Tax Treatment of Registered Societies under the Income-tax Act 2025

Nothing shapes a society's finances like its tax status, and that law has just been rebuilt. From 1 April 2026 the Income-tax Act, 2025 replaces the 1961 Act, gathering the old charitable exemption provisions, sections 11 to 13, the section 12AB registration and section 80G, into a consolidated regime for the registered non-profit organisation. The architecture is familiar, apply most of the income to the objects, avoid benefits to connected persons, file on time, but the section numbers, forms and vocabulary are new.

1. The new home of the exemption

Figure 1: From the 1961 Act to the 2025 Act

• The entity: the 2025 Act works through the registered non-profit organisation (RNPO), defined by reference to a valid registration; societies, trusts and section 8 companies all register in the same frame.
• Registration (section 332) consolidates the old routes, 12A, 12AA, 12AB and 10(23C): registrations valid on 1 April 2026 convert automatically, with numbers and exemptions continuing; renewals run on the new forms, applied for ahead of expiry.
• Validity: five years as the norm, with a ten year registration for smaller entities within the prescribed income ceiling.
• The exemption machinery of old sections 11 and 12 lives in the RNPO chapter (sections 334 to 342 on the published mapping), with the violation consequences of old section 13 in sections 351 to 353 and the donor deduction of old 80G in section 354, renewed separately from the registration itself.

2. The working rules

Figure 2: The annual test an exempt society must pass

• The 85 per cent rule survives intact: at least 85 per cent of regular income must be applied to the charitable or religious objects in the year.
• The 15 per cent balance is treated as deemed accumulation and must sit in the prescribed investment modes.
• Accumulation beyond 15 per cent requires the prescribed form and a stated purpose, with a five year outer limit and application within it.
• Anonymous donations carry their own charge (section 342 on the published mapping), continuing the old section 115BBC discipline.
• Specified violations, benefits to interested persons, misapplication outside the objects, breaches of registration conditions, draw taxation of the offending income and, in serious cases, cancellation; the drafting largely carries the post-2022 regime of the old Act forward.
• Compliance calendar: audited accounts where the thresholds apply, the audit report filed ahead of the return, the return on the non-profit form, and the annual donation statement that feeds donors' claims.

3. Societies in the regime

Figure 3: The four pillars of an exempt society's year

• Business income remains confined: activity must be incidental to the objects with separate books, and general public utility entities live within the familiar commercial-receipts discipline.
• Mergers and endings have a statutory route: transfer to another registered entity with kindred objects avoids the exit charge contemplated for assets leaving the exempt stream, aligning tax law with section 14 of the Societies Registration Act.
• Registration mismatches are the common audit casualty: the society's name, PAN, objects and governing documents must match the registration record, which is why changes under sections 12 and 12A of the societies law are intimated to the tax authorities immediately.
• State-law compliance feeds tax compliance: the balance sheets filed with the Registrar, the audited accounts and the minutes are the same records the exemption assessment will test.

4. Quick Revision

1. Cite the 2025 Act for assessments from 2026-27.
2. Treat the old sections as lineage, not as current law.
3. Diarise the audit report before the return.
4. Keep the registration record aligned with the society's documents.
5. Route any winding up through kindred-object transfers.

5. Frequently Asked Questions

Does an existing society need to re-register under the 2025 Act?

Not merely because the Act changed. Registrations valid on 1 April 2026 convert automatically into RNPO registrations, keeping their numbers and their remaining validity, and the first act under the new law for most societies is a renewal in the ordinary course, applied for within the prescribed window before expiry. The entities with homework are the irregular ones: old registrations never migrated through the 12AB exercise, lapsed renewals, or records that no longer match the society's name or objects. For them the safe course is to regularise on the prescribed forms at once, because the new regime, like the late version of the old one, treats an invalid registration as no registration, with the whole income exposed.

How is a society taxed if it has no RNPO registration?

As an ordinary association of persons, on its income under the normal provisions, with none of the charitable reliefs: donations become taxable receipts in the computation the law applies to such bodies, surpluses bear tax at the applicable rates, and donors get no deduction. For a genuinely charitable society the condition is almost always self-inflicted, a missed renewal or a mismatch left uncured, and the cure is registration, prospective at best. The lesson examiners reward is the clean statement that exemption is a creature of registration plus conduct: either without the other fails, and the society that wants certainty maintains both as living compliance, not as history.

What should a society check first under the new Act?

Five items, in an afternoon. The registration certificate and its expiry, mapped to the new renewal window. The donor-deduction approval, which renews separately and lapses independently. The audit threshold and the auditor's calendar, since the report precedes the return. The investment of accumulated funds against the prescribed modes. And the governing documents against the registration record, amendments under the societies law included. A society that passes those five checks will find the 2025 Act a renumbering rather than a revolution; the substance it enforces is the discipline the earlier topics have already described.

6. Related Topics and Provisions

• Accounts and audit of societies
• Foreign contribution and registered societies
• Society, trust and section 8 company compared
• Societies eligible for registration: section 20
• Dissolution and surplus: sections 13 and 14
• Property of a society: section 5