Regular income.
335
Regular income of any tax year of a registered non-profit organisation means––
- (a) receipts from any charitable or religious activity, for which it is registered, carried out by such registered non-profit organisation in such tax year;
- (b) receipts, other than those specified in clause (d), whether capital or revenue, derived from any property or investment held by such registered non-profit organisation in such tax year;
- (c) voluntary contributions received by such registered non-profit organisation in such tax year; and
- (d) gains of any commercial activity, other than the commercial activities restricted under sections 345 and 346, carried out by such registered non-profit organisation in such tax year, computed in such manner, as prescribed
Explanation
Section Summary:
Section 335 defines what constitutes "regular income" for a registered non-profit organisation (NPO) in a given tax year. It clarifies the types of income that are considered regular income for such organisations, including income from charitable or religious activities, property or investments, voluntary contributions, and gains from certain commercial activities.
Key Changes:
- Inclusion of Commercial Activity Gains: Unlike previous laws, this section explicitly includes gains from commercial activities (with exceptions under Sections 345 and 346) as part of regular income, provided they are computed in the prescribed manner.
- Clarity on Voluntary Contributions: Voluntary contributions are now explicitly listed as part of regular income, which was not always clearly defined in earlier laws.
- Exclusion of Restricted Commercial Activities: Gains from commercial activities restricted under Sections 345 and 346 are excluded from regular income, ensuring compliance with broader regulatory frameworks.
Practical Implications:
- For NPOs: NPOs must now account for income from commercial activities (unless restricted) as part of their regular income, which may affect their tax liability and reporting requirements.
- For Tax Authorities: This section provides a clearer framework for assessing the taxable income of NPOs, reducing ambiguity in determining what constitutes regular income.
- For Donors: Voluntary contributions are explicitly recognized as part of regular income, which may influence donor confidence and transparency in how funds are utilized.
Critical Concepts:
- Regular Income: This refers to income that is recurring or expected, as opposed to one-time or exceptional income.
- Commercial Activity Gains: These are profits derived from business activities undertaken by the NPO, excluding those restricted under Sections 345 and 346.
- Prescribed Manner: The computation of gains from commercial activities must follow specific rules or methods outlined by the tax authorities.
Compliance Steps:
- Income Classification: NPOs must categorize their income into the four types specified in Section 335 (charitable/religious activity receipts, property/investment income, voluntary contributions, and commercial activity gains).
- Exclusion of Restricted Activities: Ensure that gains from commercial activities restricted under Sections 345 and 346 are not included in regular income.
- Accurate Reporting: Report all regular income, including voluntary contributions and commercial activity gains, in the prescribed format during tax filing.
- Maintain Documentation: Keep detailed records of all income sources, especially voluntary contributions and commercial activity gains, to substantiate claims during audits.
Examples:
- Scenario 1: An NPO runs a charitable hospital and also rents out a portion of its property. Under Section 335, the hospital's income from medical services (charitable activity) and rental income (property income) are both considered regular income.
- Scenario 2: The same NPO operates a café within its premises. If the café's operations are not restricted under Sections 345 and 346, the profits from the café are included in regular income. However, if the café's activities are restricted, its profits are excluded from regular income.
- Scenario 3: An NPO receives a large donation from a corporate sponsor. This voluntary contribution is explicitly included in regular income under Section 335.