The New Income Tax Bill, 2025, simplifies and consolidates the income tax provisions for non-profit organisations. It merges scattered provisions into Part B of Chapter XVII, covering registration, income, commercial activities, compliances, violations, eligibility for donations, and interpretations.
Key Highlights:
The term ‘registration’ replaces ‘approval’ to simplify compliance.
‘Registered non-profit organisation’ refers to entities with valid registration under Sections 12A, 12AA, 12AB, or 10(23C) of the Income-tax Act, 1961.
Simplified accumulation of income provisions.
Removal of redundant provisions and reduction of cross-references.
1. Meaning of Non-Profit Organisation
Previously, organisations engaged in charitable activities were categorized differently, such as Educational Institutions, Universities, and Hospitals. Now, all such entities will be classified as Non-Profit Organisations (NPOs).
Example:
Earlier, a hospital operating as a charitable trust was referred to as a ‘Charitable Trust’ under Section 2(15).
Now, it will simply be called an NPO, making legal references more straightforward.
2. Existing Number of Taxpayers (Charitable Trusts)
As per Income Tax Department data:
| Year | Number of NPOs Filed | Amount Spent on Charitable & Religious Activities |
|---|---|---|
| 2023-24 | 2,50,682 | ₹10.01 lakh crores |
3. Reasons for Simplification
The current Act has provisions related to charitable trusts scattered across multiple chapters, leading to complexity. The new Bill:
Consolidates all provisions into Part B of Chapter XVII.
Simplifies provisions by removing redundant clauses and multiple cross-references.
Example:
Earlier: Section 11 had 13 explanations and 16 provisos, making it difficult to interpret.
Now: A structured and simplified framework is provided for easier compliance.
4. Arrangement of New Sections/Clauses
| Clause | Key Topic |
| 332 | Registration & tax exemption conditions |
| 333 | Taxability of income for NPOs |
| 334 | Taxability in case of violations |
| 335 | Rules for income accumulation |
| 336 | Taxability of specified income |
| 337 | Rules for income application |
| 338 | Taxability of accreted income |
5. Registration of Charitable Trusts
The term ‘registration’ replaces ‘approval’ for clarity.
Example:
Earlier, registration under Section 10(23C) and 12AB had different terms and procedures.
Now, all registrations follow a unified structure under Clause 332.
The Bill provides a clear tabular format for application deadlines, order passing, and validity.
6. Structure of Part XVII-B
The Bill divides provisions into seven sub-parts:
| Sub-Part | Topics Covered |
| i | Registration process for NPOs |
| ii | Taxability of regular & specified income |
| iii | Commercial activities & public utility rules |
| iv | Compliances: Accounts, Audit, Returns |
| v | Violations: Taxation of accreted income |
| vi | Approval for donations (Old 80G) |
| vii | Interpretations |
7. Condition: 85% Income Application
No change in taxability if an NPO applies 85% of its regular income for charitable purposes.
Example:
If an NPO earns ₹10 crores, it must apply at least ₹8.5 crores towards charitable activities to remain tax-exempt.
If it applies only ₹7 crores, the shortfall of ₹1.5 crores will be taxed unless properly accumulated.
8. Taxability of Capital Gains
Major Change: Exemptions for reinvestment of capital gains are no longer available.
Example:
Earlier: If an NPO sold land worth ₹5 crores and reinvested the amount in another capital asset, capital gains tax was exempt.
Now: The entire sale amount is considered income, and the NPO must apply 85% of ₹5 crores towards its objectives to claim exemption.
If 85% is not applied, the remaining portion is taxable as per normal tax rates.
Accumulation of capital gains is allowed only under prescribed conditions, requiring an official declaration and utilization plan within a specified period.
9. Provision for Accumulation of Income
Earlier, two types of accumulations were allowed:
Section 11(2): Allowed accumulation for up to 5 years.
Explanation 1(2) to Section 11(1): Allowed 1-year deemed application.
New Bill: Simplifies accumulation under Clause 342, reducing litigation risks.
Example:
If an NPO receives ₹1 crore but doesn’t use it immediately, it can accumulate it for future use by filing a prescribed form with clear utilization intent.
Accumulated income must be utilized within the permitted timeframe, or it becomes taxable.
10. Concept of Tax Year & Financial Year
‘Previous year’ and ‘assessment year’ are replaced with ‘tax year’.
Example:
Earlier: The assessment year for FY 2024-25 was called AY 2025-26.
Now: It is simply referred to as ‘Tax Year 2025’.
The new law applies from April 1, 2026, meaning FY 2026-27 is the first applicable year.
Conclusion: The Income Tax Bill, 2025, aims to make compliance simpler and clearer for NPOs. The changes include consolidation of rules, streamlined registration, simplified tax treatments, and reduced cross-references. Understanding these changes will help NPOs comply effectively and plan their finances better.
