The Income Tax Bill 2025-Key features for NPOs

General
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The key features of Income Tax Bill 2025 for not for profits are summarized below:

  1. Unified Definition for Nonprofit Organizations: The Bill introduces the term “Registered Nonprofit Organization” (Registered NPO) as a unified definition for all charitable entities.

  2. Consolidation of Provisions for NPOs into a Single Chapter: The bill consolidates all NPO-related tax provisions into a single chapter, Chapter 17B (Sections 332-355). This chapter is divided into seven structured subparts, covering:
    a. Registration – Application timelines, conditions for approval, and validity of registration.
    b. Income Computation – Rules regarding taxability and accumulation of income.
    c. Commercial Activities – Limitations on NPOs engaging in profit-generating activities.
    d. Compliance Requirements – Filing of tax returns, audit requirements, and disclosures.
    e. Penalties and Violations – Consequences for non-compliance.
    f. Deductions under Section 80G – Regulations governing tax deductions on donations to NPOs.
    g. Interpretation – Definitions and explanations of key terms used in the chapter.

  3. Improved Readability: One of the most practical improvements in the new bill is the use of tables and structured provisions to improve readability.

  4. Changes in Taxability and Compliance Requirements: Under the current tax law, provisions related to the taxability of NPOs’ income are spread across multiple sections, such as:

  • Section 115BBC – Taxability of anonymous donations.
  • Section 115BBI – Taxability of certain specified income etc.
    The Bill consolidates these provisions under a single framework.
  1. Simplified Application of Income Provisions: The Existing Section 11 provisions regarding the application of income are complex due to multiple explanations and cross-references. The new bill consolidates all application-related provisions in one section, making it easier to determine:
  • What qualifies as an eligible application of income.
  • The conditions required for the application of income to be tax-exempt.
  • Treatment of funds applied from capital corpus and their replenishment.

  1. Elimination of Deemed Application Concept: The new bill removes the deemed application concept for shortfall in 85% application out of income

  2. Enhanced Accumulation Provisions: The five-year accumulation rule remains, but the new bill eliminates restrictions on the purpose of accumulation. Nonprofits can now accumulate funds for any objective within their registered mandate, simplifying compliance requirements.

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