Income Tax 2025

Appearance

6.––Approval for purpose of deduction under section 133(1)(b)(ii)

Application for approval for purpose of section 133(1)(b)(ii) ​

354(1) ​

A registered non-profit organisation or a person referred to in Schedule III (Table: Sl. No. 1) may, for the purpose of section 133(1)(b)(ii), make an application for approval in such form and manner, as prescribed, to the Principal Commissioner or Commissioner, subject to the following conditions:––

  • (a) it is not expressed to be for the benefit of any particular religious community or caste;
  • (b) it is established in India for a charitable purpose and does not incur any expenditure of an amount being 5% or more of its total income during a tax year which is of a religious nature;
  • (c) the instrument under which it is constituted does not, or the rules governing it do not, contain any provision for the transfer at any time of the whole or any part of its assets for any purpose other than a charitable purpose;
  • (d) it maintains regular accounts of its receipts and expenditure;
  • (e) it prepares such statement for such period, as prescribed, and deliver or cause to be delivered to the prescribed income-tax authority or the person authorised by such authority such statement in such form and verified in such manner and setting forth such particulars and within such time, as prescribed;
  • (f) it delivers to the said prescribed authority, a correction statement for rectification of any mistake or to add, delete or update the information furnished in the statement delivered under clause (e) in such form and verified in such manner, as prescribed; and
  • (g) it furnishes a certificate to the donor specifying the amount of donation within such period from the date of receipt of the donation containing the requisite particulars in the manner, as prescribed.

354(2) ​

The application under sub-section (1) shall be made in respect of the cases referred to in column B of the Table below within the time limit provided in column C of the said Table and the Principal Commissioner or Commissioner, on receipt of such application, shall follow the procedure provided in sub-sections (3) and (4), and shall pass an order in writing within the time limit provided in column D and approval, if granted, shall be valid for a period provided in column E of the said Table. --Table--

354(3) ​

Where an application has been made in any of the cases specified under sub-section (2) (Table: Sl. No. 2) to (Table: Sl. No. 5), the Principal Commissioner or Commissioner shall call for such documents or information or make such inquiries as he thinks necessary in order to satisfy himself as to the compliance of such requirements of any other law in force, as are material for the purpose of achieving its objects, and the genuineness of activities and––

  • (a) if he is so satisfied about the objects and the genuineness of the activities and compliance of the requirements of any other law in force, he shall pass an order in writing approving it; or
  • (b) if he is not so satisfied, after affording a reasonable opportunity of being heard,–– (i) shall pass an order in writing rejecting the application, where the application was made in any of the cases specified in sub-section (2) (Table: Sl. No. 2); and (ii) in any other case, shall pass an order rejecting the application and also cancelling the approval, and send a copy of the order to the applicant and the Assessing Officer.

354(4) ​

Where an application has been made in any of the cases specified in sub-section (2) (Table: Sl. No. 1), the Principal Commissioner or Commissioner shall pass an order granting provisional approval.

Explanation

Section Summary: ​

This section outlines the process for registered non-profit organizations or entities listed in Schedule III (Table: Sl. No. 1) to apply for approval under Section 133(1)(b)(ii) of the Income Tax Act. The approval is necessary for these entities to qualify for tax deductions related to donations received. The section specifies the conditions, application process, and timelines for approval, as well as the consequences of non-compliance.

Key Changes: ​

  1. Introduction of Provisional Approval: Under 354(4), provisional approval can be granted for certain cases, which is a new provision aimed at streamlining the approval process.
  2. Stricter Conditions: The section imposes stricter conditions, such as limiting religious expenditure to less than 5% of total income and ensuring assets are used only for charitable purposes.
  3. Documentation and Reporting: Enhanced requirements for maintaining accounts, submitting statements, and providing donor certificates are introduced.
  4. Time-Bound Process: Clear timelines for application submission, approval, and validity periods are now specified.

Practical Implications: ​

  1. For Non-Profit Organizations:
    • Must ensure compliance with the conditions (e.g., no religious bias, limited religious expenditure, and proper use of assets).
    • Need to maintain detailed records and submit periodic statements to tax authorities.
    • Must issue donation certificates to donors within a prescribed timeframe.
  2. For Donors:
    • Donations to approved organizations will qualify for tax deductions under Section 80G.
    • Donors should verify the approval status of the organization before claiming deductions.
  3. For Tax Authorities:
    • Increased scrutiny of non-profit organizations to ensure compliance with charitable objectives and other laws.
    • Provisional approvals allow for faster processing while maintaining oversight.

Critical Concepts: ​

  1. Charitable Purpose: Defined as activities aimed at relieving poverty, education, medical relief, and other objectives beneficial to the public, excluding religious purposes.
  2. Religious Expenditure: Any expenditure directly related to religious activities, which must not exceed 5% of the organization’s total income.
  3. Provisional Approval: Temporary approval granted under 354(4) for specific cases, subject to further verification.
  4. Correction Statement: A mechanism to rectify errors or update information in previously submitted statements.

Compliance Steps: ​

  1. Application Submission:
    • Submit the application in the prescribed form to the Principal Commissioner or Commissioner.
    • Ensure the application is filed within the time limits specified in the table under 354(2).
  2. Documentation:
    • Maintain regular accounts of receipts and expenditures.
    • Prepare and submit periodic statements as prescribed.
  3. Donor Certificates:
    • Issue certificates to donors specifying the donation amount and other required details within the prescribed timeframe.
  4. Rectification:
    • Submit correction statements if there are errors or updates in previously filed statements.
  5. Follow-Up:
    • Respond to any inquiries or requests for additional information from tax authorities.

Examples: ​

  1. Scenario 1: A registered non-profit organization focused on education applies for approval under Section 133(1)(b)(ii). It ensures that its activities are not biased toward any religious community and that its religious expenditure is below 5% of its total income. It submits the application within the prescribed time and receives provisional approval under 354(4).
  2. Scenario 2: An organization fails to maintain proper accounts or exceeds the 5% limit on religious expenditure. The Principal Commissioner rejects its application after providing an opportunity to be heard, and the organization loses its eligibility for tax-deductible donations.

This section ensures that only genuine charitable organizations benefit from tax deductions, while maintaining transparency and accountability.