Income Tax 2025

Appearance

2.––Income of registered non-profit organisation

Tax on income of registered non-profit organisation. ​

334(1) ​

The Income-tax payable by a registered non-profit organisation on its total income for any tax year shall be the aggregate of the amounts calculated––

  • (a) at the rate of 30% on specified income for such tax year; and
  • (b) at the rate applicable on taxable regular income and any residual income for such tax year under other provisions of this Act.

334(2) ​

The provisions of this Chapter shall apply irrespective of anything to the contrary contained in any other provision of this Act other than section 96 to 98.

Explanation

Section Summary: ​

Section 334 of the new income tax law deals with the taxation of income for registered non-profit organisations (NPOs). It specifies how the income of such organisations will be taxed, distinguishing between "specified income" and "regular taxable income." The section ensures that NPOs are taxed at different rates depending on the nature of their income, while also overriding conflicting provisions in other parts of the Income Tax Act, except for sections 96 to 98.

Key Changes: ​

  1. Introduction of "Specified Income": The section introduces a new category called "specified income," which is taxed at a flat rate of 30%. This is a departure from earlier laws, where NPOs might have been taxed uniformly or exempted entirely under certain conditions.
  2. Dual Tax Rates: NPOs are now subject to two different tax rates: 30% on specified income and the standard applicable rate on regular taxable income and residual income.
  3. Override Clause: The section explicitly states that its provisions will override any conflicting provisions in the Income Tax Act, except for sections 96 to 98, which likely deal with exemptions or special provisions for NPOs.

Practical Implications: ​

  1. For NPOs: Registered non-profits will need to carefully categorise their income into "specified income" and "regular taxable income" to ensure accurate tax computation. This may require additional record-keeping and reporting.
  2. Tax Liability: NPOs with significant "specified income" may face higher tax liabilities due to the 30% rate, whereas those with more "regular taxable income" will be taxed at standard rates.
  3. Compliance Burden: The need to segregate income types could increase the administrative burden on NPOs, particularly smaller organisations with limited resources.

Critical Concepts: ​

  1. Specified Income: This refers to a specific category of income earned by NPOs, which is taxed at 30%. The law does not define "specified income" in this section, so it may be clarified elsewhere or through subsequent notifications.
  2. Regular Taxable Income: This is the income of the NPO that is not classified as "specified income" and is taxed at the standard rates applicable under the Income Tax Act.
  3. Residual Income: This likely refers to any remaining income after accounting for specified and regular taxable income, which is also taxed at standard rates.
  4. Override Provision: The section takes precedence over other provisions in the Income Tax Act, except for sections 96 to 98, which may provide specific exemptions or benefits to NPOs.

Compliance Steps: ​

  1. Income Segregation: NPOs must identify and segregate their income into "specified income" and "regular taxable income" for accurate tax computation.
  2. Maintain Records: Detailed records of income sources and categorisation must be maintained to support tax filings.
  3. File Returns: Ensure timely filing of income tax returns, reflecting the correct tax computation under this section.
  4. Review Exemptions: Check sections 96 to 98 to determine if any exemptions or special provisions apply to the NPO's income.

Examples: ​

  1. Scenario 1: An NPO earns ₹10 lakh from donations (specified income) and ₹5 lakh from rental income (regular taxable income). The tax liability would be:

    • ₹10 lakh × 30% = ₹3 lakh (on specified income).
    • ₹5 lakh × applicable tax rate (e.g., 20%) = ₹1 lakh (on regular taxable income).
    • Total tax payable = ₹4 lakh.

  2. Scenario 2: An NPO earns ₹15 lakh from grants (specified income) and ₹2 lakh from interest on investments (residual income). The tax liability would be:

    • ₹15 lakh × 30% = ₹4.5 lakh (on specified income).
    • ₹2 lakh × applicable tax rate (e.g., 10%) = ₹20,000 (on residual income).
    • Total tax payable = ₹4.7 lakh.

This section ensures that NPOs are taxed appropriately based on the nature of their income, while maintaining clarity and consistency in tax treatment.