Indian Trusts Act, 1882
Taxation of Charitable and Religious Trusts
Charitable and religious trusts have long enjoyed exemption from income tax, on condition that they register, apply their income to their objects and avoid benefiting insiders. Under the Income-tax Act, 1961 the regime was spread across Sections 2(15), 10(23C), 11 to 13, 12A, 12AB, 80G, 115BBC and 115TD. The Income-tax Act, 2025, in force from 1 April 2026, consolidates it into a single code for registered non-profit organisations in Part B of Chapter XVII. This note explains the core principles, which are common to both Acts, and the new structure.
1. The Basic Principles
Principle | Content |
|---|---|
Registration | Exemption is available only to a trust, society or Section 8 company registered with the income tax authorities, with validity for a fixed period and periodic renewal |
Charitable or religious purpose | Its objects must be charitable (relief of the poor, education, yoga, medical relief, environment, monuments, general public utility) or religious |
Application of income | At least 85 per cent of its income must be applied to its objects in India in the year, or accumulated for specified purposes within limits |
No benefit to insiders | Income or property must not be applied for the benefit of the author, trustees, substantial contributors or their relatives |
Permitted investments | Funds must be invested only in specified modes |
Accounts and audit | Books must be audited and audit reports and returns filed on time |
Commercial activity | Entities pursuing general public utility may carry on trade or business only within prescribed limits |
2. The 2025 Act: Registered Non-Profit Organisations
The 2025 Act gathers the regime into Part B of Chapter XVII, reported as Sections 332 to 355, and uses the single term registered non-profit organisation for trusts, societies and companies that qualify. The main features, as reported:
- Single registration route replacing the separate routes under Sections 10(23C), 12A, 12AA and 12AB of the 1961 Act, with provisional and regular registration and fixed validity periods.
- Regular income and specified income: the entity's income is exempt to the extent of the 85 per cent application rule; certain specified income, such as large anonymous donations, income applied for the benefit of related persons, income applied outside India, and investments in non-permitted modes, is taxed at 30 per cent without the benefit of exemption.
- Accumulation and deemed application rules similar in substance to those of Section 11 of the 1961 Act.
- Cancellation for specified violations, and tax on accreted income (the net fair market value of assets) when registration is cancelled, the entity converts to a non-charitable form, or it dissolves without transferring assets to another registered entity, carrying forward Section 115TD.
- Separate approval for donors' deductions, replacing Section 80G approval.
- Transition: registrations valid on 1 April 2026 under the 1961 Act continue until expiry, with renewal under the new provisions.
⚠ Note Section numbers and detailed thresholds under the 2025 Act are as reported in professional commentary at the time of writing and should be checked against the official text of the Act, as amended by the Finance Act, 2026, and the Rules. |
3. General Public Utility and Commercial Activity
📖 ACIT (Exemptions) v Ahmedabad Urban Development Authority (Supreme Court, 19 October 2022) Held: An entity whose purpose is the advancement of any other object of general public utility cannot claim charitable status if it carries on trade, commerce or business, or renders services for a fee, beyond the limited extent the statute permits, and the receipts from such activity must stay within the prescribed percentage of total receipts. Charging for services at or near cost may be consistent with charity; charging markedly above cost is not. Statutory bodies performing public functions were considered on these principles (Topic 59). |
📖 New Noble Educational Society v Chief Commissioner of Income Tax (Supreme Court, 2022) Held: For exemption as an educational institution, the institution must exist solely for education and not for profit; objects that include non-educational activities defeat the claim. |
4. Private Religious Trusts
A trust for private religious purposes, such as the worship of a family deity, does not qualify for exemption as a charitable or religious organisation, because it does not benefit the public. Its income is taxed under the general rules, and the 1961 Act provided for taxation at the maximum marginal rate in certain cases where a trust was partly or wholly for private religious purposes (Section 164(2) and (3)).
5. Compliance Checklist for Trustees
- Register and track renewal dates for registration and for donor deduction approval.
- Keep complete donor records (name, address and prescribed particulars), since unrecorded donations may be treated as anonymous.
- Apply at least 85 per cent of income in the year, or accumulate it properly.
- Avoid any benefit to the author, trustees, substantial contributors or their relatives.
- Invest only in permitted modes.
- Keep commercial receipts within the permitted limits.
- File audited accounts and returns on time.
- Record any change in objects and report it to the authorities.
⚠ Key point Charitable and religious trusts are exempt from income tax if they register, pursue charitable or religious objects, apply at least 85 per cent of income (or accumulate it properly), confer no benefit on insiders, invest in permitted modes, keep commercial activity within limits, and file audited accounts. The 2025 Act (from 1 April 2026) consolidates the regime for registered non-profit organisations, taxing specified income (such as large anonymous donations and insider benefits) at 30 per cent and accreted income on cancellation or conversion. General public utility entities must keep commercial activity within the statutory limits (AUDA, 2022); educational institutions must exist solely for education (New Noble Educational Society, 2022). |
6. Related Topics and Provisions
- Private and public trusts; charitable purpose (Topic 40)
- Choosing a vehicle (Topic 46)
- FCRA, PMLA and beneficial ownership (Topic 49)
- Judgments on charitable and public trusts (Topic 59)