India’s 2026 Non-Profit Tax Rules: A New Framework for Registered Non-Profit Organisations

India has updated its tax laws for charitable trusts and other non-profit organizations with the introduction of the Income-tax Act, 2025. This new legislation consolidates various older provisions into a single, streamlined framework for Registered Non-Profit Organisations (RNPOs). The change aims to simplify how organizations, donors, and international supporters navigate registration, tax exemptions, and compliance requirements. While the terminology and structure have been updated, the core principles of charitable work, income application, and avoiding private benefit remain in place.

Previously, non-profits operated under a scattered set of rules across different sections of the Income-tax Act, 1961. These included sections like 11, 12, 12A, 12AA, 12AB, 13, 10(23C), 80G, 115BBC, and 115TD. The Income-tax Act, 2025, reorganizes these into a more cohesive chapter, creating a clearer path for registration and operation. However, organizations must still meet specific criteria to qualify for tax-exempt status, ensuring their income is used for approved charitable purposes and that they maintain proper records.

Understanding Registered Non-Profit Organisation (RNPO) Status

The central concept in the new legislation is the Registered Non-Profit Organisation (RNPO). This category now encompasses public charitable trusts, registered societies, Section 8 companies, universities, educational institutions, government-funded bodies, and other eligible entities. The shift from labels like “12AB registration” or “80G approval” to the unified RNPO framework aims to provide a more structured approach. Despite the new terminology, the fundamental requirements for an organization to be considered charitable, religious, or otherwise eligible remain the same.

Registration Under Section 332

To gain the special tax treatment afforded to RNPOs, organizations must now register under Section 332 of the Income-tax Act, 2025. This section serves as the primary gateway for obtaining RNPO status. Eligible entities, including trusts, societies, and Section 8 companies, must submit an application in the prescribed format to the Principal Commissioner or Commissioner. For organizations already registered under the previous laws, it is important to determine if their existing registration is still valid, if renewal is necessary, or if a new application is required under the updated structure.

Donor Deductions Under Section 354

While RNPO registration is essential for the organization, it is distinct from a donor’s ability to claim a tax deduction. Under the new Act, the framework for donor deductions is linked to Section 133, with Section 354 providing the specific approval mechanism for institutions to issue qualifying receipts. This means that simply being registered as an RNPO does not automatically allow donors to claim deductions on their contributions. Individuals and entities, including Non-Resident Indians (NRIs) taxable in India, must verify that the organization holds specific approval for donor deductions under Section 354 if they intend to claim such benefits.

The compliance system includes updated forms for these processes. Form 104 is generally used for provisional registration or approval, while Form 105 is for regular registration or approval. Official guidance indicates that Form 105 is relevant for both Section 332 registration and Section 354 approval. New organizations may need to obtain provisional status before moving to regular status once they begin operations and meet certain conditions.

The 85% Income Application Rule

A key principle that continues under the Income-tax Act, 2025, is the requirement for organizations to apply at least 85% of their income towards their approved charitable objects. This rule applies to all income received, whether from donations, fees, hospital receipts, rent, or investments. If an institution fails to apply its income correctly or accumulates it beyond statutory conditions, it can face tax consequences. This requirement extends beyond simple record-keeping; organizations must be able to demonstrate how funds were used, why they were held, and whether any accumulations met legal requirements.

Navigating Commercial Activities

Many non-profits engage in activities that generate income, such as running schools, hospitals, or training centers. The new law, like its predecessor, requires careful examination of whether these activities are genuinely incidental to the charitable object or have become commercial in nature. Factors such as the use of surplus funds, the beneficiaries served, the pricing model, and the organization’s governing documents are scrutinized. A school or hospital, for instance, must maintain records proving that receipts were used for stated objects and that any surplus was reinvested into the institution’s approved purposes, rather than being diverted for private gain.

Donor Transparency and Foreign Contributions

Maintaining donor transparency remains a significant aspect of the tax framework. The new Act continues to emphasize the importance of donor records and traceability, particularly for organizations receiving numerous small contributions, such as temples, religious bodies, and public donation drives. Institutions need to keep detailed records of donor identities, issue proper receipts, note the mode of payment, and record the purpose of the donation.

Foreign donations introduce an additional layer of compliance. Funds received from NRIs or overseas sources may intersect with the Foreign Contribution (Regulation) Act (FCRA), banking regulations, and anti-money-laundering rules. RNPO registration alone does not authorize an organization to receive foreign contributions. Furthermore, tax approval under Indian law does not automatically guarantee tax benefits in the donor’s home country, as each nation has its own tax regulations.

Taxing Accrued Income and Governance

The Income-tax Act, 2025, carries forward the concept of taxing accrued income, previously covered under Section 115TD. This risk applies to organizations that convert to a non-eligible form, merge with a non-eligible entity, fail to transfer assets to another eligible organization upon dissolution, or lose their registration under specific legal circumstances. This provision is designed to prevent charitable assets, accumulated under tax-favored status, from being transferred to non-charitable or private entities. Trustees considering restructuring, mergers, or asset transfers must carefully assess the tax implications.

Governance arrangements also face scrutiny. NRIs serving as trustees, founders, or major donors must avoid structures that could be seen as conferring private benefit on related individuals, such as family members, associated entities, or controlled businesses. Existing institutions will need to review their registration status, donor approval, governing documents, accounts, audit reports, investment patterns, and filing history to ensure alignment with the new RNPO framework. Trust deeds and memoranda should clearly state charitable or religious objects, and activities must correspond to these objects.