Income Tax 2025

Appearance

Other violations. ​

353(1) ​

Where any registered non-profit organisation––

  • (a) fails to maintain books of account under section 347; or
  • (b) fails to get books of account audited under section 348; or
  • (c) fails to furnish its return of income under section 349; or
  • (d) any registered non-profit organisation, carrying out advancement of any other object of general public utility, carries out any commercial activity in contravention of the provisions of section 346, during any tax year, its regular income for such tax year as reduced by the expenditure referred to in sub-section (3) shall be taxable regular income which shall be chargeable to tax as per the provisions of section 334.

353(2) ​

In addition to the tax referred to in sub-section (1), the specified income and residual income of the registered non-profit organisation shall also be chargeable to tax under the provisions of section 334, to the extent not covered under taxable regular income under the said sub-section, and the provisions of section 338 shall not apply.

353(3) ​

The expenditure referred in sub-section (1) shall be computed subject to the following conditions:––

  • (a) capital expenditure shall not be allowed;
  • (b) such expenditure shall be incurred in India;
  • (c) such expenditure shall be for the objects of the registered non-profit organisation;
  • (d) such expenditure is not made from the corpus standing to the credit of the registered non-profit organisation as on the end of the tax year immediately preceding the tax year for which income is being computed;
  • (e) such expenditure is not out of any loan or borrowing;
  • (f) the claim of depreciation is not in respect of an asset, acquisition of which has been claimed as application of income, in the same or any other tax year;
  • (g) such expenditure is not in the form of any contribution or donation to any person;
  • (h) such expenditure is not on account of a payment or aggregate of payments made to a person in contravention to the provisions of sections 36(4), (5), (6) and (7);
  • (i) such payment is allowable under section 35(b)(i); and
  • (j) set off or deduction or allowance of any application or expenditure other than those referred to in clauses (a) to (i) shall not be allowed.
Explanation

Section Summary: ​

Section 353 of the new income tax law outlines the tax implications for registered non-profit organizations (NPOs) that fail to comply with specific statutory requirements. These include maintaining proper books of account, getting them audited, filing income tax returns, or engaging in commercial activities in violation of the law. If an NPO violates these provisions, its income (after deducting allowable expenditures) becomes taxable under regular income tax provisions. Additionally, specified and residual income may also be taxed, and certain exemptions under Section 338 will not apply.

Key Changes: ​

  1. Taxation of Non-Compliant NPOs: Previously, NPOs enjoyed tax exemptions under certain conditions. The new law introduces taxation of income for NPOs that fail to comply with statutory requirements, such as maintaining books of account, getting them audited, or filing returns.
  2. Commercial Activity Restrictions: NPOs engaged in commercial activities in violation of Section 346 will now face taxation on their income.
  3. Expenditure Restrictions: The law specifies strict conditions for allowable expenditures, disallowing capital expenditure, foreign expenses, and certain other types of payments.

Practical Implications: ​

  1. For NPOs: Non-compliance with statutory requirements (e.g., maintaining books, audits, filing returns) will result in their income being taxed. This could significantly impact their financial planning and operations.
  2. For Tax Authorities: Easier enforcement of compliance among NPOs, as non-compliance leads to direct taxation.
  3. For Donors: Donors may need to reassess their contributions to NPOs, as non-compliance by the NPO could affect its tax-exempt status and financial health.

Critical Concepts: ​

  1. Taxable Regular Income: The income of an NPO after deducting allowable expenditures, which becomes taxable if the NPO violates statutory requirements.
  2. Specified and Residual Income: These are additional categories of income that may also be taxed if not covered under taxable regular income.
  3. Allowable Expenditures: Expenditures that meet specific conditions (e.g., incurred in India, for the NPO’s objectives, not from corpus or loans) can be deducted from income before taxation.
  4. Section 338 Exemption: This section previously provided exemptions for certain types of income, but under Section 353(2), these exemptions will not apply to non-compliant NPOs.

Compliance Steps: ​

  1. Maintain Proper Books of Account: Ensure compliance with Section 347 by maintaining accurate and up-to-date books of account.
  2. Conduct Audits: Get books of account audited as per Section 348.
  3. File Income Tax Returns: Submit returns under Section 349 within the stipulated deadlines.
  4. Avoid Unauthorized Commercial Activities: Ensure that any commercial activities comply with Section 346.
  5. Document Expenditures: Keep detailed records of expenditures to ensure they meet the conditions outlined in Section 353(3).

Examples: ​

  1. Scenario 1: An NPO fails to get its books audited for the tax year. Under Section 353(1), its income (after deducting allowable expenditures) becomes taxable. If the NPO had ₹10 lakh in income and ₹4 lakh in allowable expenditures, the taxable income would be ₹6 lakh.
  2. Scenario 2: An NPO engages in commercial activities without complying with Section 346. Its income from these activities, along with other income, becomes taxable. Additionally, if the NPO has specified income of ₹2 lakh not covered under taxable regular income, this amount will also be taxed under Section 353(2).
  3. Scenario 3: An NPO incurs ₹1 lakh in capital expenditure and ₹3 lakh in operational expenditure. Under Section 353(3), the ₹1 lakh capital expenditure is disallowed, and only the ₹3 lakh operational expenditure can be deducted from income.

This section emphasizes the importance of compliance for NPOs to retain their tax-exempt status and avoid unexpected tax liabilities.