For decades, India's charitable sector operated under provisions scattered across the Income-tax Act, 1961 — Section 2(15), Sections 11 to 13, Sections 12A, 12AA, 12AB, Section 10(23C), Section 80G, Section 115BBC, Sections 115BBI, 115TD, 115TE, and 115TF — each with its own conditions, renewals, and overlaps.
The Income Tax Act, 2025 (ITA 2025), in force from 1 April 2026, consolidates charitable and religious entity provisions into Part B of Chapter XVII — Sections 332 to 355. These entities are now collectively termed Registered Non-Profit Organisations (RNPOs), replacing the multiplicity of labels that depended on which exemption route applied.
RNPO status is compliance-dependent: income application standards, investment restrictions, governance norms, and reporting obligations are evaluated continuously, not only at renewal. This article covers the statutory definition, eligibility and irrevocable trust requirement, registration and transition, the three-layer income framework (regular income, 85% application, specified income), cancellation and accreted income, Section 354 donor deductions, Section 350 investments, annual compliance, scrutiny triggers, and practical scenarios.
Scope and limitations
II. What is an RNPO — definition and scope
Section 355(g) defines a Registered Non-Profit Organisation as any person having valid registration under a 'specified provision' whose registration has not been cancelled. Specified provisions include Sections 12A, 12AA, and 12AB of the 1961 Act, Section 10(23C) of the 1961 Act, and Section 332 of the ITA 2025 — so prior registrations are backward-compatible into the RNPO classification.
Section 332(1) sets eligibility: constituted, registered, or incorporated in India for charitable purposes under Section 2(23) or public religious purposes, with property held for the benefit of the general public under an irrevocable trust — wholly for charitable or religious purposes in India, or partly if constituted before ITA 2025 commencement.
Section 2(23) retains charitable purpose categories (relief of the poor, education, yoga, medical relief, environment, monuments, General Public Utility). GPU continues the Rs. 20 lakh or 20% of total receipts threshold for commercial activity.
III. Registration under Section 332 — mechanics, timelines, transition
Section 332(3) tabulates, by applicant category, time limits to file, time limits for the order, and validity — replacing scattered 12A/12AA/12AB cross-references.
| Applicant category | Form | Validity |
|---|---|---|
| New entity — yet to commence activities | Form 10A (Provisional) | 3 years from commencement of activities or from date of order, whichever is earlier |
| Entity that has already commenced activities | Form 10AB (Regular) | 5 years (or 10 years if income ≤ Rs. 5 crore in each of 2 preceding years) |
| Provisional — conversion to regular | Form 10AB (within 6 months of commencement, or 6 months before expiry) | 5 or 10 years from date of order |
| Existing RNPO — renewal before expiry | Form 10AB (at least 6 months before expiry) | 5 or 10 years from date of renewal order |
| Modification of objects or charitable purpose | Form 10AB (within 30 days of modification) | Fresh validity from date of order |
| Entity converting from Section 10(23C) to Section 332 registration | Form 10AB | 5 years (subject to conditions) |
The 10-year extended validity for smaller trusts (income not exceeding Rs. 5 crore in each of the two preceding years) applies only to Section 332 registration — not to Section 354 (80G successor) approval, which must be renewed every 5 years regardless of size.
Where objects or charitable purpose are modified, a fresh Section 332 application must be filed within 30 days. Missing the window risks a gap in valid RNPO status and assessment of gap-period income at the maximum marginal rate applicable to an Association of Persons.
IV. The three-layer income framework — Sections 335, 336, and 337
Section 335 defines regular income: income from charitable or religious activities; income from property held for charitable purposes (rent, interest, prescribed investment returns); voluntary contributions other than corpus; gains from permissible commercial activities. Corpus donations are excluded from regular income and held as capital — but must be invested in prescribed modes under Section 350; divergence can trigger specified income at 30%.
Section 336: if at least 85% of regular income is applied under Section 341 or accumulated under Section 342, taxable regular income is nil. If application falls short, taxable regular income equals (85% of regular income) minus (actual application). Example: regular income Rs. 80 lakh; application Rs. 60 lakh; 85% threshold Rs. 68 lakh; shortfall Rs. 8 lakh is taxable regular income.
Section 337 — specified income is taxable at a flat 30% regardless of 85% compliance, without basic exemption or slabs, and generally cannot be set off against exempt regular income.
- Anonymous donations beyond the permitted threshold (Rs. 1 lakh or 5% of total donations, whichever is higher) without identity documentation.
- Income applied for related persons (trustees, settlors, substantial-interest holders) contrary to Section 355.
- Income from non-prescribed investments under Section 350.
- Section 342 accumulations not applied within five years or applied for other than stated purposes.
- Corpus or accumulated income transferred to another entity to defer application.
V. Violations, cancellation, and accreted income — Sections 333 and 338
| Ground (Section 333) | Risk note |
|---|---|
| Non-genuine activities | Revenue often examines whether income generation dominates over charitable service. |
| Benefit to related persons | Economic benefit to trustees, settlors, or substantial-interest persons. |
| False or incorrect information | Material misrepresentation in registration or subsequent filings. |
| Excess commercial activity | GPU threshold — 20% of receipts or Rs. 20 lakh. |
| Accounts / audit failure | Books, CA audit, and audit report requirements. |
| Non-filing of return | ITR-7 by 31 October (30 November if transfer pricing applies). |
| Non-prescribed investments | Funds outside Section 350 basket. |
Section 338 (successor to Sections 115TD–115TF): on cancellation or conversion to a non-charitable form, 'accreted income' — broadly the excess of FMV of assets over liabilities — is taxed at the maximum marginal rate as a recovery of past exemption benefit. Not deductible; no carry-forward. Structural moves (dissolution, migration to non-RNPO Section 8 company) need modelling.
VI. Donor deductions — Section 354 (successor to Section 80G)
Section 354 governs donor deductions. Eligibility concepts — RNPO with valid registration, charitable purpose, prescribed manner of claim — largely continue from the 1961 Act regime.
Anonymous donations under Section 337 require robust KYC: identity documents (PAN, Aadhaar, or equivalent) for donors above the threshold. Cash-heavy events, anonymous online gifts, and hundi practices without traceability create specified-income exposure.
VII. Investment norms — Section 350
Section 350 prescribes permitted modes — broadly aligned with old Section 11(5): scheduled bank savings and deposits, post office savings, Central and State government securities, prescribed UTI/mutual fund units (typically debt-oriented), PSU bonds/debentures, immovable property, and other notified modes. Returns on amounts outside the basket are specified income at 30%.
VIII. Annual compliance architecture
| Obligation | Notes |
|---|---|
| Books and records | At registered office; available for inspection. |
| CA audit | Where gross receipts exceed prescribed threshold; Form 10B/10BB with ITR-7. |
| ITR-7 | Due 31 October of AY (30 November if TP applies). |
| Statement of donations | Donor-wise; important for Section 354 maintenance. |
| DARPAN | For government grants / foreign contribution pathways as applicable. |
| FCRA | Separate from RNPO income-tax compliance where foreign contribution is received. |
| Section 342 filing | Before return due date when accumulating. |
| Beneficial ownership | PMLA / Companies Act where RNPO holds company shares. |
| Objects change | Fresh Section 332 within 30 days. |
| Section 354 renewal | Every 5 years. |
IX. Departmental scrutiny triggers
| Trigger | Mitigation direction |
|---|---|
| GPU commercial receipts over 20% / Rs. 20 lakh | Revenue mapping and classification. |
| Related-party loans, rent, services | Arm's length terms and documentation. |
| Anonymous donations above threshold | KYC integrated into receipt workflow. |
| Non-prescribed portfolio | Quarterly investment-mode review. |
| 85% shortfall without Section 342 | Year-end application and accumulation coordination. |
| Objects amended without fresh registration | Tax review before deed changes. |
| Genuineness of activities | Beneficiary records, payments, third-party evidence. |
| Donations from controlling HUF/individuals | Independence and intent documentation. |
X. Practical scenarios
Scenario A — Legacy trust with valid 12AB (expiry June 2027) amends deed in March 2026 to add 'vocational training' without filing within 30 days: automatic RNPO label continues, but a registration gap may exist for income between amendment and fresh approval; file Section 332 immediately; review Rs. 4 crore portfolio for Section 350 compliance (e.g. equity MF returns as specified income).
Scenario B — Temple trust: Rs. 80 lakh hundi cash without donor identity plus Rs. 20 lakh traceable donations. Anonymous threshold is higher of Rs. 1 lakh per donor or 5% of total donations (here Rs. 5 lakh on Rs. 1 crore total). Excess unidentified amounts risk 30% specified income — digitise collections and KYC above Rs. 1 lakh.
Scenario C — Hospital ex–10(23C)(via): Rs. 12 crore private fees + Rs. 3 crore charitable wards = Rs. 15 crore regular income; must apply or accumulate 85% (Rs. 12.75 crore). GPU / fee-mix may attract charitable-purpose scrutiny if commercial receipts breach thresholds — plan before first RNPO-era return.
Key takeaways
- ITA 2025 (effective 1 April 2026) consolidates charitable and religious provisions in Sections 332–355 (Chapter XVII Part B) under the single RNPO label.
- Valid 12A / 12AA / 12AB / 10(23C) registrations auto-transition to RNPO status until expiry; compliance is ITA 2025 from commencement date.
- Section 332: provisional (3 years) vs regular (5 or 10 years for smaller trusts); objects changes need fresh application within 30 days.
- Section 336: 85% of regular income must be applied or formally accumulated under Section 342 — accumulation requires pre-return filing, not silence.
- Section 337: specified income at 30% for listed categories — active compliance on donations, related parties, and investments.
- Section 333 lists seven cancellation grounds; Section 338 accreted income tax on cancellation or non-charitable conversion is severe.
- Section 354 (80G successor) is separate from Section 332; renew Section 354 every 5 years regardless of 10-year Section 332 validity.
- Section 350 prescribed modes are mandatory for corpus and general investable funds; no Section 11(1A)-style automatic CG reinvestment exemption.
- FCRA and DARPAN obligations run alongside RNPO rules; foreign charities cannot obtain RNPO registration.
- A pre–first RNPO-year compliance audit (registration, investments, application, related parties, donor KYC, objects) is high value.
Frequently asked questions
Must a trust re-register under ITA 2025 if it already has valid Section 12AB registration?
No — existing registrations continue until expiry and are treated as RNPO registration under Section 355(g). Fresh registration is needed on expiry or on modification of objects (within 30 days of change).
What if we miss the 85% application rule?
The shortfall is taxable regular income. Timely Section 342 filing counts toward the 85% threshold; without it, the shortfall is taxable. Repeated shortfalls may draw Section 333 scrutiny though status is not automatically cancelled solely for one year's shortfall.
A donor gave Rs. 2 lakh in cash without PAN — how should we treat it?
Cash donations above Rs. 2,000 are not eligible for donor deduction under Section 354. Without identity records, the amount may be anonymous donation; above the threshold (Rs. 1 lakh or 5% of total donations, whichever is higher) excess is specified income at 30%. Maintain PAN/Aadhaar-linked records for material gifts.
Can a trustee receive a salary?
Reasonable remuneration for genuine professional or managerial services, authorised by the deed and benchmarked, may be defensible; excessive or disguised benefits trigger Section 337 and potentially Section 333. Document and benchmark.
Which return form and due date?
RNPOs typically file ITR-7 under Section 139(4A)/(4C). Due date 31 October of the assessment year (30 November if transfer pricing applies). Late filing can cost interest and, critically, Section 342 accumulation relief for that year.
We sold agricultural land and realised Rs. 40 lakh capital gain — is it exempt?
Under ITA 2025 the gain is regular income under Section 335. Include it in the 85% application or Section 342 accumulation pool; there is no standalone Section 11(1A)-style reinvestment exemption.
What if RNPO registration is cancelled?
Exemption is lost from cancellation date; income may be taxed at maximum marginal rates as appropriate. Section 338 accreted income tax on FMV over liabilities is a further severe charge. Proactive compliance is essential.
Conclusion
The RNPO framework is the most significant structural reform of charitable entity taxation in modern Indian income-tax law — twelve-plus dispersed provisions consolidated into twenty-four sections with a continuous-compliance philosophy.
Well-governed organisations will recognise the continuity of core ideas — 85% application, anti-private-benefit rules, prescribed investments, audit, and returns — while adapting to stricter detail on accumulation filings, anonymous donations, object-change deadlines, Section 354 independence, and capital gains inside regular income.
Complex restructurings, dissolutions, foreign funding alongside domestic charity, and large asset events warrant coordinated advice across income-tax, FCRA, and trust law before execution.
Important disclaimer
This article has been prepared by Sandeep Singla & Associates, Chartered Accountants, solely for educational and informational purposes. It does not constitute legal, tax, financial, or professional advice. ITA 2025 provisions, rules, notifications, and judicial interpretations evolve; verify current law before reliance. Obtain independent advice from a qualified Chartered Accountant or Advocate for RNPO registration, compliance, or structuring decisions. Sandeep Singla & Associates, its partners, and staff disclaim liability for loss or expense from reliance on this article. Prepared in compliance with the ICAI Code of Ethics and applicable ICAI advertising guidelines. © 2026 Sandeep Singla & Associates. All rights reserved. Reproduction requires prior written permission.