INCOME TAX ACT 2025 SERIES   •   BLOG #5

Non-Profit Organisations Under the New Tax Law

From Charitable Trust to RNPO: Everything You Need to Know

Himanshu Majithiya & Co.  |  Chartered Accountants, Ahmedabad  |  April 2026

Introduction: Why This Blog Matters to Your Organisation

India has approximately 2.5 lakh charitable and religious organisations that file income tax returns. Together, these organisations spent over ₹10 lakh crore on charitable and religious purposes in a single financial year. Despite this massive scale, the tax rules governing them were scattered across more than a dozen sections of the Income Tax Act, 1961 — making compliance a nightmare for trustees, NGO managers, and their auditors.

The Income Tax Act, 2025, which comes into effect from 1st April 2026, changes this completely. All rules for charitable trusts, NGOs, religious institutions, educational bodies, hospitals, and Section 8 companies are now brought together under one single chapter — Chapter XVII-B, covering Sections 332 to 355. These entities are now collectively called Registered Non-Profit Organisations, or RNPOs for short.

In this fifth blog of our Income Tax Act 2025 series, we explain exactly what has changed, what remains the same, and what your organisation needs to do before 1st April 2026.

Key Fact: The word count for NPO-related provisions has been reduced from approximately 12,800 words to 7,600 words — a reduction of over 40%. Fewer words. Clearer rules. Less litigation.

1. What Is a 'Registered Non-Profit Organisation' (RNPO)?

The term RNPO is new, but the concept behind it is not. Under the old Income Tax Act, 1961, charitable and religious entities were referred to by many different names — 'charitable trust', 'institution', 'hospital', 'educational body', 'NGO', or 'Section 8 company'. Each had slightly different rules, different sections to follow, and different registration procedures.

The new Income Tax Act, 2025 replaces all these different labels with one unified term: Registered Non-Profit Organisation (RNPO). As per Section 355(g) of the new Act, an RNPO means any person (entity) that holds a valid registration under a 'specified provision' and whose registration has not been cancelled.

The 'specified provisions' include all the old registration sections — Sections 12A, 12AA, 12AB, and 10(23C) of the old Act — as well as the new Section 332.

In plain language: If your charitable trust, NGO, or Section 8 company is currently registered under Section 12A, 12AA, or 12AB and its registration is still valid, you are automatically treated as an RNPO from 1st April 2026. No fresh application is needed until your existing registration expires.

2. Which Entities Are Covered Under RNPO?

To be eligible for registration as an RNPO under Section 332(1) of the Income Tax Act, 2025, the following conditions must be satisfied:

•        The entity must be constituted, registered, or incorporated in India.

•        It must be set up for one or more charitable purposes (as defined in Section 2(23)) or for public religious purposes.

•        Its properties must be held under an irrevocable trust for the benefit of the general public.

•        It must be operated wholly for charitable/religious purposes in India; or partly for such purposes if constituted before the Income Tax Act, 1961 came into force.

The following types of entities are covered:

•        Charitable trusts and religious trusts

•        Non-Governmental Organisations (NGOs)

•        Societies registered under the Societies Registration Act

•        Section 8 Companies (Companies Act, 2013)

•        Educational institutions (schools, colleges, universities)

•        Hospitals and medical relief institutions

•        Any other entity set up for charitable or religious purposes

One important addition in the 2025 Act is the explicit use of the phrase 'irrevocable trust'. Under the old Act, this requirement was implied through case law. The new Act makes it a statutory requirement, bringing greater clarity.

3. How Are the RNPO Provisions Organised? (Chapter XVII-B)

All provisions relating to Registered Non-Profit Organisations are now consolidated under Chapter XVII-B (Part B of Chapter XVII) of the Income Tax Act, 2025, spanning Sections 332 to 355. This chapter is divided into six structured sub-parts:

This clean structure eliminates the need to cross-reference multiple scattered sections. Everything a charitable trust needs — from registration to 80G approval — is now in one place.

4. Registration Under Section 332: Complete Framework

Registration is the foundation of all tax benefits for charitable organisations. Without valid registration, all income — including donations received — becomes fully taxable. Under the old Act, registration was covered across multiple sections: 12A, 12AA, and 12AB. The new Act brings all of this into a single Section 332, with a tabular format for easy understanding.

4.1 Registration Process – At a Glance

* 10-Year Extended Validity applies to entities with total income (before claiming exemption) not exceeding ₹5 crore in each of the two preceding Tax Years. This benefit was introduced by the Finance Act, 2025.

4.2 Transition for Existing Registered Organisations

If your organisation is already registered under Sections 12A, 12AA, 12AB, or 10(23C) of the old Act, you do not need to apply afresh immediately. Your existing registration continues to remain valid until its expiry date. When it is time to renew, you will apply under the new Section 332 framework using Form 10AB.

From 1st April 2026, all organisations with valid existing registrations are automatically treated as Registered Non-Profit Organisations (RNPO). The only change is the label — your tax exemption continues without interruption.

4.3 The 80G Approval (Section 354) – Separate From RNPO Registration

The 80G approval, which allows donors to claim a tax deduction on their donations, is NOT the same as RNPO registration. It is a separate approval under Section 354 of the new Act (replacing old Section 80G). Key points to remember:

•        An entity must hold both: RNPO registration (Section 332) AND 80G approval (Section 354).

•        80G approval must be renewed every 5 years — the 10-year extended validity does not apply to 80G.

•        Both applications can be filed simultaneously for new entities.

•        Orders for grant/rejection/cancellation will be issued in the new Form 107.

5. How Is Income Taxed Under the New Act?

The fundamental principle of charitable trust taxation remains unchanged: if your organisation applies at least 85% of its regular income towards its charitable or religious purposes, the income is fully exempt from tax. Let us understand how this works in detail.

5.1 The 85% Application Rule

Under Section 333 of the new Act, the income of an RNPO is classified into Regular Income and other categories. The rule is simple:

•        Apply (spend) at least 85% of Regular Income for charitable/religious purposes = Full tax exemption on that income.

•        If less than 85% is applied = 30% tax is levied on the shortfall amount.

•        An organisation can opt to accumulate income (carry forward unspent amounts) for up to 5 years, provided it follows the prescribed conditions.

5.2 Income Tax Treatment – Category-wise

5.3 Corpus Donations: Still Exempt

Donations received specifically for the corpus (permanent endowment) of the organisation are treated under Section 339 and are not included in Regular Income. They remain fully exempt, provided the funds are invested in prescribed modes.

5.4 Capital Gains: An Important Change

Under the old Act, Section 11(1A) provided a specific exemption if an RNPO reinvested the proceeds from selling a capital asset into another capital asset. This provision has been omitted in the new Act as it was considered redundant under the new drafting principles. The fundamental treatment of capital gains within the overall 85% application framework remains intact.

6. Commercial Activities: The 20% Rule (Sections 342–345)

Many charitable organisations earn some income through fee-based services or commercial activities — for example, a hospital charging consultation fees, or a school charging tuition fees. The new Act addresses this in Sections 342 to 345 with clear rules.

The 20% Limit: An RNPO's receipts from commercial activities must not exceed 20% of its total receipts in a given Tax Year. If commercial receipts exceed 20%, the organisation loses its exemption for that financial year on the entire income, not just the commercial portion.

•        Commercial activity is defined in Section 355(e) as any activity in the nature of trade, commerce, or business, or rendering any service in relation to trade/commerce for a fee or consideration.

•        The limit is calculated on total receipts, not total income.

•        Activities that are genuinely incidental to the charitable purpose — and earn minimal commercial income — are generally not affected.

Example: A hospital (RNPO) receiving ₹80 lakh from charitable operations and ₹15 lakh from private billing for cosmetic procedures. Total receipts = ₹95 lakh. Commercial receipts = ₹15 lakh = 15.8% — within the 20% limit. Exemption is safe.

7. Violations and Consequences: What Could Cost You Your Exemption

The new Act is stricter and more explicit about what counts as a violation. Seven specific situations can lead to cancellation of registration or heavy taxes. Every trustee and NGO manager must be aware of these:

The Exit Tax under Section 338 is particularly significant. If your organisation's registration is cancelled, or if it converts to a non-charitable entity, a tax of 30% is levied on the 'accreted income' — which is essentially the net worth (fair market value of assets minus liabilities) of the organisation. This prevents misuse of tax-free wealth accumulated over years.

8. Annual Compliance Requirements for RNPOs

The compliance framework has been tightened. Here is a complete overview of what every RNPO must do:

Important: Audit by a Chartered Accountant is mandatory if the total income of the RNPO exceeds the basic exemption limit before claiming the benefit of exemption. The audit ensures that the 85% application rule is satisfied and all compliance requirements are met.

9. Section Mapping: Old Act (1961) vs. New Act (2025)

For professionals and organisations transitioning from the old to the new Act, here is a comprehensive mapping of the key provisions:

10. Key Changes at a Glance: Old Act vs. New Act

11. Action Checklist: What Your Organisation Should Do Before 1st April 2026

The Income Tax Act, 2025 is already in effect from 1st April 2026. If your organisation is a charitable trust, NGO, hospital, school, or religious institution, here is what you need to do right now:

•        Check your existing registration status: Verify the expiry date of your Section 12AB / 10(23C) registration.

•        No fresh application needed if valid: If your registration is still valid, you automatically become an RNPO. No action required until renewal.

•        If renewal is due: File Form 10AB at least 6 months before expiry. Small trusts (income ≤ ₹5 crore) can get 10-year validity.

•        Renew 80G separately: File under Section 354. Validity is always 5 years — renew separately from RNPO registration.

•        Review commercial activity: Ensure your commercial receipts do not exceed 20% of total receipts.

•        Apply the 85% rule: Ensure at least 85% of regular income is applied for charitable purposes each Tax Year.

•        Maintain donor records: Especially important for 80G deduction claims by donors.

•        Get your accounts audited by a CA: Mandatory for most organisations and essential for claiming exemption.

•        Consult your CA: The transition to the new Act involves structural changes — professional guidance ensures no compliance gaps.

Reminder: Anonymous donations above 5% of total donations attract 30% tax. Ensure your donation management process is robust enough to track donor identities for all significant contributions.

12. Conclusion

The Income Tax Act, 2025 brings long-overdue clarity to one of the most complex areas of Indian tax law. By consolidating all charitable trust provisions into a single chapter with just 24 sections (332–355), the government has made it significantly easier for genuine non-profit organisations to understand and comply with their tax obligations.

The fundamental principles — purpose test, 85% application rule, prohibition on private benefit — remain untouched. What has changed is the language, structure, and accessibility of the law. For the approximately 2.5 lakh organisations that file returns under this framework, the new Act is a welcome step forward.

At Himanshu Majithiya & Co., we assist charitable trusts, NGOs, societies, and Section 8 companies across India with all aspects of RNPO registration, income tax compliance, audit, and 80G certification. If your organisation needs guidance on navigating the new Act, we are here to help.

About the Author

This blog has been authored by Himanshu Majithiya & Co., Chartered Accountants, Ahmedabad. The firm provides comprehensive services in Income Tax, GST, Company Audit, ROC Compliance, FFMC Compliance (RBI), and AI & Workflow Automation. For queries, contact us at info@himanshumajithiya.com or +91 98795 03465.

Disclaimer: This blog is for educational and informational purposes only. It does not constitute legal, tax, or professional advice. Readers should consult a qualified Chartered Accountant or tax professional before taking any action based on this article. This content has been developed in compliance with the Guidelines for Members of the Institute of Chartered Accountants of India (ICAI).