Charitable Trust & NGO Taxation under the Income-tax Act, 2025 — Registration, 85% Application, 80G and Chapter XVII

Quick Answer

Under the Income-tax Act, 2025 (Act 30 of 2025), charitable and religious trusts are governed by Chapter XVII — Special Provisions Relating to Certain Persons, the successor framework to old Sections 10(23C), 11, 12, 12A, 12AB, 13 and 80G. The basic scheme is preserved: a registered non-profit organisation enjoys exemption from income tax provided it applies at least 85% of its income towards charitable or religious purposes, invests accumulated funds in specified modes, avoids benefit to prohibited persons, files audit reports in Form 10B / 10BB, and files ITR-7 by 31 October 2027 for tax year 2026-27. Donors claim deduction under the Section 80G equivalent — only under the old regime. The first tax year under the 2025 Act is tax year 2026-27.

Last Updated: 15 April 2026 | Applicable From: Tax Year 2026-27 (1 April 2026 onwards) | Reference: Income-tax Act, 2025 (30 of 2025), as amended by Finance Act, 2026

The Income-tax Act, 2025 received Presidential assent on 21 August 2025 and commenced on 1 April 2026. For India’s charitable trust and NGO sector, the new Act consolidates the dispersed provisions of the repealed 1961 Act into a single coherent chapter — Chapter XVII, Special Provisions Relating to Certain Persons. The framework has been linguistically simplified but remains substantively aligned with the trust regime that practitioners and auditors have worked with for decades. This guide is written for trustees, finance heads of NGOs, and chartered accountants auditing trusts. It walks through registration, the 85% application test, corpus and non-corpus donations, specified-mode investments, the anonymous donation regime, prohibited persons, audit and return filing obligations for the first full tax year under the new Act.

Definition — Registered Non-Profit Organisation (under the Income-tax Act, 2025): A trust, institution, society, company registered under Section 8 of the Companies Act 2013, or other entity established for charitable or religious purposes and registered with the Income Tax Department under the Section 12A / 12AB equivalent provisions of the 2025 Act. Chapter XVII governs the taxation of such entities, providing exemption from tax on income applied to charitable purposes subject to compliance with the 85% application rule, specified-mode investments, audit and return filing obligations.

Definition — Charitable Purpose: The 2025 Act carries forward the six-limb definition of charitable purpose from old Section 2(15) — relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility.

Featured Answer — What are the core compliance obligations of a charitable trust under the Income-tax Act, 2025?

Under Chapter XVII of the Income-tax Act, 2025, every registered non-profit organisation must (1) obtain and renew registration under the Section 12A / 12AB equivalent by filing Form 10A / 10AB; (2) apply at least 85% of income derived from property held under trust to charitable or religious purposes within the tax year, or formally accumulate the shortfall under the Section 11(2) equivalent for up to 5 years; (3) invest accumulated funds only in specified modes listed in the Section 11(5) equivalent; (4) avoid any application of income or property for the benefit of prohibited persons under the Section 13 equivalent; (5) get accounts audited in Form 10B (larger or foreign-contribution trusts) or Form 10BB (smaller trusts) at least one month before the return due date; (6) file ITR-7 by 31 October 2027 for tax year 2026-27; (7) report corpus donations, anonymous donations and transactions with interested persons; and (8) obtain a separate 80G approval to enable donor-side deductions. The framework is the same as under the 1961 Act, but drafted in simpler, consolidated form inside a single chapter.

Chapter XVII — The New Home of Trust Taxation
Registration under the 12A / 12AB Equivalent
The 85% Application of Income Rule
Accumulation under the Section 11(2) Equivalent
Corpus Donations, Non-Corpus Donations and Anonymous Donations
Prohibited Persons and Transactions
Specified Modes of Investment
Audit, ITR-7 and 80G Approval for Donors
Expert Insight
Key Takeaways
Frequently Asked Questions

Chapter XVII — The New Home of Trust Taxation

The Income-tax Act, 2025 consolidates the provisions relating to charitable trusts, religious institutions, political parties, research bodies, universities, news agencies and other specified persons into Chapter XVII — Special Provisions Relating to Certain Persons (sections roughly in the 400–442 range). The 1961 Act had scattered these provisions across Section 10(23C), Sections 11 to 13, Section 12A, 12AB, 80G and 115TD. The 2025 Act stitches them into a single chapter with one charging scheme, one application-of-income rule, one investment code, one anti-abuse list and one exit-tax regime. The objective is linguistic simplification and reduced cross-referencing; the substance is carried forward.

What is carried forward

The concept of a registered non-profit organisation enjoying exemption from tax on income applied to charitable purposes.
The 85% application rule and the 15% no-questions-asked accumulation.
Extended accumulation for up to 5 years by filing Form 10 under the Section 11(2) equivalent.
Corpus donation treatment as capital receipts outside income.
Anonymous donation tax at 30% flat (with the ₹1 lakh / 5% exemption).
The list of prohibited persons and the consequence of benefit to them.
The specified modes of investment (carried forward from old Section 11(5)).
Audit requirement and Form 10B / 10BB.
Return filing in ITR-7.
80G approval for donor-side deductions.
The exit tax on accreted income when a trust is converted / merged / dissolved, carried forward from old Section 115TD.

Registration under the 12A / 12AB Equivalent

Every trust seeking exemption under Chapter XVII of the 2025 Act must be registered with the Income Tax Department. The registration regime consolidates the old Section 12A / 12AB / 12AA provisions into a single, simplified framework with the following key features:

First-time registration: Application in Form 10A, filed online on the Income Tax e-filing portal.
Renewal and modification: Application in Form 10AB.
Provisional registration: Granted for 5 years on first application, to give new trusts time to commence activities.
Regular registration: Granted for 5 years, renewable thereafter, after verification of actual activities.
Processing: By the Principal Commissioner or Commissioner after verification of the trust deed, objects, activities and genuineness.
Re-registration: All existing trusts registered under the repealed 1961 Act were required to re-register under the unified regime during the transition window. Trusts that missed this window must apply afresh under the 2025 Act.

Registration is a necessary but not sufficient condition for exemption — the trust must also comply with the 85% application rule, the specified-mode investments, the prohibited-person restrictions, the audit and return filing obligations, and the reporting requirements. Failure on any of these can lead to forfeiture of exemption for the tax year, and in serious cases, to cancellation of registration.

The 85% Application of Income Rule

The cornerstone of the trust regime is the 85% application of income test:

Worked Example — 85% application test: A registered NGO’s income for tax year 2026-27 is ₹1 crore, comprising ₹80 lakh in voluntary contributions (non-corpus) and ₹20 lakh in interest on bank deposits. The NGO spends ₹70 lakh during the year on its charitable objects, ₹5 lakh on administrative costs connected with its charitable activities (allowed as application), and ₹5 lakh on corpus asset purchase (allowed as application). Total application: ₹80 lakh. The 85% threshold on ₹1 crore is ₹85 lakh. The shortfall is ₹5 lakh. The NGO can either (a) accumulate the ₹5 lakh by filing Form 10 under the Section 11(2) equivalent before the return due date and investing in specified modes, or (b) accumulate up to 15% unconditionally under the Section 11(1) equivalent — but the unconditional 15% is ₹15 lakh, which is already beyond the ₹5 lakh shortfall. So the ₹5 lakh is absorbed within the 15% cushion and no separate accumulation filing is needed.

Key points on the 85% rule:

Application means actual expenditure on charitable objects during the tax year, including capital expenditure (e.g., building a school, buying ambulances), revenue expenditure (e.g., salaries, rent, stipends), and direct programmatic costs.
Donations to other registered trusts (with the same or similar objects) count as application — subject to restrictions on inter-trust donations introduced in the Finance Acts and carried forward.
Corpus donations received do NOT form part of income and are not included in the 85% test.
Capital gains are eligible for exemption where the net consideration is reinvested in another capital asset held by the trust for charitable purposes.
TDS / input taxes paid during the year are treated as application in the year of payment.

Accumulation under the Section 11(2) Equivalent

Where a trust cannot apply 85% of its income in the tax year, the 2025 Act preserves the extended accumulation facility from old Section 11(2). Conditions:

The trust must file a Form 10 notice of accumulation before the due date of the income tax return.
The purpose of accumulation must be specific and linked to the charitable objects (e.g., “construction of a school building”).
The accumulation period cannot exceed 5 years.
The accumulated amount must be invested in the specified modes listed in the Section 11(5) equivalent.
If the accumulated amount is not applied for the specified purpose within 5 years, it is taxed as income of the tax year immediately following the expiry of the 5-year period.
Change of purpose of accumulation is permitted only with the Assessing Officer’s approval under specific conditions.

Corpus Donations, Non-Corpus Donations and Anonymous Donations

Type of Donation	Treatment	Tax Impact
Corpus donation (with written direction)	Capital receipt; not income	No 85% test; must be invested in specified modes; can only be applied to charitable objects after being re-added to income
Non-corpus voluntary contribution	Revenue income of the trust	Subject to 85% application test
Anonymous donation — purely charitable trust	Taxed at flat 30%	Exemption for higher of ₹1 lakh or 5% of total donations; excess taxed at 30%
Anonymous donation — wholly religious trust	Exempt from the 30% flat tax	Subject to normal 85% test as income
Foreign contribution (FCRA)	Income subject to FCRA rules in addition	Cannot be treated as corpus unless donor’s direction is clear and FCRA permits

Corpus restrictions carried forward: the 2025 Act continues the position that corpus funds cannot be applied directly to charitable objects as “application” — if the trust dips into corpus for programmatic spending, the corresponding amount must first be re-treated as income of the trust. This is designed to prevent trusts from circumventing the 85% test by repeatedly reclassifying donations as corpus and then spending them.

Prohibited Persons and Transactions

The Section 13 equivalent of the Income-tax Act, 2025 lists persons who cannot derive any benefit — direct or indirect — from the income or property of the trust. The list includes:

The author or founder of the trust
Any person who has made a substantial contribution (above ₹50,000 in a tax year or above a specified cumulative amount)
Any relative of the author or substantial contributor — spouse, brother, sister, parent, lineal ascendant or descendant
Any member, trustee or manager of the trust
Any concern in which any of the above persons has a substantial interest (above 20% equity / profit share)

Where the trust applies any part of its income or property for the direct or indirect benefit of a prohibited person — including by giving a loan, renting property at below-market rent, paying unreasonable remuneration, selling property at an under-value, or allowing personal use of trust assets — the trust forfeits exemption for that entire tax year. The forfeited income is taxed at the maximum marginal rate. Repeated or serious breaches can also trigger cancellation of registration and the exit tax on accreted income.

Specified Modes of Investment

Trust funds (including accumulated funds and corpus) must be held in one or more of the specified investment modes listed in the Section 11(5) equivalent of the 2025 Act. Permitted modes include:

Government securities (Central and State Government bonds)
Deposits with scheduled banks and specified cooperative banks
Post office savings deposits
Deposits with specified public financial institutions
Units of mutual funds covered under specific clauses
Public sector company bonds and debentures
Immovable property
Deposits with specified cooperative societies engaged in providing long-term finance for industrial development

Investment outside these modes — e.g., in private company equity shares, private company debentures, unsecured loans to third parties, or real estate intermediaries — is not permitted. Any such investment is treated as a breach and the income attributable to the non-specified investment is taxed at the maximum marginal rate. Existing investments inherited from pre-commencement dates must be transferred to specified modes within the transitional window provided by the 2025 Act.

Audit, ITR-7 and 80G Approval for Donors

Audit requirement

Every registered trust with total income (before claiming exemption) exceeding the basic exemption limit must get accounts audited by a chartered accountant. Two forms:

Form 10B — applies to trusts with gross receipts above ₹5 crore in the tax year, or any trust that has foreign contribution receipts, or trusts with any income from operations outside India. Form 10B is a more detailed audit report with extended annexures.
Form 10BB — applies to smaller trusts that do not fall within Form 10B criteria. Simpler annexures.

The audit report must be filed at least one month before the due date of the income tax return. For tax year 2026-27, the audit report must be filed by 30 September 2027 and the ITR-7 by 31 October 2027.

ITR-7 and due dates

Charitable trusts file ITR-7 under the Income-tax Act, 2025. The return captures:

Corpus and non-corpus voluntary contributions
Anonymous donations and the 30% computation
Application of income (both revenue and capital application)
Accumulation under Section 11(1) and Section 11(2) equivalents
Specified-mode investment register
Transactions with interested / prohibited persons
Foreign contribution details where applicable
Details of the activities carried out during the year against the registered objects

Due date for tax year 2026-27: 31 October 2027 (trust is treated as an audit case). Belated return until 31 December 2027. The trust is also subject to the updated return facility under the 2025 Act, which allows an updated return within 48 months from the end of the tax year on payment of additional tax ranging from 25% to 70% depending on the year.

80G approval for donor-side deductions

Approval under the Section 80G equivalent of the Income-tax Act, 2025 is separate from 12A registration. The trust applies in Form 10A / 10AB on the e-filing portal. Initial approval is provisional for 3 years and can be made regular for 5 years thereafter, renewable. Once approved:

Donors receive a 50% or 100% deduction, depending on the category of the institution.
The trust must issue an 80G certificate / receipt at the time of donation.
The trust must file a donation statement (Form 10BD) annually reporting all donors with PAN and donation amounts. A mismatch between Form 10BD and the donor’s ITR can trigger departmental notices to either side.
Regime interaction: Under the 2025 Act, donors can claim the 80G deduction only if they opt for the old regime. The default new regime does not permit 80G — this has reduced the donor-side incentive and is a major factor NGO fundraising teams should build into their donor communications for tax year 2026-27.

Expert Insight

CA V. Viswanathan: The move from the 1961 Act’s dispersed trust provisions into Chapter XVII of the Income-tax Act, 2025 is a net positive for the sector — the rules are now in one place and easier to read. But the underlying compliance burden is unchanged, and in some respects more intense in the first year of the new Act. In our Virtual Auditor trust practice, I am flagging three issues for every NGO board for tax year 2026-27. First, the donor-side 80G deduction is available only under the old regime. Since the new regime is now the default, most salaried donors lose the 80G benefit unless they actively opt for the old regime — which they are unlikely to do for a small donation. NGO fundraising teams should reframe the donor value proposition around impact and community standing rather than tax savings. Second, the anonymous donations tax at 30% remains a live risk, particularly for temple trusts, gurdwara trusts and religious institutions that operate mixed religious-cum-charitable activities. The distinction between “wholly religious” and “religious-cum-charitable” is critical — and gets tested during assessment. I recommend that every religious trust with meaningful anonymous collection install a donor identification protocol at the hundi / collection box, with a minimum record of name and address for donations above ₹2,000. Third, the specified-mode investment restriction continues to trip up trusts that inherit legacy equity holdings, private-company debentures, or informal loans. Every trust should run an annual investment register reconciliation and dispose of non-specified holdings within the year of identification. For new trusts applying for 12A / 12AB, I recommend budgeting a realistic 4-6 months from application to provisional registration, with another 6-8 months for 80G approval. Start early, and always apply for 12A and 80G together.

Key Takeaways

Charitable trust taxation under the Income-tax Act, 2025 is governed by Chapter XVII — Special Provisions Relating to Certain Persons.
Every trust must be registered in Form 10A / 10AB to claim exemption; provisional registration is for 5 years.
The 85% application rule is the core compliance test — 15% can be unconditionally accumulated.
Extended accumulation up to 5 years is possible by filing Form 10 under the Section 11(2) equivalent.
Corpus donations are capital receipts outside the income base.
Anonymous donations above ₹1 lakh / 5% are taxed at 30% flat for purely charitable trusts.
Prohibited persons under the Section 13 equivalent cannot derive any benefit — breach leads to loss of exemption for the tax year.
Trust funds must be held only in specified modes listed in the Section 11(5) equivalent.
Audit is mandatory in Form 10B (larger / FCRA trusts) or Form 10BB (smaller trusts), filed one month before the return.
ITR-7 for tax year 2026-27 is due on 31 October 2027.
80G donor deduction is available only under the old regime under the 2025 Act — a significant change for donor communications.

Frequently Asked Questions

How does the Income-tax Act, 2025 treat charitable trusts?

The 2025 Act houses trust taxation in Chapter XVII — Special Provisions Relating to Certain Persons. The basic scheme is preserved: registered trusts are exempt if they apply at least 85% of income to charitable purposes, invest accumulated funds in specified modes, and comply with audit and return filing obligations. The first tax year under the new framework is 2026-27.

What is the 85% application of income rule?

A registered trust must apply at least 85% of its income to charitable or religious purposes during the tax year. The remaining 15% can be accumulated unconditionally. Any further shortfall must be accumulated under the Section 11(2) equivalent for up to 5 years by filing Form 10.

How does a trust get registered under the 2025 Act?

Application in Form 10A (first-time) or Form 10AB (renewal / modification), filed online on the Income Tax e-filing portal. Provisional registration is granted for 5 years; regular registration for a further 5 years is granted after verification of actual activities.

What is 80G approval and how does it benefit donors?

80G approval allows donors to claim a 50% or 100% deduction. It is separately applied for in Form 10A / 10AB. Under the 2025 Act, the donor’s 80G deduction is available only under the old regime — the default new regime does not permit it.

What is the difference between corpus and non-corpus donations?

Corpus donations (with written direction from the donor) are treated as capital receipts and are NOT included in the 85% test. Non-corpus voluntary contributions are income and subject to the 85% application rule. Corpus funds cannot be directly applied to charitable objects without being first re-treated as income.

How are anonymous donations taxed?

Anonymous donations are taxed at flat 30%, with a limited exemption for the higher of ₹1 lakh or 5% of total donations. Wholly religious trusts are exempt from this tax. The 2025 Act continues this treatment from old Section 115BBC.

What is the audit requirement?

Every trust with total income exceeding the basic exemption limit must audit accounts in Form 10B (larger / FCRA trusts) or Form 10BB (smaller trusts). The report must be filed at least one month before the ITR due date. For tax year 2026-27, audit report is due by 30 September 2027.

Which ITR form does a charitable trust file?

Registered charitable trusts file ITR-7 under the 2025 Act. Due date for tax year 2026-27 is 31 October 2027. Belated return until 31 December 2027.

Who are the prohibited persons under the 2025 Act?

The list includes the author / founder, any substantial contributor (above ₹50,000 in a tax year), their relatives, trustees and managers, and any concern in which any of them has a substantial interest. Any benefit to these persons triggers forfeiture of exemption at the maximum marginal rate.

What are the specified modes of investment?

Government securities, scheduled bank deposits, post office deposits, specified PFI deposits, specified mutual fund units, public sector company bonds, immovable property. The 2025 Act carries forward the list from old Section 11(5). Non-specified investments trigger taxation of the related income at the maximum marginal rate.

Can a trust carry on business activities?

Yes, but only if the business is incidental to the attainment of the charitable objects and separate books of account are maintained. Non-incidental business income is taxed at the maximum marginal rate.

What happens if the 85% application rule is breached?

The shortfall is taxed unless (a) accumulated under the Section 11(2) equivalent by filing Form 10 and investing in specified modes, or (b) attributable to income not received in the tax year, or (c) otherwise explained. Failure on all counts leads to taxation of the shortfall.

Does the trust lose exemption if registration is cancelled?

Yes. Cancellation triggers loss of exemption for the tax year of cancellation and exposes accreted income to the exit tax at the maximum marginal rate under the 2025 Act equivalent of old Section 115TD.

How much does 12A / 80G registration assistance cost at Virtual Auditor?

12A / 12AB registration: ₹25,000. 80G approval: ₹15,000 (with 12A). Combined 12A + 80G package: ₹30,000. Annual ITR-7 and audit (Form 10B/10BB) filings start from ₹20,000 for smaller trusts. Contact CA V. Viswanathan at +91 99622 60333.

Virtual Auditor — AI-Powered CA & IBBI Registered Valuer Firm
Valuer: V. VISWANATHAN, FCA, ACS, CFE, IBBI/RV/03/2019/12333
Chennai (HQ): G-131, Phase III, Spencer Plaza, Anna Salai, Chennai 600002
Bangalore: 7th Floor, Mahalakshmi Chambers, 29, MG Road, Bangalore 560001
Mumbai: Workafella, Goregaon West, Mumbai 400062
Phone: +91 99622 60333 | Email: support@virtualauditor.in
Book a Free Consultation