNPO framework didn't exist, would this receipt be income under the general provisions of the Act? Receipt Income Under Ordinary Principles? Reason for Classification Programme fees Yes Revenue receipt for services rendered Interest income Yes Revenue receipt Rent income Yes Revenue receipt General voluntary contributions Yes Revenue receipt (no capital character) Grant received Yes Revenue receipt Business income Yes Revenue receipt Corpus donation No A donation received with a specific direction that it forms part of corpus is capital in character. It doesn't become income merely because it was received by an RNPO [affirmed as per Shri Vasu Pujya Jain Derasar Pedhi vs. ITO [1991] 39 TTJ 337 (Jaipur Trib.) case law ] Second Step: Adding up only what qualifies as income under ordinary principles: ₹20 lakh + ₹4 lakh+ ₹5 lakh + ₹15 lakh + ₹10 lakh + ₹6 lakh = ₹60 lakh. The ₹25 lakh corpus donation is left out at this stage, not because it is "exempt," but because it is not an income. Third Step: Once income under ordinary principles is worked out ₹60 lakh in this example that figure is what gets tested against the threshold. For tax year 2026-27, the maximum amount not chargeable to income tax (the basic exemption slab, before any rebate) is ₹4 lakh. Since ABC Foundation's ₹60 lakh comfortably exceeds this, the compliance obligations of maintaining books of accounts, audit and filing returns of income) discussed below apply to it for tax year 2026-27. Note: The threshold is not fixed and may change from one tax year to another. RNPOs should therefore verify the threshold applicable for the relevant tax year. Maintaining Books of Account and Other Records The RNPO is required to maintain books of account and other documents as prescribed under Rule 187 of the Income Tax Rules, 2026 (see Box 1). The purpose of maintaining these records is not limited to recording income and expenditure. The records should provide a clear picture of the RNPO's activities, finances, application of income, assets and other transactions. Books, Records, and Supporting Documents to Be Maintained by an RNPO Books of account, including cash book; ledger; journal; copies of bills and receipts issued by the RNPO; original bills and receipts relating to payments made by the RNPO; and any other books necessary to give a true and fair view of the RNPO's affairs and explain its transactions. Supporting records such as details of its projects and institutions, including their name, address and objectives; income from charitable or religious activities, property or investments, voluntary contributions, permissible commercial activities and other sources; application of income, including amounts applied in India or outside India; amounts transferred or paid to other RNPOs; accumulated or set-aside income and the purpose for which it is accumulated; investments made by the RNPO; corpus donations, including donor details and the manner in which corpus funds are applied or invested; loans and borrowings, including lender details, repayment terms and application of borrowed funds; immovable and movable property; transactions with related persons; and any other document relevant to the RNPO's operations. Box 1: List of Records to be Maintained Under Rule 187 of the Income Tax Rules, 2026 Note: Rule 187 of the Income Tax Rules, 2026 should be referred to for the complete & detailed list of records and particulars required to be maintained. At What Place Should the Records be Kept? As a general rule, books of account and other documents should be maintained at the registered office of the RNPO. This is particularly relevant for RNPOs that operate through multiple project offices or use an external accountant to maintain their records. An RNPO may keep some or all of its records at another location in India if: The management passes a formal resolution approving the alternate location; The RNPO informs its jurisdictional AO in writing within seven days of passing the resolution; and The intimation provides the full address of the alternate location and is signed and verified by the person authorised to verify the RNPO's return of income. In What Form Can the Records be Maintained? Books of account and other required documents can be maintained in physical or electronic form. An RNPO may also use a combination of both. For example, an RNPO may maintain its accounting records electronically while keeping certain original bills, receipts or agreements in physical form. How Long Should the Records be Kept for? As a general rule, books of account and other required documents should be maintained for at least six years from the end of the relevant tax year. There is an exception where an assessment is reopened. In such a case, the books and documents relevant to that assessment must continue to be maintained until the reopened assessment is finally completed, even if this extends beyond the normal six-year period. Six years is the normal minimum period. If an assessment is reopened, the relevant records should not be destroyed until that matter is finally resolved. Audit of Accounts The audit provides an independent review of the accounts and results in an audit report. The detailed requirements relating to the audit and the audit report are prescribed under Rule 188 of the Income Tax Rules, 2026. For an RNPO: The audit must be conducted by a Chartered Accountant holding a valid Certificate of Practice; An audit report must be furnished for the relevant tax year in the prescribed form; The report must be signed and verified by the Chartered Accountant; and The report must contain the prescribed particulars. In simple terms: The RNPO maintains its books and records, and the statutory audit provides an independent check of those accounts. Return of Income Where the RNPO's income crosses the prescribed threshold, it is required to file a return of income for that tax year in the prescribed manner and within the prescribed time. An important point here is that the obligation to file a return is not dependent on whether the RNPO ultimately has any tax to pay. An RNPO may have no tax to pay because of its exemption. However, it may still have to file a return if its income crosses the prescribed threshold. The filing requirement is triggered by the level of income, not by the amount of tax ultimately payable. Investing or Depositing Funds in Permitted Modes The Act requires an RNPO to invest or deposit certain funds, (refer Box 2) only in specified modes (refer Box 3). An investment or deposit made in a mode that is not permitted may have tax consequences for the RNPO as discussed in Issue 3. RNPO Funds That Must Be Invested or Deposited in Permitted Modes Current tax year's regular income not applied: Up to 15% of the RNPO's regular income earned in the current tax year can be retained without applying it to its objects, and without any formal accumulation process. However this unapplied portion must still be invested or deposited only in Schedule XVI-permitted modes (see Issue 3). Income accumulated or set apart under Section 342(1): Amounts formally set aside for future application (see Issue 3), whether accumulated in the current year or carried forward from a preceding year and not yet applied. Corpus donations: Voluntary contributions received with a specific direction that they form part of the corpus, whether received during the current year or carried forward from an earlier year. Corpus donations for renovation/repair of religious places — donations received for renovation or repair of a temple, mosque, gurdwara, church, or other notified places, which are treated as corpus under Section 340. Not covered by this requirement: Profits from a business carried on by the RNPO, provided separate books of account are maintained for that business. Box 2: Funds of RNPO that must be invested or deposit as per Section 350 of the Income Tax Act, 2025 Permitted Modes of Investment or Deposit for RNPO Funds Government-backed instruments: Savings certificates, small savings schemes, Post Office Savings Bank accounts, government securities, and UTI units Bank and cooperative deposits Government-guaranteed and public sector instruments: Guaranteed debentures, public sector company investments, and bonds from specified financial institutions. Specified infrastructure and market-linked instruments: a narrowly defined set including Sovereign Gold Bonds, specified mutual fund units, infrastructure investment trust units, and shares of certain notified entities. Immovable property (excluding machinery or plant, unless installed as part of a building) Grandfathered legacy assets — certain older holdings (e.g., corpus assets held since 1 June 1973, or specified educational/medical institution assets held since 1 June 1998) remain valid even though they wouldn't qualify under the current list. Equity shares in incubatees permitted mode of investment where the RNPO is itself an incubator notified by the DST/Ministry of Science and Technology as a Technology Business Incubator (TBI) or Science and Technology Entrepreneurs Park (STEP). Box 3: Permitted Modes of Investment Note: The above mentioned modes are summarised for reading. Refer Schedule XVI, Income Tax Act 2025 for detailed reading of specified modes. How do these Requirements Fit Together? Once the income threshold is crossed, the compliance requirements can be viewed as a connected process: Income threshold crossed -> Books of account and supporting records maintained -> Accounts audited -> Audit report furnished -> Return of income filed Alongside this, throughout the year, RNPO funds may be invested or deposited only in permitted modes. This issue is the fifth part in a seven-part series on the Income Tax Act, 2025, effective 1 April, 2026. Read the Previous Issues in This Series: Part 1: Registration of Non-Profit Organisations under the Income Tax Act, 2025 Part 2: Classification of Income of Registered Non-profit Organisations (RNPOs) under the Income Tax Act, 2025 Part 3: Application of Income of RNPO: What Expenditure Qualifies as Application of Income Towards RNPO’s Charitable/Religious Purposes Part 4: What Commercial Activities Are Permitted for a Registered Non-profit Organisation (RNPO) under the Income Tax Act, 2025 Part 5: Compliance Requirements Applicable to an RNPO Part 6: Violations, Registration Cancellation, and Tax Consequences for RNPOs Part 7: Tax Deduction for Donors and Mergers of RNPOs under the Income Tax Act, 2025

(Sections 344-346, Income Tax Act, 2025 (Part B of Chapter XVII – Special Provisions for Registered Non-Profit Organisations) Note: As part of the transition to the Income Tax Act, 2025, the concepts of "previous year" and "assessment year" have been replaced with a single concept of a "tax year". Throughout the series, "tax year" refers to the financial year beginning on 1 April and ending on 31 March. Introduction This is the fourth issue in a seven-part series explaining how the Income Tax Act, 2025 (“the Act”) taxes Registered Non-Profit Organisations (RNPOs). In the previous issue, Application of Income of RNPO - What Expenditure Qualifies as Application of Income Towards RNPO's Charitable/Religious Purposes, we discussed the three routes by which an RNPO satisfies its 85% application requirement: direct application under Section 341, formal accumulation under Section 342, and the automatic 15% deemed accumulation under Section 343. This issue examines how the Income Tax Act, 2025 treats commercial activities undertaken by RNPOs. The Act first recognises that an RNPO may itself own a business undertaking as part of its property (Section 344). It then lays down the conditions under which income from such business activities can continue to qualify for exemption (Section 345). Finally, where the RNPO is established for the advancement of any other object of general public utility, the Act prescribes additional restrictions on commercial activities (Section 346). The three provisions should be read together. Section 344 explains what constitutes a business undertaking held by an RNPO and how its income is determined. Sections 345 and 346 then prescribe the conditions under which the income from such business activities continues to qualify for exemption. Business Undertaking Held as property (Section 344) Section 344 recognises that an RNPO may hold a business undertaking as part of its property and explains how its income is computed. Whether the income from that business undertaking ultimately qualifies for exemption depends on the conditions prescribed under Sections 345 and 346, discussed below. The term “property held by an RNPO” includes business undertakings and assets such as land, buildings, or investments. Where an RNPO claims that the income from a business undertaking qualifies for exemption, the Assessing Officer (AO) may independently determine the income of the undertaking. The computation must be made in accordance with the provisions of the Income Tax Act, 2025, in the same manner as for any other business entity. If the income determined by the AO is higher than the income reflected in the undertaking's books of account, the excess amount is deemed not to have been applied towards the RNPO's charitable or religious purposes. Consequently, this excess is treated as specified income under Section 337 of the Act and taxed at 30% (covered in the earlier issue). Note: The term "business undertaking" has not been defined in the Act per se. However, as per the rulings of the Supreme Court, its meaning has been built through a set of consistent tests carried forward from the corresponding provision of the Income Tax Act, 1961: ● Ownership, not mere involvement: For a business to qualify as a business undertaking held by an RNPO, it must be owned by the RNPO and form part of its property or assets. Mere participation in the management of a business or receipt of its profits is not sufficient. For example, an RNPO does not "hold" a business simply because it receives a share of its profits or assists in its management if the business itself is owned by another person. The requirement of Section 344 is satisfied only where the business undertaking itself forms part of the RNPO's property. ● Mere common ownership does not, by itself, trigger "held" status: Overlapping trustees, directors, or promoters between the RNPO and a separate business entity does not make that entity's business the RNPO's property. If a business is run through a separately incorporated entity with common promoters or directors, the relevant compliance question shifts, from whether it is "property held" under Section 344, to whether that entity is a "related person" under Section 355 (covered in the later issue), triggering the stricter related-person taxation rules under Section 337. ● How the business came to be held: The crucial question is whether the business undertaking itself has become the property of the RNPO. This may happen where the business is settled upon the RNPO or is subsequently acquired and vested in the RNPO. However, if the trustees merely carry on a business on behalf of the RNPO without the business undertaking itself becoming trust property, the business is not automatically regarded as one held by the RNPO. Illustration 1: Context: An RNPO operating an educational institution also owns and runs a printing press as part of its property, treating it as a business undertaking held under the RNPO. For Tax Year 2027, the RNPO's own accounts show income of ₹12 lakh from the printing press, which it includes as regular income and claims is eligible for the benefits available under this Part. Step 1: On assessment, the AO examines the printing press's accounts and, applying the Act's normal assessment provisions, determines the undertaking's actual income for the year to be ₹18 lakh, higher than the ₹12 lakh shown in the RNPO's own books. Step 2: The excess determined by the AO = ₹18 lakh − ₹12 lakh = ₹6 lakh. As per the provisions, this ₹6 lakh is deemed to have been applied to purposes other than the RNPO's registered charitable or religious purpose. Result: Only the ₹12 lakh shown in the printing press's own accounts is treated as regular income eligible for the RNPO's 85% application computation. The ₹6 lakh excess determined by the AO is treated as specified income under Section 337 and taxed at a flat 30% for tax year 2027, the year to which the income relates, regardless of how the RNPO may have intended to apply it. Note: Repeated cases of the AO assessing specified income (other than those arising from a bona fide difference in computation), under Section 337 may lead to a questioning of the charitable status of the RNPO. Restriction on Commercial Activities by a Registered Non-profit Organisation (Section 345) The thumb rule is that an RNPO (other than an RNPO carrying out advancement of any other object of public utility) may carry out commercial activity only if the following two conditions are fulfilled: Such commercial activity is incidental to the attainment of the objectives of the RNPO; and Separate books of account are maintained for such activities: Separate books of account require the income and expenses of the business activity to be recorded clearly and separately from the RNPO’s other accounts. This means that anyone reviewing the accounts should be able to identify what the business earned and spent on its own, without those amounts being mixed with the RNPO’s other funds. What Does Incidental Mean? A business activity is "incidental" to an RNPO's objectives if the money it earns is genuinely used to fund those objectives, even if the activity itself has nothing to do with what the RNPO actually does on the ground. The Supreme Court explained this principle in CIT vs. Thanthi Trust (2001). The trust owned and operated a Tamil-language newspaper, while its charitable objectives were to promote education by running schools, hostels and scholarship programmes. Although newspaper publishing was not, in itself, an educational activity, the Court held that the business was incidental to the trust's educational objectives because its surplus was legally required to be applied towards those charitable purposes. The Court emphasised that the test is not whether the business activity itself is charitable, but whether it is carried on to support and finance the RNPO's charitable objectives. Restriction on Commercial Activities by RNPOs carrying out advancement of Any Other Object of General Public Utility (Section 346) An RNPO, carrying out advancement of any other object of general public utility, may carry out any commercial activity only if the following three conditions are fulfilled: Such commercial activity is undertaken in the course of actual carrying out of advancement of any object of the general public utility; The aggregate receipts from such commercial activity or activities do not exceed 20% of the total receipts of such RNPO of the relevant tax year; and Separate books of account are maintained by such RNPOs for such activities. Note: Sections 345 and 346 both deal with business or commercial activities carried on RNPOs. However, they apply to different categories of RNPOs. Under the Income Tax Act, an RNPO may be established for charitable purposes, religious purposes, or both. Among charitable purposes, the Act recognises following seven categories: - Relief of the poor: Helping needy, poor, or disadvantaged people. - Education: Running schools, colleges, or training programs. - Yoga: Teaching and promoting yoga practices. - Medical relief: Providing healthcare, hospitals, or medical aid. - Preservation of the environment: Protecting forests, wildlife, and watersheds. - Preservation of monuments: Saving places or objects of historic or artistic interest. - General public utility Section 345 lays down the general rule for RNPOs carrying out charitable or religious activities. It permits an RNPO to carry on a business undertaking, provided the business is incidental to the attainment of its objectives and separate books of account are maintained. Section 346 is a special provision that applies only to RNPOs whose charitable purpose is the advancement of any other object of general public utility. Since organisations in this category are more likely to undertake activities that resemble commercial businesses, the Act imposes an additional safeguard. Besides maintaining separate books of account, the receipts from such commercial activities must not exceed 20% of the RNPO's total receipts during the tax year. In other words, Section 345 provides the general framework for business activities carried on by RNPOs, while Section 346 prescribes stricter conditions for RNPOs pursuing the charitable purpose of general public utility. Identifying a General Public Utility (GPU) Object The Income Tax Act, 2025 does not define the expression "general public utility." Over the years, the courts have evolved the following guiding principles to determine whether an RNPO falls within this category. The Primary Charitable Purpose of the RNPO is What Matters Whether an RNPO is regarded as pursuing a GPU object depends on its primary charitable purpose. The focus is on the purpose for which the RNPO was established, rather than on individual activities that it may undertake in carrying out that purpose. Illustration: A university may publish journals, organise seminars and conduct teacher training programmes. These activities do not change its primary charitable purpose, which remains education. Similarly, an RNPO should be classified based on its primary charitable purpose, rather than on every activity it undertakes. The Object Must Benefit the Public The object must promote the welfare of the general public or a sufficiently identifiable section of the public, rather than serving individual interests. GPU is a Residuary Category "Object of general public utility" indicates that this category is intended to cover charitable purposes that do not fall within the other six recognised charitable purposes. This understanding flows from the statutory language and has been recognised by the Supreme Court while interpreting the scope of GPU. Judicial Support: Addl. CIT vs. Surat Art Silk Cloth Manufacturers' Association (1980). Applying the Judicial Principles - Illustrative Examples RNPO's Dominant Object Likely Classification Running schools Education Running hospitals Medical relief Scholarships for disadvantaged students Education Relief and rehabilitation of disaster victims Relief of the poor Preservation of forests and wildlife Preservation of environment Promotion of trade and industry General Public Utility Professional regulation (e.g. ICAI) General Public Utility Note: The table only illustrates the likely classification of an RNPO's dominant object under the recognised charitable purposes. Whether the RNPO qualifies for exemption depends on compliance with the other applicable provisions of the Act, including Sections 345 and 346. Conclusion Commercial activities do not automatically deprive an RNPO of the tax benefits available under the Income Tax Act, 2025. However, the Act subjects such activities to specific conditions. An RNPO may hold a business undertaking as part of its property, but the income from that business qualifies for exemption only where the statutory conditions are satisfied. For RNPOs carrying out charitable or religious purposes, the business activity must be incidental to the attainment of their objectives and separate books of account must be maintained. RNPOs established for the advancement of any other object of general public utility are subject to an additional restriction: i.e. that receipts from commercial activities must not exceed 20% of their total receipts. These provisions seek to ensure that commercial activities remain a means of supporting charitable purposes, rather than becoming an end in themselves. This issue is the fourth part in a seven-part series on the Income Tax Act, 2025, effective 1 April, 2026. Read the Previous Issues in This Series: Part 1: Registration of Non-Profit Organisations under the Income Tax Act, 2025 Part 2: Classification of Income of Registered Non-profit Organisations (RNPOs) under the Income Tax Act, 2025 Part 3: Application of Income of RNPO: What Expenditure Qualifies as Application of Income Towards RNPO’s Charitable/Religious Purposes Part 4: What Commercial Activities Are Permitted for a Registered Non-profit Organisation (RNPO) under the Income Tax Act, 2025 Part 5: Compliance Requirements Applicable to an RNPO Part 6: Violations, Registration Cancellation, and Tax Consequences for RNPOs Part 7: Tax Deduction for Donors and Mergers of RNPOs under the Income Tax Act, 2025

(Sections 341-343, Income Tax Act, 2025 (Part B of Chapter XVII – Special Provisions for Registered Non-profit Organisations)) Note: As part of the transition to the Income Tax Act, 2025, the concepts of "previous year" and "assessment year" have been replaced with a single concept of a "tax year". Throughout the series, "tax year" refers to the financial year beginning on 1 April and ending on 31 March. Introduction This is the third issue in a seven-part series explaining how Income Tax Act, 2025 (“the Act”) taxes registered non-profit organisations (RNPOs). In the last issue, Classification of Income of Registered Non-profit Organisations (RNPOs) under the Income Tax Act, 2025, we discussed that an RNPO must spend 85% of its regular income towards its registered charitable or religious purpose or accumulated/set apart in accordance with Section 342 of the Act. This issue focuses on the application of income provisions contained primarily in Section 341 to Section 343 of the Income Tax Act, 2025. These provisions determine what expenditure qualifies towards the statutory application requirement and what does not. It covers what qualifies as application of income (85%) when an RNPO may formally accumulate income for future application, and the treatment of the automatic 15% retention of regular income. There are three main modes of application of income: 1) Application of Income towards registered charitable or religious purposes under Section 341 2) Accumulation of income under Section 342 3) Deemed accumulated income under Section 343 1. Application of Income Towards Registered Charitable or Religious Purposes under Section 341 The thumb rule is that the RNPO must spend at least 85% of its regular income towards its registered charitable or religious purpose. However, merely spending money on charitable or religious purposes is not sufficient to satisfy the 85% application requirement. The spending must also comply with the RNPO's other obligations under the Act, as detailed below: TDS Compliance i) If an RNPO makes a payment to a resident on which tax has to be deducted at source, and that tax was not deducted, or was deducted but not deposited with the government by the due date (of filing returns of the RNPO’s income), then 30% of such TDS non-compliant payment does not count as application of income and only the remaining 70% counts towards the RNPO's 85% requirement, even if the full amount was actually spent. ii) This disallowance is not necessarily permanent: If the RNPO subsequently deducts and deposits the tax, even in a later tax year, the 30% that was earlier disallowed becomes allowable as application of income in the year such tax is actually paid. Further, if the payee (recipient) has included the relevant income in their own return and paid tax on it, no disallowance is made in the hands of the RNPO—even if the RNPO failed to deduct TDS. Illustration 1 Context: An RNPO received ₹50 lakh as regular income, out of which ₹48 lakh was applied as per the provisions of the Act. However, out of the ₹48 lakh, the RNPO fails to deduct and deposit tax at source on the payment of ₹5 lakh to a legal consultant. Step 1: Tax liability on the ₹5 lakh payment = 10% of ₹5 lakh = ₹50,000, which the RNPO should have deducted and deposited but did not. Step 2: Amount treated as non-application of regular income due to this TDS non-compliance = 30% of ₹5 lakh = ₹1.5 lakh. The remaining 70%, i.e., ₹3.5 lakh, continues to count towards the RNPO's application of income for that tax year. Result: If in a subsequent tax year, the RNPO deducts and deposits the ₹50,000 tax, the ₹1.5 lakh that was earlier disallowed becomes allowable as application of income in that later year. Restrictions on Cash Payments i) Any payment or aggregate of payments made to a single person on a single day, exceeding ₹10,000 made via cash and not through specified banking or online mode, then the expenditure by way of such payments shall not be considered as an application of regular income. Note: In case the payment is specifically made for plying, hiring or leasing of goods carriages, then the cash payment threshold is ₹35,000 instead of ₹10,000. ii) For an RNPO maintaining books on accrual basis, if an expenditure was recognised in an earlier tax year and considered as application of income, but the actual payment exceeding ₹10,000 is made in a subsequent tax year, in cash, then that payment becomes income in the year of payment in the hand of RNPO. The above restriction is not absolute. iii) The Act permits exceptions in specific cases and circumstances, having regard to factors such as the extent of banking facilities available in the area and considerations of business expediency. These prescribed exceptions are not yet detailed in the Act. Donation to Other RNPOs If an RNPO donates any amount to other RNPOs out of its regular income, then only 85% of the donated amount will be considered towards application of income. Deferred Application: Corpus and Loan Funded Spending Certain expenditure qualifies as an application of income when the spend occurred in an earlier tax year(s) but was not allowed as an application in that year: Spending Made from RNPO’s Corpus Funds If an RNPO temporarily utilises its corpus fund to finance expenditure after 31 March 2021, that would ordinarily have been met from its regular income, such expenditure would be considered as an application of income when the following conditions are met: i) Such expenditure would be considered as an application of income in the tax year in which the RNPO restores the amount spent back into corpus as per approved modes under Section 350 of the Act (covered in the later issue); and ii) Such investment or depositing back is made within five years from the end of the tax year in which such application of income was made from the corpus; and iii) There was no violation of any provision of the Income Tax Act, 1961 with respect to such application. Exception: The above does not apply if the RNPO temporarily used corpus funds for a purpose inconsistent with the specific directions of the donor. Such use will never be recognised as application of income. Spending Made by RNPO from Borrowed Funds The amount repaid during the tax year towards any loan or borrowing is treated as an application of income where: i) The borrowing was made by an RNPO, and repayment is made within five years from the end of the tax year in which the application of income was made from the loan or borrowing; and ii) The application of income from the loan or borrowing was made after 31 March 2021, and there was no violation of any provision of this Part, or any corresponding provision of the Income Tax Act, 1961, with respect to such application. Illustration 2 Context: In the tax year 2027, an RNPO receives ₹40 lakh as regular income but needs an additional ₹15 lakh to construct a training centre for its beneficiaries. As it has not yet received an expected grant, it borrows ₹15 lakh from a bank and completes the construction, spending the entire ₹55 lakh (₹40 lakh regular income + ₹15 lakh borrowed funds) in the same tax year. Step 1: Of the ₹55 lakh spent, ₹40 lakh is considered application of income in that tax year. The remaining ₹15 lakh, spent out of borrowed funds, is not treated as application of income in that year. Result: In the tax year 2029, after receiving the grant, the RNPO repays the entire ₹15 lakh loan from its own funds, and not by further borrowing. This ₹15 lakh repayment is treated as application of income in the tax year 2029, since the loan is repaid within five years from the end of the tax year in which the borrowed money was used, the original expenditure was incurred after 31 March 2021, and the original expenditure complied with the provisions governing RNPOs. What Expenditure Cannot Be Considered as an Application of Income Depreciation on assets where the asset acquisition has been claimed as an application of income in current or previous tax years. If an RNPO applies more income towards its charitable or religious purposes than the regular income available during a tax year, the excess application cannot be carried forward and claimed as application of income in a subsequent tax year. Any sum paid as a corpus donation to another registered non-profit organisation is not treated as application of income at all. This is different from a donation made out of regular income to another RNPO, where 85% of the amount counts as application (see "Donation to other RNPOs" above). Deemed Application of Income Treatment of Shortfall in the 85% Requirement Where an RNPO applies less than 85% of its regular income towards charitable or religious purposes in a tax year, it is not automatically treated as a shortfall. Instead, the RNPO may elect to treat this shortfall, or any part of it, as "deemed application” provided it is applied within a specified window in a future year. To exercise this option, the RNPO must: a. File the form 108 on or before the due date for filing its return of income for that tax year; and b. Actually apply the shortfall amount within the following timeline: i. If the shortfall arose because part or all of the income was not yet received during the tax year, by the end of the tax year in which the income is received, or the tax year immediately after; or ii. If the shortfall arose for any other reason, by the tax year immediately succeeding the year in which the income was derived. c. Once applied within this window, the amount is treated as regular application of income under Section 341(1). Note: "Deemed application" is distinct from "deemed accumulated income". Deemed application is an elected, time-bound mechanism requiring a formal filing, used to cure a shortfall in the 85% requirement. Deemed accumulated income is an automatic retention of up to 15% of regular income that requires no filing or election. Capital Gains Reinvestment as Deemed Application Where an RNPO sells a capital asset that was held wholly or partly for charitable or religious purposes and reinvests the proceeds into acquiring another capital asset for the same purpose, the capital gain (if any) earned and invested may be treated as deemed application of income. The RNPO does not need to separately apply an amount equivalent to the capital gain towards its charitable objects to meet the 85% requirement. The extent to which the capital gain is treated as deemed application depends on how much of the sale proceeds ("net consideration") were reinvested: a. Asset held wholly for charitable purposes: If the entire net consideration is reinvested in the new asset, the whole capital gain is deemed application. If only part of the net consideration is reinvested, only the portion of the gain equal to the amount by which the reinvestment exceeds the cost of the asset sold is deemed application. b. Asset held partly for charitable purposes: The same treatment applies, but only to the "appropriate fraction" of the gain, the fraction representing the extent to which income from the asset was applied to charitable purposes immediately before the sale. Illustration 3 Context: An RNPO sells a property held wholly for its charitable purposes for ₹80 lakh (net consideration), realising a capital gain of ₹30 lakh (the property's cost of acquisition was ₹50 lakh). Scenario 1 (full reinvestment): The RNPO reinvests the entire ₹80 lakh net consideration into a new property for the same purpose. Since the whole net consideration was reinvested, the entire ₹30 lakh capital gain is deemed application of income; the RNPO need not separately apply this amount to satisfy the 85% requirement. Scenario 2 (partial reinvestment): The RNPO reinvests only ₹65 lakh of the ₹80 lakh net consideration. The deemed application is limited to ₹15 lakh, the amount by which the ₹65 lakh reinvested exceeds the ₹50 lakh cost of the asset sold. The remaining capital gain of ₹15 lakh (₹30 lakh − ₹15 lakh) must be separately applied or accumulated to count towards the 85% requirement, like any other regular income. Result: Full reinvestment shields the entire ₹30 lakh gain from the 85% requirement; partial reinvestment shields only ₹15 lakh, leaving the remaining ₹15 lakh subject to the ordinary application/accumulation rules. 2. Accumulation of Income under Section 342 Section 342 offers the second mode of application of income: accumulating or setting apart income for future application. When and How an RNPO May Accumulate Regular Income In any tax year, an RNPO may accumulate or set apart any part of its regular income for a maximum of five years by following the process below: File the form 109 before the due date for filing its return of income; Specify the purpose for which income is being accumulated; and Specify the duration for which accumulation is done (maximum of five years). Restriction on Accumulated Income i) Any amount accumulated or set apart, shall not be transferred by an RNPO to another RNPO. If such a transfer happens, it will not be considered as application of income; instead, the transferred amount is treated as specified income under Section 337 and taxed at a flat 30% in the tax year in which it is so credited or paid. ii) If accumulated income is applied for a purpose other than as originally specified, or is not applied within the five-year window, it is treated as specified income under Section 337 and taxed at a flat 30% in the year of breach. Illustration 4 Context: In Tax Year 2027, an RNPO is unable to apply 85% of its regular income and therefore accumulates ₹20 lakh for constructing a vocational training centre, by furnishing the prescribed statement to the Assessing Officer. Scenario 1: (RNPO applies the funds itself): In Tax Year 2029, the RNPO uses the accumulated ₹20 lakh to construct the vocational training centre, as originally specified. This amount is treated as application of income under the Act. Scenario 2: (RNPO transfers the funds to another RNPO): In Tax Year 2029, instead of using the accumulated funds for the stated purpose, the RNPO donates the ₹20 lakh to another RNPO. This transfer is not treated as application of income, since accumulated income cannot be applied by transferring it to another RNPO. Result: Only Scenario 1 satisfies the accumulation requirement. In Scenario 2, since the accumulated income was neither applied for its stated purpose nor applied at all (having instead been transferred to another RNPO), it will be treated as specified income and taxed at a flat 30% in the year of donation made to another RNPO. Deemed Accumulated Income under Section 343 An RNPO may automatically retain up to 15% of its regular income each year, in addition to the application of regular income and accumulated income under Section 342. This amount is known as deemed accumulated income and does not require the RNPO to furnish a separate statement or specify a purpose. Deemed accumulated income = regular income − application under Section 341 − formal accumulation under Section 342 (subject to a maximum of 15% of regular income). If the amount is retained, it must be invested in the approved modes (discussed in later editions). Any investment made in contravention of the permitted modes will be classified as specified income and taxed at a rate of 30%. This automatic accumulation is separate from, and does not form part of, the accumulation permitted under Section 342. Application of deemed accumulated income in a later year is not treated as application of income because Section 341 (application of income) specifically excludes application out of deemed accumulated income from being counted as application in that later year. This issue has covered the three routes by which an RNPO satisfies the 85% requirement: application, formal accumulation under Section 342, and deemed application, along with the automatic 15% deemed accumulated income, and the conditions that determine what does and does not count towards each. Together, these provisions show that meeting the 85% threshold depends not just on how much an RNPO spends, but on how, when, and through which route that spending is recognised under the Act. The next issue in this series will turn to commercial activities undertaken by RNPOs and their tax treatment. This issue is the third part in a seven-part series on the Income Tax Act, 2025, effective 1 April, 2026. Read the Previous Issues in This Series: Part 1: Registration of Non-Profit Organisations under the Income Tax Act, 2025 Part 2: Classification of Income of Registered Non-profit Organisations (RNPOs) under the Income Tax Act, 2025 Part 3: Application of Income of RNPO: What Expenditure Qualifies as Application of Income Towards RNPO’s Charitable/Religious Purposes Part 4: What Commercial Activities Are Permitted for a Registered Non-profit Organisation (RNPO) under the Income Tax Act, 2025 Part 5: Compliance Requirements Applicable to an RNPO Part 6: Violations, Registration Cancellation, and Tax Consequences for RNPOs Part 7: Tax Deduction for Donors and Mergers of RNPOs under the Income Tax Act, 2025

(Sections 334-338, Income Tax Act, 2025 (Part B of Chapter XVII - Special Provisions for Registered Non-Profit Organisations) Note: As part of the transition to the Income Tax Act, 2025, the concepts of "previous year" and "assessment year" have been replaced with a single concept of a "tax year". Throughout the series, "tax year" refers to the financial year beginning on 1 April and ending on 31 March. Introduction This issue focuses on Sections 334 to 338, which together explain how the Income Tax Act, 2025 classifies the income of a Registered Non-Profit Organisation (RNPO) into different categories and the broad tax implications of each. Unless otherwise stated, all references to sections, schedules and forms in this primer are to the Income Tax Act, 2025. References to provisions of the Income Tax Act, 1961 are specifically mentioned. Overview of Income under the Act The Income Tax Act, 2025 has consolidated the entire compliance framework for charitable trusts, religious institutions, educational institutions, and hospitals, which was previously spread across Sections 10(23C), 11, 12, 12A, 12AA, 12AB, 13, 80G, 115BBC, and 115TD of the Income Tax Act, 1961, into a single, self-contained code under Part B of Chapter XVII, comprising Sections 332 to 355. The new framework uniformly refers to these entities as registered non-profit organisations, or RNPOs. Where a provision in this chapter conflicts with a provision elsewhere in the Act, the chapter governing RNPOs will prevail and determine the tax treatment. However, this is subject to one exception. It does not extend to the General Anti-Avoidance Rule (GAAR), contained in Sections 96 to 98 of the Act. GAAR continues to apply in full, even where there is a conflict between GAAR provisions and this Chapter XVII. Classification of Income of RNPOs under the Act The income of RNPOs is classified into three distinct categories, each of which is taxed differently: Regular income: The ordinary and recurring income of the RNPO. It is eligible for exemption if the 85% application or accumulation condition is satisfied. Specified income: Income arising from defined compliance failures or violations. It is taxed at a flat rate of 30% in the year in which it arises, without the benefit of application or accumulation. Residual income: The income remaining after regular income and specified income have been deducted from the total income of the RNPO. Residual income of an RNPO = Total income − (regular income + specified income) Residual income is taxed at the normal rate otherwise applicable to the RNPO. Regular Income and Taxation of Regular Income What is Regular Income? - Section 335 Regular income is defined under four heads, which together cover the ordinary and recurring income that a charitable or religious RNPO may be expected to earn while carrying out its objects: Income from the charitable or religious activity for which the RNPO is registered: For example, programme fees, service charges, or receipts directly connected to its registered objects. Income from property or investments held under the trust: This includes rental income, interest, dividends, and similar returns from assets held by the RNPO. Voluntary contributions received during the tax year: This includes donations and grants, other than those falling outside the definition of income under Section 338. Income or gains from incidental business activities: This includes income from business activities that are incidental to the attainment of the RNPO’s objects, as well as income from a business held as property of the trust. How is Regular Income of an RNPO Taxed? The regular income of an RNPO is subject to the 85% application rule under Section 336 (The rule preserves the familiar 85% threshold from the 1961 Act, but is now stated more precisley): If 85% or more of the regular income for the tax year is applied towards the RNPO’s registered charitable or religious purposes, or accumulated or set apart in accordance with Section 342 during the same tax year, the taxable regular income is nil. If less than 85% of the regular income is applied or accumulated, the taxable regular income will be 85% of the regular income, reduced by the amount actually applied or accumulated under Section 342 during that tax year. Only application or accumulation within the same tax year will be taken into account. A stated intention to apply income in a future year does not reduce the taxable regular income for the current year. Illustration 1: Calculating Taxable Regular Income under the 85% Application Rule An RNPO has a regular income of ₹80 lakh during a tax year, of which: ₹40 lakh has been applied towards the objects of the RNPO. ₹15 lakh has been accumulated in accordance with the specified provisions. ₹25 lakh has been applied nor accumulated. Step 1: Calculate the 85% threshold 85% of ₹80 lakh = ₹68 lakh Step 2: Calculate the amount that counts towards the 85% application requirement Regular income applied: ₹40 lakh Regular income accumulated: ₹15 lakh Total amount applied or accumulated: ₹40 lakh + ₹15 lakh = ₹55 lakh Step 3: Calculate the shortfall under the 85% application rule ₹68 lakh − ₹55 lakh = ₹13 lakh Regular income on which tax must be paid by the RNPO: ₹13 lakh Income Excluded from Regular Income - Sections 338 to 340 The following amounts are excluded under Section 338 while computing the regular income of an RNPO and are, therefore, not subject to the 85% application and accumulation rule: i) Corpus Donations Section 339 defines a corpus donation as a voluntary contribution received with a specific written direction from the donor stating that it should form part of the corpus of the RNPO. Corpus donations are excluded from regular income and are not subject to the 85% application and accumulation requirement. ii) Income Applied Outside India Income applied outside India may be excluded where the Central Board of Direct Taxes (CBDT), through a general or special order, permits such exclusion. Note: If an RNPO spends its income outside India, that amount is normally taxed at a flat rate of 30% and treated in the same manner as misused or non-compliant income. The only exception is where the CBDT specifically approves the foreign spending. Even in such cases, approval is possible only in the following two situations: The RNPO was established before 1 April 1952 for either charitable or religious purposes. The RNPO was established on or after 1 April 1952 for charitable purposes, but not religious purposes, and the expenditure outside India supports an international cause in which India is interested. iii) Deemed Corpus Donations If an RNPO owns a temple, mosque, gurudwara, church, or any other notified place (notified under section 133(1)(b)(vi)) and receives donations specifically for the renovation or repair of that place, the RNPO may choose to treat those donations as corpus donations, even if the donor has not specifically identified them as corpus donations. To exercise this option, the RNPO must satisfy all four of the following conditions: Maintain the funds separately so that they are clearly identifiable as a separate corpus. Use the amount only for the renovation or repair for which it was received. Invest or deposit the amount only in the permitted modes specified under Section 350. The funds must not be donated to any other person or organisation. Specified Income and its Tax Implications - Section 337 Specified income is taxed at a flat rate of 30% in the tax year in which it arises, without the benefit of the 85% application rule available to regular income. The categories treated as specified income include: Anonymous donations in excess of the threshold prescribed (see box 1 below). Income applied, directly or indirectly, for the benefit of a related or specified person. Income applied outside India other than in accordance with the conditions under Section 338(a). Amounts invested in modes that are not permitted under Section 350 (read with Schedule XVI). Amounts involving a breach of the deemed corpus conditions under Section 340. Accumulated income that: is applied for a purpose other than the purpose for which it was accumulated; is credited or paid to another RNPO, except in cases of dissolution or merger; or is not utilised within the time limit prescribed under Section 342. Income applied for a purpose other than the RNPO’s registered charitable or religious objects. On dissolution, surplus assets not transferred to another RNPO within twelve months. The fair market value of assets not converted into permitted investment modes within the prescribed period. Deemed application under Section 341 that is not actually applied within the period prescribed under Section 341(6). Any income determined by the Assessing Officer to be in excess of the income recorded in the RNPO’s books of account under Section 344. Box 1: Taxability of Anonymous Donations under Section 337(1) (a) Illustration 2: Calculating Tax on Anonymous Donations An RNPO received ₹10 lakh in total donations during the year. Of this amount, ₹3 lakh was received as anonymous donations, meaning that the RNPO did not maintain donor details, such as names and addresses, for these contributions. Step 1: Calculate the tax-free amount 5% of ₹10 lakh = ₹50,000 Since ₹1,00,000 is higher than ₹50,000, the tax-free amount is ₹1,00,000. Step 2: Apply the threshold to the anonymous donations ₹1,00,000 of the anonymous donations is not taxable. ₹2,00,000, being the remaining amount of ₹3,00,000 minus ₹1,00,000, is taxable at 30%. Tax payable: 30% of ₹2,00,000 = ₹60,000 Summary Donation type Governing section Treated as regular income? Tax treatment Corpus donation (written donor direction) Section 339, read with Section 338 No. It is excluded from regular income. Not taxed as income; conditions on investment/ application apply Deemed corpus donation Section 340, read with Section 338 No. It is excluded, subject to the prescribed conditions. Same as corpus, subject to Section 340 conditions General or non-corpus donation Section 335(c) Yes. Part of regular income; 85% test under Section 336 applies Corpus invested/applied in breach of conditions Section 337 It is reclassified as specified income. Flat 30% under Section 334(1)(a); no application benefit Key Takeaways Regular income is determined under Section 335 and forms the basis for the 85% application and accumulation requirement under Section 336. Section 338 identifies the amounts that are not included while calculating the regular income of an RNPO. Specified income under Section 337 is taxed separately under Section 334(1)(a). Residual income, if any, is taxed at the rate otherwise applicable under the Act under Section 334(1)(b). Understanding how income is classified is the first step towards applying the tax provisions governing an RNPO. This issue is the second part in a seven-part series on the Income Tax Act, 2025, effective 1 April, 2026. Read the Previous Issues in This Series Part 1: Registration of Non-Profit Organisations under the Income Tax Act, 2025 Part 2: Classification of Income of Registered Non-profit Organisations (RNPOs) under the Income Tax Act, 2025 Part 3: Application of Income of RNPO: What Expenditure Qualifies as Application of Income Towards RNPO’s Charitable/Religious Purposes Part 4: What Commercial Activities Are Permitted for a Registered Non-profit Organisation (RNPO) under the Income Tax Act, 2025 Part 5: Compliance Requirements Applicable to an RNPO Part 6: Violations, Registration Cancellation, and Tax Consequences for RNPOs Part 7: Tax Deduction for Donors and Mergers of RNPOs under the Income Tax Act, 2025

(Sections 351–353, Income Tax Act, 2025—Part B of Chapter XVII: Special Provisions for Registered Non-Profit Organisations) Note: As part of the transition to the Income Tax Act, 2025, the concepts of "previous year" and "assessment year" have been replaced with a single concept of a "tax year". Throughout the series, "tax year" refers to the financial year beginning on 1 April and ending on 31 March. Introduction This is the sixth issue in a seven-part series explaining how the Income Tax Act, 2025 ("the Act") taxes Registered Non-Profit Organisations ("RNPOs"). In the previous issue, Compliance Requirements Applicable to an RNPO, we explored the key obligations an RNPO must fulfil to maintain its tax exemption, including maintaining books of account, getting them audited, filing the return of income, and investing funds only in permitted modes. This issue examines what happens when an RNPO fails to comply with its obligations under the Income Tax Act, 2025, breaches conditions attached to its registration or exemption, or otherwise ceases to qualify for the tax-exempt regime. Tax Consequences for RNPOs The Act provides for different consequences depending on the nature of the violation or event: Consequence 1: Specified violations and Cancellations of Registration: Certain lapses that can lead to cancellation of an RNPO's registration altogether, and can trigger a one-time exit tax on the RNPO's accumulated assets. Consequence 2: Other Violations — Loss of Exemption Without Cancellation: Narrower, more procedural lapses (such as not maintaining books, not getting audited, or not filing a return) that cause the RNPO to lose exemption for that specific tax year, without necessarily cancelling its registration. Consequence 3: Tax on accreted income: In specified circumstances where an RNPO’s registration or exempt status ceases or changes including cancellation, certain changes to its objects, conversion, merger or dissolution, the RNPO may also become liable to additional tax on its accreted income, broadly reflecting the value of assets accumulated during the period of exemption. Consequence 1: Specified Violations and Cancellation of RNPO Registration What Counts as a "Specified Violation"? Following are the closed list of situations that amount to a specified violation as per Section 351 of the Income Tax Act 2025. Misapplication of income: Any income of the RNPO has been applied for purposes other than its stated objects. (Refer “Note 1”) Unauthorised commercial activity: The RNPO (other than an RNPO carrying out advancement of any other object of general public utility) carries out a commercial activity that is not ancillary to the attainment of its objectives and does not maintain separate books of accounts for such activities (Section 345). Private religious application: Any part of the RNPO's total income which has been applied for private religious purposes that do not benefit the public at large. Benefit to a particular religious community or caste: An RNPO set up for a charitable purpose after the Act commenced applies income for the benefit of a specific religious community or caste (other than Scheduled Castes, Scheduled Tribes, backward classes, women, or children). Activities not genuine, or not run as registered: The RNPO's activities are not genuine, or are not carried out in line with the conditions on which it was registered. (Refer “Note 1”) Non-compliance with other laws: The RNPO has failed to comply with a requirement under any other law referred to in Section 332(7)(a), and this failure has either not been disputed or has become final. False information at the time of registration: The RNPO's original registration application contained false or incorrect information. Note 1: Distinguishing “Misapplication of Income” from “Non-Genuine Activity” These may appear similar in practice, but they address different forms of non-compliance. Misapplication of Income: Income applied other than for the RNPO’s objects: This concerns how the RNPO uses its income. The RNPO and its activities may be genuine, but a particular expenditure may fall outside its stated objects. The key question is whether the income has been applied for a permitted purpose. For example, where an RNPO incurs expenditure on a programme that does not fall within its stated charitable objectives, the issue is the application of income. Evidence such as expenditure records and the connection between the expenditure and the RNPO’s objects would be relevant. Non Genuine Activity: Activity not genuine, or registration conditions not complied with: This concerns what the RNPO actually does and whether it complies with the conditions of its registration. It may arise where a reported activity is not genuinely carried out, or where the organisation operates in breach of a registration condition. For example, expenditure may appear to relate to a charitable programme on paper, while the underlying programme is not actually being carried out. In such cases, evidence of the actual activities undertaken and compliance with the registration conditions would be relevant. The key takeaway is that an RNPO responding to a show-cause notice should identify the specific nature of the alleged violation and address it directly using corresponding evidence. How is a Specified Violation Established? A specified violation isn't self-declared but is established through a formal process initiated by the Principal Commissioner or Commissioner (PCIT/CIT): Trigger: The PCIT/CIT notices a possible violation during any tax year, receives a reference from the Assessing Officer, or the RNPO is selected under the risk management strategy of the board. Inquiry: The PCIT/CIT calls for documents or information from the RNPO, or makes any inquiry considered necessary. Order: After giving the RNPO a reasonable opportunity to be heard, the PCIT/CIT either: Cancels the registration, for that tax year and all subsequent tax years, if satisfied that a specified violation has occurred; or Does not cancel the registration, if not satisfied that a violation has occurred. Timeline: This order must be passed within six months from the end of the quarter in which the first notice calling for documents, information, or inquiry was issued. Communication: A copy of the order is sent to both the Assessing Officer and the RNPO. What Happens Once a Specified Violation is Established? If an order of cancellation of registration is passed by the PCIT/CIT, this triggers further tax consequences for the RNPO as follows: Loss of exemption for the RNPO's entire income: If registration is cancelled, the RNPO's income for the tax year in which the violation occurred, and all subsequent tax years, ceases to be eligible for exemption. The RNPO's income is then taxed in full, as ordinary income, and not merely the portion connected to the violation. (Refer "Note 2") Possible additional tax on accreted income: Tax on accreted income is a one-time, additional levy on the RNPO's net assets at the maximum marginal rate. (Covered in detail under "Tax on accreted income" later in this issue.) Note 2: Consequences of Cancellation No automatic revival of exempt status: Cancellation does not reverse itself with time or with subsequent compliance. To regain exempt status, the RNPO would need to apply afresh for registration under Section 332. (Refer Issue 1: Registration of Non-Profit Organisations under the Income Tax Act, 2025). Right of appeal: A cancellation order is an appealable order under section 362 of the act. If, after inquiry and giving the RNPO an opportunity to be heard, the PCIT/CIT is satisfied that a specified violation has occurred, the section provides for cancellation of the RNPO’s registration. The tax consequences, such as loss of exemption and, where applicable, tax on accreted income, follow from the cancellation. Consequence 2: Other Violations — Loss of Exemption Without Cancellation The other violations deal with a narrower set of lapses that do not, by themselves, put the RNPO's registration at risk, but do result in the RNPO losing its exemption for the tax year in which the lapse occurs. These "other violations" are: Failure to maintain books of account Failure to get the accounts audited Failure to furnish a return of income Unauthorised commercial activity carried out under the "advancement of any other object of general public utility" head. How is an “Other Violation” Established? There is no separate show-cause process for “other violations”. Where an RNPO has failed to maintain its books, failed to obtain the required audit, failed to furnish its return of income, or exceeded the applicable commercial-activity threshold, the following statutory consequence can apply for that tax year. What Happens When an “Other Violation” Occurs? The consequence is narrower than cancellation of registration and is generally confined to the tax year in which the default occurs. Exemption is lost for that tax year: For the relevant tax year, the RNPO’s otherwise exempt income is brought to tax after allowing only the expenditure that satisfies the conditions prescribed under the Act. The resulting income is taxable at the rate applicable under Section 334. The regular income for that tax year becomes taxable income, after reducing it by the expenditure that meets the following conditions: The expenditure must be incurred in India; The expenditure must be applied towards the RNPO’s own objects; The expenditure must be incurred out of current income, rather than corpus or borrowed funds; The expenditure should not represent depreciation that has already been claimed in another manner; The expenditure should not constitute a donation or application passed on to another person; The expenditure must comply with restrictions relating to payments to specified persons; and The expenditure otherwise satisfies the requirements for allowable application under the Act. No additional deduction, loss or set-off is available beyond what the Act specifically permits for this purpose. Other taxable income remains taxable: Specified income and other income that is independently taxable under the Act continue to be taxed according to the provisions applicable to those income streams. Note 3: Implications of Repeated Non-Compliance Repeated or serious compliance failures, particularly failures relating to books, audit, returns or the limits on commercial activity may invite greater scrutiny. Such scrutiny could, depending on the facts, reveal a separate specified violation, such as non-genuine activities or misapplication of income. That would bring the RNPO within the more serious cancellation framework. Loss of exemption status whether under a “specified violation” or “other violation” would have implications for the RNPOs donors and it is prudent to immediately convey the change in status to them. Consequence 3: Tax on accreted income When an RNPO’s registration is cancelled, it loses its tax-exempt status. In addition to tax on its regular income, the RNPO may also be liable to pay an additional tax on its accreted income, also known as exit tax. The exit tax trigger is not limited to cancellation of registration. It can also get triggered in certain other specified circumstances, such as certain changes to the RNPO’s objects, failure to make a required registration application, certain mergers and dissolution. The following explains what accreted income means, when the tax applies, and how the tax is computed. What is Accreted Income? Accreted income broadly represents the value of the assets accumulated by the RNPO, after taking into account its liabilities. The value of the assets and liabilities is determined as on the relevant date specified under the Act and using the prescribed valuation method. The value of specified assets and the liabilities related to them is then excluded from the calculation. It is calculated as: Accreted income chargeable to tax = (Fair market value of total assets − Total liabilities) − Amount attributable to specified assets and related liabilities Note 4: What are Specified Assets? For the purpose of calculating accreted income, a specified asset is an asset that was acquired by the RNPO in one of the following circumstances specifically identified by the Act: Assets acquired directly out of agricultural income referred to in Schedule II of the Act. Assets acquired between the RNPO's establishment and the effective date of its registration, where the RNPO did not receive the relevant tax benefits during that period and its registration is not given retrospective effect under the applicable provisions. Assets acquired between the RNPO's establishment and the effective date of its registration are also treated as specified assets, including where the registration subsequently becomes effective retrospectively under the specified provisions of the Income Tax Act, 1961. Assets transferred to another specified person within the prescribed period following dissolution - within twelve months from the end of the month in which dissolution takes place. Situations in Which Tax on Accreted Income Applies The circumstances in which an RNPO becomes liable to pay tax on accreted income includes: Situation Specified date for calculating tax liability Registration cancelled and the RNPO appeals Date when the cancellation order becomes final Registration cancelled and the RNPO does not appeal Date of the cancellation order RNPO modifies its objects so they no longer conform to its registration conditions, and does not seek fresh registration or the RNPO seeks fresh registration, which is rejected and appealed or no appeal is filed against the rejection Date when the objects are modified RNPO fails to apply for registration within the prescribed period (including under transitional provisions) The date such application ought to have been made RNPO converts into a form not eligible for registration Date of conversion RNPO merges with an entity that is not an RNPO, or with an RNPO that does not have the same or similar objects Date of merger RNPO dissolves and fails to transfer all its assets to another RNPO within 12 months of dissolution Date of dissolution In each case, the due date for payment is pegged to when the cancellation or rejection becomes final, for instance, on expiry of the appeal period, or on receipt of an appellate order confirming cancellation. What is the Rate of Tax on Accreted Income? Tax on accreted income is charged at the maximum marginal rate. This tax is payable in addition to any income tax otherwise chargeable on the RNPO's total income. When does the Tax have to be Paid? The specified person and its principal officer or trustee are responsible for paying the tax on accreted income to the Central Government within fourteen days from the relevant due date specified for the applicable trigger event. What Happens if the Tax is not Paid on Time? If the tax on accreted income is not paid within the prescribed period, simple interest at 1% per month or part of a month is payable on the unpaid tax until it is actually paid. Is this Tax Treated as a Final Tax? Yes. Tax paid on accreted income is treated as the final payment of tax in respect of that accreted income. Conclusion The Act provides for different consequences depending on the nature of the non-compliance. As discussed above some violations may result in loss of tax exemption for a particular year, and specified violations can lead to cancellation of registration. In certain situations, cancellation or other changes in an RNPO’s status can also trigger tax on accreted income, which is an additional tax on the RNPO’s accumulated assets, subject to the rules under Section 352. For RNPOs, the key takeaway is that maintaining tax-exempt status requires continued compliance with the conditions of the Act and not merely obtaining registration in the first place. This issue is the sixth part in a seven-part series on the Income Tax Act, 2025, effective 1 April, 2026. Read the Previous Issues in This Series Part 1: Registration of Non-Profit Organisations under the Income Tax Act, 2025 Part 2: Classification of Income of Registered Non-profit Organisations (RNPOs) under the Income Tax Act, 2025 Part 3: Application of Income of RNPO: What Expenditure Qualifies as Application of Income Towards RNPO’s Charitable/Religious Purposes Part 4: What Commercial Activities Are Permitted for a Registered Non-profit Organisation (RNPO) under the Income Tax Act, 2025 Part 5: Compliance Requirements Applicable to an RNPO Part 6: Violations, Registration Cancellation, and Tax Consequences for RNPOs Part 7: Tax Deduction for Donors and Mergers of RNPOs under the Income Tax Act, 2025

Note: As part of the transition to the Income Tax Act, 2025, the concepts of "previous year" and "assessment year" have been replaced with a single concept of a "tax year". Throughout the series, "tax year" refers to the financial year beginning on 1 April and ending on 31 March. Introduction The Income Tax Act, 2025 (hereafter “Act”) represents a comprehensive restructuring and modernisation of India’s direct tax law, proposed with the objective of making the legislation simpler, more transparent, logically arranged, and taxpayer friendly. The Act is intended to replace the Income Tax Act, 1961, while retaining the substantive tax policy, with a strong emphasis on clarity of language, systematic organisation, and ease of compliance. Key Structural Improvements Include: • Logical grouping of provisions based on subject matter rather than chronology of amendments • Clear and concise drafting, avoiding excessive provisos and explanations • Removal of obsolete and redundant sections • Use of tables, schedules, and cross-referencing to improve readability The Act is organised into 23 thematic chapters, with 536 sections and 16 chapters. Provisions relating to non-profit organisations (NPOs)—including charitable trusts, institutions, funds, universities, hospitals, and other entities established for charitable or specified purposes—have been consolidated and rationalised. The New Framework: • Clearly distinguishes registration, approval, income computation, and compliance obligations of NPOs • Aligns registration provisions with risk-based administration and digital processes • Provides greater certainty and uniformity in eligibility conditions • Emphasises substance over form, ensuring benefits are available to genuine charitable activities Arrangement of Sections Sec 332 – 333: Registration of non-profit organisations Sec 334 – 343: Income of registered non-profit organisations Sec 344 – 346: Commercial Activity by registered NPO Sec 347 – 350: Compliances Sec 351 – 353: Violations Sec 354: Approval for deduction u/s 133(1)(b)(ii) Sec 355: Interpretation Arrangement of Rules – Notified by Central Board of Direct Taxes (CBDT) on 20th March 2026 Rule 181: Common Application for registration of non-profit organisation or for approval for the purpose of deduction under 133(1)(b)(ii) Rule 182: Manner of computation of gains or commercial activities under section 335(e),344,345, 346 Rule 183: Manner of computation of any portion of income applied by a registered nonprofit organisation, directly or indirectly for benefit of any related person Rule 184: Exercise of options by a registered non-profit organisation under section 341(7) for deemed application under section 341(5) Rule 185: Furnishing of statement by registered non-profit organisation under section 342(1) for accumulating or setting apart any part of its regular income. Rule 186: Application under section 342(5) for change of purpose for which income has been accumulated or set apart Rule 187: Books of account and other documents to be kept and maintained by a registered non-profit organisation Rule 188: Report of Audit in case of registered non-profit organisation under section 348 Rule 189: Method of valuation for the purpose of computing fair market value of assets and liabilities under section 352(2) for accreted income Rule 190: Furnishing of statement of particulars in respect of donation and certificate to donor under section 354(1) Registration of Non-profit Organisations • Section 332 requires anyone claiming benefits as a registered non-profit organisation to apply for registration, in the specified form and manner, to the Principal Commissioner or Commissioner. • Further, it lays down the eligibility criteria, the time limits for filing the application, the period of validity of registration, and the timeframe within which the department is required to pass its order. Who Can Make an Application? • Public trust • A society registered under the Societies Registration Act, 1860, or under any law in force in India • A company registered under section 8 of the Companies Act, 2013 or the companies registered under section 25 of the Companies Act, 1956 and deemed to have been registered in pursuance of section 465 (2)(g) of the Companies Act, 2013. • A University established by law or any other educational institution affiliated thereto or recognised by the Government • An institution financed wholly or in part by the Government or a local authority • Any person as referred to in Schedule III (Table: Sl. No. 27) to (Table: Sl. No. 29) and (Table: Sl. No. 36) and in Schedule VII (Table: Sl. No. 10) to (Table: Sl. No. 19) and (Table: Sl. No. 42) • Any other person notified by the Board Eligibility for Application • The person must be constituted, registered, or incorporated in India for carrying out charitable purposes as defined under section 2(23), public religious purposes, or both. • Further, its properties must be held under an irrevocable trust for the benefit of the general public either wholly for charitable or religious purposes, or partly for such purposes in India in cases where the entity was established before the commencement of the Income-tax Act, 1961 • Section 2(23) defines - charitable purposes includes: o Relief of the poor o Education o Yoga o Medical relief o Preservation of environment (including watersheds, forests and wildlife) o Preservation of monuments or places or objects of artistic or historic interest o The advancement of any other object of general public utility To Whom the Application Should Be Submitted • The application shall be made to the Principal Commissioner or Commissioner of Income Tax Time limit for Application, Order, and Validity Particulars Time limit for furnishing application Time limit for passing order Validity Activities of the applicant have not commenced, and it has not been registered Any time during the tax year 3 months from the end of the month in which application made 3 Years (including tax year of application) Activities of the applicant have commenced, and it has not been registered Any time during the tax year 6 months from the end of the quarter in which application made 5 Years (including tax year of application) The applicant has been granted provisional registration and activities have commenced. Within 6 months of the commencement of activities 6 months from the end of the quarter in which application made 5 Years (including tax year of application) Provisional registration is due to expire and activities have not commenced. 6 months prior to the expiry 6 months from the end of the quarter in which application made 5 Years (including tax year of application) The registration of the applicant is due to expire, other than cases mentioned above 6 months prior to the expiry 6 months from the end of the quarter in which application made 5 Years (following the tax year of application) Registration of applicant is inoperative due to switching over of regime u/s 333 Any time during the tax year 6 months from the end of the quarter in which application made 5 Years (including tax year of application) The applicant, being a registered non-profit organisation, has adopted or undertaken modification of its objects. Within 30 days of modification 6 months from the end of the quarter in which application made 5 Years (including tax year of application) When Will the Received Registration be Valid for Ten Years Instead of Five Years? If an application is made as per the above table and the applicant’s total income does not exceed annual receipts of ₹5 crore in each of the two tax years immediately preceding the year of application, the registration will be valid for ten years instead of five years. Can Delay in Filing the Application be Condoned? If application is filed after the allowed time, Principal commissioner or Commissioner may allow it if there is a valid reason for delay and such application will be treated as if it filed on time. If an application for registration is not filed within the specified time and the delay is not condoned, the person will be required to pay tax on accreted income under section 352. Upon receiving an application, the Principal Commissioner or Commissioner may call for necessary documents or conduct inquiries to verify the applicant’s objects, genuineness of activities, and legal compliance, and shall either grant registration if satisfied or, after giving an opportunity of being heard, reject the application and, where applicable, cancel the existing registration. Is Provisional Registration Available? In case, where the activities of the applicant have not commenced and it has not been registered under any specified provision at any time before making the application, Principal Commissioner or Commissioner shall grant provisional registration. Switching Over of Regimes The income of a registered non-profit organisation can be excluded from total income only as provided in Schedule II, Schedule III, and Schedule VII; no other part of section 11 allows such exclusion for any tax year. Registration under section 332 will stop being valid either from the date the non-profit organisation is notified under the specified entries in Schedule III or Schedule VII, or from 1 April of the tax year in which the organisation claims exemption under the relevant entries of Schedule VII. A person whose registration has ceased may apply for fresh registration under section 332, provided that the exemption granted under Schedule III or Schedule VII ends from the date the new registration is granted, and no exemption can be claimed under those Schedule entries thereafter. This issue is the first part in a seven-part series on the Income Tax Act, 2025, effective 1 April, 2026. Read: Part 2: Classification of Income of Registered Non-profit Organisations (RNPOs) under the Income Tax Act, 2025 Part 3: Application of Income of RNPO: What Expenditure Qualifies as Application of Income Towards RNPO’s Charitable/Religious Purposes Part 4: What Commercial Activities Are Permitted for a Registered Non-profit Organisation (RNPO) under the Income Tax Act, 2025 Part 5: Compliance Requirements Applicable to an RNPO Part 6: Violations, Registration Cancellation, and Tax Consequences for RNPOs Part 7: Tax Deduction for Donors and Mergers of RNPOs under the Income Tax Act, 2025

Case: Dr. Malabika Bhattacharjee vs. Internal Complaints Committee, Vivekananda College & Others Court: High Court of Calcutta Date of Judgement: 27 November 2020 Background The Calcutta High Court considered whether a complaint of sexual harassment under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (“POSH Act”) could be entertained where the complainant and the alleged perpetrator were of the same gender. The petitioner, Dr. Malabika Bhattacharjee, challenged the proceedings initiated by the Internal Complaints Committee (“ICC”) of Vivekananda College. She argued that the POSH Act could not apply to a complaint between persons of the same gender and that the allegations made against her did not fall within the definition of “sexual harassment” under Section 2(n) of the Act. Facts The petitioner, Dr. Malabika Bhattacharjee, faced a complaint of sexual harassment before the Internal Complaints Committee (ICC) of Vivekananda College. The petitioner and the complainant were both of the same gender. The petitioner therefore argued that the POSH Act, 2013 could not apply to a complaint between persons of the same gender. The petitioner also argued that the allegations mainly concerned vilifying and defaming the complainant in public and did not amount to “sexual harassment” under Section 2(n) of the POSH Act. The complainant, however, argued that the POSH framework could cover same-gender complaints, particularly because the term “respondent” under Section 2(m) refers to “a person”. The authorities supported this position and argued that the complaint could be proceeded with under the POSH Act. Issues The main issues were: Whether a complaint of sexual harassment between persons of the same gender can be entertained under the POSH Act, 2013. Whether the allegations made in the complaint were capable of falling within the definition of “sexual harassment” under Section 2(n). Judgement 1. Same-Gender Complaints are Maintainable under the POSH Act: The Court held that a complaint under the POSH Act is not automatically excluded merely because the complainant and respondent are of the same gender. Section 2(m) defines a “respondent” as “a person” and does not restrict the respondent to any particular gender. 2. Sexual Harassment Cannot be Determined Solely by Gender: The Court observed that sexual harassment must be understood in the context of dignity, gender and sexuality. Therefore, a person of the same gender can also engage in conduct that violates another person's dignity or modesty and may fall within Section 2(n) of the POSH Act. 3. Prohibited Conduct under Section 3 is Not Gender-Specific: The Court noted that the circumstances referred to in Section 3(2), including creating an intimidating, offensive or hostile work environment or subjecting a person to humiliating treatment, can occur between persons of any gender. 4. Complaint was Maintainable: On this basis, the Court held that the complaint was maintainable under the POSH Act. The complaint could not be rejected at the threshold merely because the petitioner and the complainant were of the same gender. 5. Merits of Allegations Not Decided: The Court clarified that it had not examined whether the allegations were actually proved. The competent authority was left free to consider the complaint and determine the allegations independently on their merits. 6. Opportunity for Cross-Examination: The Court also directed that the petitioner be given an opportunity to cross-examine the complainant, as the petitioner's right to cross-examination had been closed while the writ proceedings were pending. Can a male file a complaint under the POSH Act? Under the POSH Act, the statutory complaint mechanism is available only to an “aggrieved woman”. Therefore, a male employee cannot file a complaint under Section 9 of the POSH Act. However, this does not mean that the respondent must also be a woman. Section 2(m) defines a “respondent” as “a person”, making the respondent gender-neutral. In Dr. Malabika Bhattacharjee vs. Internal Complaints Committee, Vivekananda College & Others., the Calcutta High Court accordingly held that a complaint by a woman against another woman is maintainable. POSH is gender-specific as to the complainant, but gender-neutral as to the respondent. Organisations can provide broader protection through internal policies without treating those mechanisms as statutory POSH proceedings. Key Takeaways Same-gender complaints are maintainable: An ICC should not reject a complaint solely because the complainant and respondent are of the same gender. Gender of the respondent is not determinative: Section 2(m) uses the term “a person” and does not restrict a respondent to a particular gender. Assess conduct, not gender: The IC should examine whether the alleged conduct falls within Section 2(n) and/or the circumstances contemplated under Section 3(2), rather than assuming that sexual harassment can only occur between persons of different genders. Hostile or humiliating conduct matters: Conduct creating an intimidating, offensive or hostile work environment, or subjecting a person to humiliating treatment, may be relevant even in a same-gender complaint. Do not decide maintainability based on merits: The IC should distinguish between whether a complaint is maintainable and whether the allegations are proved. A complaint should not be dismissed at the threshold merely because of the gender of the parties. Follow principles of natural justice: The Court also emphasised procedural fairness, including providing the respondent an appropriate opportunity to cross-examine the complainant where applicable.

The Government has increased the statutory wage ceiling for mandatory Employee Provident Fund (EPF) coverage from ₹15,000 to ₹25,000 per month, with effect from 17 September 2026. The change has been notified under Section 2(89) of the Code on Social Security, 2020, and replaces the earlier ₹15,000 ceiling. The revised ceiling is expected to bring employees earning wages between ₹15,000 and ₹25,000 per month within mandatory EPF coverage, subject to the applicable statutory provisions. The change has implications for both employees and employers. An Employees’ Provident Fund Organisation (EPFO) press release dated 17 September 2026 notes that employees will be able to make EPF contributions on the enhanced wage ceiling, while employers will have a corresponding higher EPF contribution obligation. It also highlights the potential for higher pension benefits for employees. What the Revised EPF Wage Ceiling Means The easiest way to understand the change is through an employee whose applicable EPF wages are ₹25,000 per month. Earlier ₹15,000 ceiling and Employee drawing ₹25,000 wages Revised ₹25,000 ceiling and Employee drawing ₹25,000 wages Revised ₹25,000 ceiling and Employee drawing wages of ₹20,000 Applicable wages ₹25,000 ₹25,000 ₹20,000 Employer contribution @ 12% ₹1,800 ₹3,000 ₹2,400 Additional employer contribution — ₹1,200/month ₹600/month Thus, where the revised ceiling applies, the employer contribution can increase at the most by ₹1,200 per employee per month (for an employee earning wages amounting to ₹25,000). The increase should not, however, be understood as a new 12% contribution rate or as a maximum salary limit. The notification changes the statutory wage ceiling for mandatory coverage from ₹15,000 to ₹25,000. Impact on Employees The revised ceiling can provide employees with higher EPF savings and access to the applicable EPF, Employees’ Pension Scheme and Employees’ Deposit Linked Insurance benefits. The notification also indicates that higher employee contributions can support a higher pension entitlement. The accompanying EPFO press release further states that enhanced contributions will be credited to the employee's EPF account and earn interest at the applicable rate. It refers to the current financial year's interest rate of 8.25% and states that workers can withdraw contributions up to 75% immediately, subject to the applicable claim process and conditions. The release also states that eligible claims of up to ₹5 lakh are being auto-settled within three days through the Centralised IT Enabled System (CITES) technology platform. Will Take-Home Salary Change? It may, depending on the organisation's salary structure. Where the additional employer PF contribution is accommodated within the existing CTC, a greater portion of the CTC may be allocated towards PF and the employee's in-hand pay may consequently reduce. For example, if the employer contribution increases by ₹1,200 per month and the CTC remains unchanged, the employee's take-home component could correspondingly be lower. However, if the employer increases the CTC to accommodate the additional contribution, there may be no corresponding reduction in take-home salary. Accordingly, non-profit organisations should assess the impact based on their existing CTC and payroll structure, rather than assuming that the revised ceiling will automatically reduce take-home pay. Employer Incentive under Pradhan Mantri Viksit Bharat Rozgar Yojana (PMVBRY) PMVBRY provides incentives to employers for generating additional employment across sectors, with a special extension for the manufacturing sector. The employer must be an EPFO-registered establishment and must create the prescribed number of additional jobs: Establishments with fewer than 50 employees must add at least 2 employees to its payroll, while establishments with 50 or more employees must add at least 5 employees. The additional employees must be retained for at least six months. The incentive is linked to the wages of the additional employee: EPF wages up to ₹10,000 – incentive of up to ₹1,000/month EPF wages above ₹10,000 and up to ₹20,000 – ₹2,000/month EPF wages above ₹20,000, up to a salary of ₹1 lakh – ₹3,000/month The incentive is available for two years. For eligible manufacturing establishments, it is extended to the third and fourth years as well. The Government specifically describes the benefit as “per additional employment per month” and says employers receive up to ₹3,000 per month for each additional employee who is retained for at least six months Implications for Non-Profit Organisations · Identify affected employees: Non-profit organisations should review employees currently earning wages between ₹15,000 and ₹25,000 per month and identify those who may now fall within mandatory EPFO coverage. · Review payroll and contribution obligations: Payroll systems should be reviewed to ensure that the revised ceiling is appropriately reflected and that employer and employee contributions are correctly calculated. · Assess the financial impact: Non-profit organisations should calculate the additional employer contribution for affected employees and factor the increased cost into their payroll and annual budgets. · Review CTC structures: Organisations should determine whether employer PF is included within existing CTC or paid in addition to CTC. This will help assess any potential impact on employee take-home salary. · Complete EPFO formalities: HR/payroll teams should review Universal Account Number (UAN), Know your Customer (KYC), enrolment and other relevant EPFO records for employees who become newly covered. · Since PMVBRY covers employers across sectors, non-profit organisations are not excluded merely because it is a non-profit. The key question is whether the non-profit organisation is an EPFO-registered establishment and satisfies the scheme's requirements for additional employment and employee retention. · The revised EPF contribution can either be implemented for the entire month of September 2026, or on a pro-rata basis from 17 September 2026 onwards, with the earlier contribution of ₹1,800 continuing to apply for the period from 1-16 September 2026.

Case Title: Save A Family Plan India vs. Union of India and Ors. & Kerala Social Service Forum vs. Union of India and Ors. Court: Kerala High Court Citation: 2026:KER:61621 (W.P.(C) No. 42996 of 2025); 2026:KER:61636 (W.P.(C) No. 43936 of 2025) Date of Judgement: August 12 2026 Bench: Bechu Kurian Thomas, J. Key Takeaway The Kerala High Court, in two connected writ petitions decided on the same day, struck down orders of the FCRA Wing of the Ministry of Home Affairs refusing to renew the FCRA registration of two Kerala-based charitable organisations (Save A Family Plan India and Kerala Social Service Forum), and reinstating the FC registration status of one of the non-profits. The Court held that funding a peaceful protest cannot, by itself, be treated as an “undesirable purpose” under the Foreign Contribution (Regulation) Act, 2010 (FCRA). The Court also held that FCRA renewal applications cannot be rejected without giving proper reasons, even where the government relies on a report from a security agency. The judgement reinforces that FCRA rejection and cancellation orders can be challenged before courts, particularly where they are not supported by clear reasons or evidence. Background Both petitioners, Kerala Social Service Forum, a state-level body coordinating the social action initiatives of 32 Catholic Diocesan Social Service Societies, and Save a Family Plan India, a public charitable trust running community development programmes, had held FCRA registration without interruption since 1985 and had applied for renewal under Section 16 of the FCRA in 2021. In each case, the renewal application was rejected years later through a terse e-mail communication that did no more than cite that the renewal applications were rejected under Sections 7(a), 12(4)(f)(i), 12(4)(f)(iii) and 12(4)(ii) of the FCRA, without disclosing any reason for the refusal. Their renewal applications filed under Section 32 of the FCRA were also dismissed by the Central Government based on a passing reference to an Intelligence Bureau report. The report alleged that the organisations had, directly or through other NGOs, funded protests against the Adani Vizhinjam Port project. The petitioners denied funding the protests and stated that their transfers to other FCRA-registered organisations were made for welfare activities. They also argued that the government had not given proper reasons for rejecting their renewal applications. The Centre argued that receiving foreign contribution is not a fundamental right and that the FCRA allows the government to restrict foreign funding where national interest or security is involved. An Intelligence Bureau report was also placed before the Court in a sealed cover. What Happened in This Case The Court examined whether the material relied upon by the government actually established a connection between the petitioners and the Vizhinjam protests. It found that the report did not establish a direct financial trail between the petitioners and the protestors. The petitioners were also not included in the government's own list of NGOs allegedly involved in the protests. The Court then considered a larger question: even if the NGOs had funded peaceful protests, could that conduct be treated as an “undesirable purpose” under the FCRA? The Court answered this in the negative. Key Findings of the Kerala High Court 1. No Direct Financial Link was Established Having examined the Intelligence Bureau reports in both cases, the Court found that fifteen of the sixteen questions in the standard format squarely favoured the petitioners. There was no adverse finding on diversion of funds, sedition, or any statutory violation. The sole adverse reference appeared in the “recommendation” column. In the case of Kerala Social Service Forum, it alleged that the Kerala Catholic Bishops Council, with which the petitioner is affiliated, had supported the Vizhinjam agitation. In the case of Save a Family Plan India, it alleged that funds transferred to another FCRA-registered NGO, TSSS, had been further diverted by that NGO to two other bodies, SAKHI and SEWA, which were said to have supported the agitators. In neither case did the report trace any direct or indirect financial trail from the petitioner to the protestors. In the Kerala Social Service Forum matter, the petitioner did not even figure among the twenty-nine NGOs or five actively FCRA-registered organisations that the report itself identified as participants in the agitation. 2. Funding a Peaceful Protest is Not an “Undesirable Purpose” The Court held that the right to protest peacefully is a fundamental right flowing from Article 19(1)(a) and 19(1)(c) of the Constitution. The court held that even assuming, for the sake of argument, that some financial support had reached the Vizhinjam protestors, whose agitation the Court noted was confined to slogans, fasting, and strikes, with no evidence of violence, and whose criminal prosecutions had since been withdrawn by the government, this could not be characterised as "undesirable" under Section 12(4)(a)(vi) of the FCRA. The term "undesirable purpose" must be rooted in a legal prohibition or demonstrable public injury, and cannot be stretched to cover executive or administrative disapproval of dissent. 3. FCRA Rejection Orders Must Give Reasons The Court held that an FCRA renewal rejection order must contain reasons. In the present case, the rejection orders did not properly consider the explanations given by the petitioners. They also did not explain why the petitioners could be held responsible for the subsequent use of funds by separate FCRA-registered organisations. The Court stressed that an order without reasons is not a proper exercise of legal power. 4. Security Agency Reports Do Not Automatically Remove the Duty to Give Reasons The government relied on the Intelligence Bureau report and argued that national security considerations justified withholding the material. The Court held that the mere existence of a security agency report does not automatically allow the government to withhold reasons for its decision. Otherwise, authorities could reject an FCRA application by simply referring to a security report without explaining the basis of the rejection. The Court also found that the material placed before it did not justify completely withholding the reasons on national security grounds. Conclusion The judgement is significant for organisations receiving foreign contributions as it reinforces that the government's power under the FCRA must be exercised within the limits of law. The Court made it clear that funding a peaceful protest cannot, by itself, be treated as an undesirable purpose under the FCRA. It also reinforced the requirement for authorities to give clear and reasoned orders when rejecting FCRA renewal applications. The judgement further indicates that an NGO cannot automatically be held responsible for the use of funds by another FCRA-registered organisation without evidence connecting it to the alleged activity. The Court directed the authorities to pass fresh, reasoned orders within three months. In one of the cases, the Court also directed that the existing FCRA registration would continue in the meantime, allowing the organisation to utilise funds already received pending the fresh decision. FCRA Litigation Won by Non-profits Cases in which NGOs prevailed, in whole or part, in Foreign Contribution (Regulation) Act matters Case Court & Date Citation / Case No. What the Non-profit Won Greenpeace India Society vs. Union of India Delhi High Court, January 2015 W.P. (C) 5749/2014 Court directed the Ministry of Home Affairs to unfreeze roughly ₹1.87 crore of foreign contributions and allow the NGO to operate its accounts; the blanket freeze and blocking of FCRA inflows was set aside. Indian Social Action Forum (INSAF) vs. Union of India Supreme Court, 6 March 2020 2020 SCC OnLine SC 310 Supreme Court read down Rules 3(v) and 3(vi) of the FCRA Rules: NGOs engaged in social or economic welfare do not lose FCRA eligibility merely for using protest or agitational methods; only genuine 'active politics or party politics' is caught. Centre for Wildlife Studies (CWS) vs. Union of India Karnataka High Court, 25 June 2024 W.P. No. 27301 of 2023 Cancellation of FCRA registration quashed. The 'reasonable opportunity of being heard' before cancellation requires an actual personal hearing, not merely a show-cause notice, given the grave consequences including the three-year re-registration bar under Section 14(3). Indian Social Action Forum (INSAF) vs. Union of India Delhi High Court, 24 July 2025 W.P. (C) 10199/2016 A one-line email rejection of the FCRA renewal application was set aside as 'complete non-application of mind' and a breach of natural justice; the department was directed to reconsider with reasons. Save A Family Plan India & Kerala Social Service Forum vs. Union of India Kerala High Court, August 2026 W.P.(C) No. 42996 of 2025); and W.P.(C) No. 43936 of 2025 Refusal to renew FCRA registration quashed. Financing a peaceful protest is not a valid ground to deny renewal; the right to protest is integral to democracy, and rejection orders must give substantive reasons rather than bare statutory citations. These cases decided in favour of non-profits sit alongside Noel Harper vs. Union of India ( W.P. (C) No. 566/2021), in which the Supreme Court upheld the restrictive 2020 FCRA amendments against a challenge.