Charitable Trusts under the Income Tax Act, 2025: A Practitioner's Map of Part B of Chapter XVII (Sections 332 to 355)

This article covers the chapter where the change runs deepest: charitable trusts and not-for-profit entities, where the framework has been redrawn from scratch into a self-contained code at Part B of Chapter XVII.

1. Why has the trust framework been redrawn from scratch

Of all the chapters of the Income-tax Act, 2025, none has been reorganised as radically as the part of the Act governing not-for-profit entities. The old Act spread the framework across at least nine sections in multiple chapters - Section 11 on exemption, Section 12 on contributions, Sections 12A, 12AA and 12AB on registration, Section 13 on disqualifications, Section 10(23C) on educational and medical institutions, Section 80G on donor deduction, Section 115BBC on anonymous donations, and Section 115TD on accreted income with cross-references that even careful practitioners occasionally lost track of.

The 2025 Act consolidates the entire framework into a single part - Part B of Chapter XVII, running from Section 332 to Section 355 - recast as a self-contained code with the heading "Special provisions for registered non-profit organisation." The term "charitable trust or institution" itself is retired from the registration framework. Every entity that was a charitable trust, a religious institution, an educational institution covered by Section 10(23C), or a hospital is now collectively a Registered Non-Profit Organisation, abbreviated as an RNPO. This is not a label change; it is a paradigm shift: a single part, a single set of definitions, a single registration door, and a single income-classification framework that overrides the rest of the Act on most operative questions.

For the practitioner whose files include even one trust, this article should be a working map. The substance of the law has, in most places, been preserved. The architecture has not. Every reference and every internal noting on a trust file needs to be updated to the new numbering, and several substantive elements have been quietly altered in the consolidation. We work through the part section by section, with a sanitised case study at Section 11 below.

2. Part B of Chapter XVII as a self-contained code

Before walking the individual provisions, one structural point that frames everything else. Section 334(2) of the 2025 Act says: "The provisions of this Chapter shall apply irrespective of anything to the contrary contained in any other provision of this Act other than sections 96 to 98." Although the statutory wording uses the expression "this Chapter", the operative context for the present article is Part B of Chapter XVII, which contains the RNPO provisions. That single sub-section is the master key to Part B of Chapter XVII. Wherever any other section of the 2025 Act and a section within this part conflict, the latter prevails. The only exceptions are Sections 96 to 98, which deal with the General Anti-Avoidance Rule.

The practical implication is that, for most purposes, Part B of Chapter XVII is a closed legal universe. When a question arises - on the audit obligation of an RNPO, on the TDS applicability of an RNPO's payments, on the carry-forward of unabsorbed application of income - the first instinct must be to check whether Part B contains a self-contained rule. If it does, that rule prevails over the general provisions. This is a meaningful shift from the 1961 Act, where the trust provisions were embedded within the general scheme and read alongside, not above, it.

3. RNPO - The new unified terminology

Section 355 of the 2025 Act houses the definitions for Part B of Chapter XVII, and clause (g) carries one of the most consequential. A Registered Non-Profit Organisation is defined as any person having a valid registration under any "specified provision" whose registration has not been cancelled. The defined term "specified provision" sweeps in Sections 12A, 12AA and 12AB of the 1961 Act, Section 10(23C) of the 1961 Act, and Section 332 of the 2025 Act. The effect: every entity holding a valid, uncancelled registration or approval under any of those four provisions on 1 April 2026 is automatically an RNPO under the new Act, with no fresh application required at the moment of the cut-over. (Lapsed registrations do not revive automatically - for those, a fresh Section 332 application is necessary.)

What does the unified terminology actually replace? Under the 1961 Act, a Section 11 trust was conceptually distinct from a Section 10(23C) educational institution, which was distinct from a Section 10(23C) hospital, which was distinct from a Section 80G-approved fund. Each had its own application procedure, conditions, and reporting obligations. The 2025 Act unifies all of these into a single category - the RNPO - with a single registration regime under Section 332 and a single income-tax framework under Sections 334 to 337. The differences are now embedded in the conditions of registration, not in the conceptual category. The mental scaffold for trust work simplifies considerably.

The definition of "charitable purpose" itself has moved from Section 2(15) of the 1961 Act to Section 2(23) of the 2025 Act, substantially similar in wording and scope. Relief of the poor, education, yoga, medical relief, preservation of the environment, preservation of monuments, and the advancement of any other object of general public utility - the seven-fold definition, with the GPU proviso, has been carried over substantially intact. The 1961 Act jurisprudence on charitable purpose continues to travel.

4. Section 332 - The single registration door

Section 332 is the operative registration provision of Part B of Chapter XVII. It replaces Sections 12A, 12AA, 12AB and Section 10(23C) of the 1961 Act, all at once. Under the presently notified forms framework, Form 105 is used for regular registration / approval cases under Section 332(3) Sl. Nos. 2 to 7 and Section 354(2) Sl. Nos. 2 to 5, while provisional registration and provisional approval are dealt with separately through Form 104 under the present Department guidance for provisional cases. Applications are made to the Principal Commissioner or Commissioner. Section 332(3) sets out seven categories of application, numbered Sl. No. 1 to Sl. No. 7, covering everything from an entity that has not yet commenced charitable activities (the provisional registration route at Sl. No. 1) to renewals, restorations after switching out of the regime, and special-schedule categories.

Two practical points deserve emphasis. First, under the presently notified framework, provisional registration on a Sl. No. 1 application is to be granted within one month, and the inquiry at the provisional stage is narrower than at the regular registration stage. The exact procedural mechanics may be calibrated by subsequent Department guidance. Second, the validity of registration runs on a two-track rule: under the presently notified framework, Sl. No. 3 to Sl. No. 7 applications carry a default validity of five tax years, extended to ten tax years where the RNPO's total income did not exceed five crore rupees in each of the two preceding tax years. The relief is designed to reduce the compliance burden on smaller trusts, but the specific thresholds and validity periods are the kind of parameters that may be revisited.

The grant procedure under Section 332(7) is the familiar two-step that practitioners encountered under Section 12AB of the 1961 Act. The PCIT or CIT reviews the documents, may conduct inquiries to satisfy himself about the objects of the entity, the genuineness of its activities, and the entity's compliance with law, and then either grants registration or rejects by reasoned order. For Sl. Nos. 2 or 6, rejection is limited to the application before the authority. For Sl. Nos. 3, 4, 5 or 7, rejection of the application may also entail cancellation of any existing registration - the harsher consequence, because cancellation can import the accreted-income tax under Section 352, of which more in Section 8.

5. Section 333 - Switching to other exemption regimes

Section 333 is the bridge provision for the specific case where an RNPO moves into another exemption route under the specified Schedules - for instance, where the entity is notified into a Schedule III or Schedule VII category and elects to claim exemption under that route instead of through Part B of Chapter XVII. Where registration ceases to operate on account of such switching, the entity may seek to make registration operative again under Section 332, subject to the statutory conditions.

Section 333 should not be confused with objects-activity mismatch cases or with specified violations leading to cancellation, which are dealt with separately. Modification of objects falls within Section 332(3) Sl. No. 7; specified violations and cancellation are governed by Section 351; and the accreted-income consequence of cancellation flows from Section 352. Each of these is its own distinct pathway, and a careful practitioner will identify which provision actually applies before framing a reply or an appeal. Section 333 is a narrower switching provision than is sometimes assumed.

6. Sections 335 and 336 - Regular income and the 85% application rule

Section 335 defines the regular income of an RNPO. The definition picks up where Section 11 of the 1961 Act left off and articulates four heads: receipts from charitable or religious activity for which the RNPO is registered, capital and revenue receipts from property and investment held by the RNPO, voluntary contributions received during the tax year, and gains from commercial activity received in the tax year. The categorisation is more orderly than the old Section 11, but the substance - what counts as ordinary, recurring trust income - has been preserved.

Section 336 provides the taxable regular income, preserving the 85% application rule in substance: if 85% or more of the regular income of the tax year is applied or accumulated for the charitable or religious purpose for which the RNPO is registered (with accumulation following the conditions of Section 342), the taxable regular income is nil. If application falls short, the shortfall is the taxable regular income.

Three practical wrinkles for practitioners. First, the language has been tightened. Earlier debates around what counts as application - towards objects, towards administration, by inter-trust transfer, by way of repayment of corpus or borrowings, by way of depreciation, by way of excess application carried forward - have now been substantially codified in Section 341 itself, which expressly deals with the treatment of these items, along with corpus donations to another RNPO, deemed application, and capital-gains reinvestment. Practitioners should therefore begin with Section 341 directly rather than applying 1961-Act case law mechanically; the new statute supplies many of the answers that, under the old regime, depended on a line of judicial interpretation.

Second, deemed application - the device by which an RNPO is permitted to claim that income was deemed applied even though not actually applied - is preserved and codified in Section 341. Under the current procedural framework, the election is exercisable up to the income-tax return due date specified in Section 263(1), a relaxation from the pre-2026 two-month-prior election. Procedural timings may be calibrated by Rule. Third, the 85% threshold is unchanged in number but its measurement basis is now driven by Section 341 read with Sections 342 (accumulation) and 350 (permitted investment modes). The three pathways - application, accumulation, investment - are now statutorily structured rather than judicially constructed, and reading them together is the correct starting point for any computation.

7. Section 337 - Specified income and anonymous donations

Section 337 carries the most assessment risk for the trust client. It defines the categories of income that are taxed at the special rate of 30% under Section 334(1)(a) in the same tax year in which they arise - without the benefit of the 85% application rule. The categories include: anonymous donations above the monetary and percentage thresholds specified in the section (broadly similar to the earlier Section 115BBC limits - generally ₹1,00,000 or 5% of total donations, whichever is higher - with the religious-and-charitable-cum-religious carve-out for educational and medical institutions preserved); income applied directly or indirectly for the benefit of related persons under the disqualification provisions; income applied outside India contrary to Section 338(a); investments in modes outside those permitted by Section 350; deemed-corpus violations; accumulated income applied for a purpose other than the one for which it was accumulated, or credited or paid to another RNPO, or not utilised within the time limit prescribed under Section 342; income applied for purposes other than the objects for which registration is held; surplus assets that, on dissolution, are not transferred to another RNPO within twelve months; the fair market value of assets not converted into permitted investment modes within the prescribed period; deemed application that is not actually applied within the time prescribed under Section 341(6); and any income determined by the Assessing Officer in excess of that shown in the books under Section 344.

The 30% rate on specified income is a deliberate disincentive. The framework is designed to ensure that an RNPO that strays from its charitable mandate - even by accident, through poor record-keeping or a deficient investment policy - bears a real tax cost. The protection for the practitioner is to walk the client through Section 337 categories during the annual file review, particularly in the audit cycle for tax year 2026-27, and confirm that none of the trigger events has occurred unnoticed.

The anonymous donation category deserves particular attention. Under Section 355(a) read with Section 337, the line between a documented donation and an anonymous donation turns on whether the RNPO maintains records of the donor's identity, including name, address and such other particulars as may be prescribed. Absence of adequate donor particulars - even where the donor is informally known - can convert the donation into an anonymous donation for tax purposes. This is a documentation discipline issue and is among the most common errors caught in trust audits. The old jurisprudence on Section 115BBC carries forward; the documentation discipline travels unchanged.

8. Section 352 - Tax on accreted income

Section 352 carries forward, with substantial structural rewriting, the provisions of Section 115TD of the 1961 Act. It imposes a tax on accreted income, which the statute computes by an explicit formula: A = B – C, where B is the aggregate fair market value of the total assets of the specified person as on the specified date (computed in accordance with the prescribed method of valuation), and C is the total liability of the specified person as on that date (also computed in accordance with the prescribed method). The accreted income so computed is reduced by such amount as is attributable to specified assets and the related liabilities, where applicable, under Section 352(4). The triggering events on which the specified date is fixed include cancellation or withdrawal of registration, modification of objects inconsistent with the conditions of registration, failure to obtain renewal within prescribed time limits, conversion into a form ineligible for registration, merger with a non-qualifying entity, and dissolution where surplus assets are not transferred to another RNPO within twelve months. The tax rate is the maximum marginal rate. The legislation contemplates recovery from the specified person and, in specified cases, from responsible persons such as trustees or the principal officer, within the value of transferred assets.

For the practitioner, the central insight is preventive. The moment a registration is at risk of being cancelled - a Form 10AB-type proceeding, an unapproved objects modification, a missed renewal, or a switch to another exemption route having cessation consequences - Section 352 is the next provision to read. A cancellation does not merely strip future exemption; it crystallises a one-time tax computed on the difference between fair market value of assets and total liabilities, which can dwarf many years of forgone exemption combined. Defending the registration, applying for restoration where available, or planning an orderly transfer of assets to another RNPO are the alternative paths, and each requires Section 352 to be modelled before the path is chosen.

9. Sections 133 and 354 - The Section 80G split

Section 80G of the 1961 Act performed two distinct functions. It gave the donor a deduction from total income for donations made to approved institutions, and it provided the framework under which institutions could be approved to receive deductible donations in the first place. The 2025 Act splits these into two separate sections - an architectural improvement that requires CAs to remember two new numbers in place of one old one.

Section 133 of the 2025 Act is the donor-side provision. It replaces the substantive deduction rule of the old Section 80G. The four-category framework - 100% without limit, 100% with qualifying limit, 50% without limit, and 50% with qualifying limit - is preserved in substance, subject to any modifications notified in the schedules of eligible funds and institutions under the new Act. The ₹2,000 cash threshold is preserved. The compliance workflow has been refined: the institution files a Statement of Donations in Form 113, on the basis of which the donor's certificate is generated in Form 114 (replacing the older Form 10BE). For individuals, HUFs and other persons covered by Section 202 (the simplified default regime under the 2025 Act), the deduction will generally be unavailable because Chapter VIII deductions are excluded except for specified carve-outs; Section 133 falls within Chapter VIII. The deduction is therefore practically relevant where the assessee opts for the old regime or is otherwise not governed by the Section 202 exclusion.

Section 354 is the institution-side provision. Once registered as an RNPO under Section 332, the institution must additionally apply under Section 354 for approval to receive donations that qualify for the donor's Section 133 deduction. Registration under Section 332 makes an entity an RNPO; only Section 354 approval makes donations to it tax-deductible in the donor's hands. This two-stage process - Section 332 for registration as an RNPO, Section 354 for approval to receive deductible donations - replaces what was, under the old Act, an integrated Section 80G application route. The Rules, 2026 are expected, based on current draft practice, to permit parallel filing of both applications so that the practical experience for the trust is single-window. Until that harmonisation is complete, practitioners should ensure that both applications are in motion concurrently, not sequentially.

10. Transition - What continues, what needs filing

Section 355(m) read with Section 536(2) of the 2025 Act addresses the transition for entities holding registration under the old Act on 1 April 2026. The rule is straightforward and protective. Every entity holding a valid, uncancelled registration under Sections 12A, 12AA, 12AB or Section 10(23C) of the 1961 Act on the cut-over date is automatically treated as an RNPO under the new Act, with the existing registration certificate remaining valid until its original expiry date.

Three points need to be communicated to the client trust. First, the existing certificate continues but the regulatory framework around it has changed; compliance and reporting under tax year 2026-27 must follow Part B of Chapter XVII, not the old Section 11 framework. The 85% calculation, the deemed-application election, the investment modes, the specified-income categories - all now driven by the new sections. Second, at the original expiry, the renewal application will be filed under Section 332, with Form 105 and the new procedure. Third, the Section 80G approval (now Section 354) follows a parallel transition: existing approvals continue until expiry, after which renewal is under Section 354.

Where the old registration has already lapsed before 1 April 2026 - for instance, where the five-year validity expired in 2025 and the renewal application was either rejected or not filed - the entity does not automatically become an RNPO. It must apply afresh under Section 332. Until that application is approved, the entity is not entitled to RNPO exemption, and any income earned in the interim is taxable in accordance with the general provisions of the Act. Statutory relief by way of condonation of delay is available in specified delayed-application situations under the new provisions, but it is not a general remedy for every lapsed case and should not be assumed.

11. A Practitioner's Note: One Form 10AB Rejection, Sanitised

A registered trust in our practice received, in early 2026 - under the closing months of the 1961 Act regime - a rejection order on its Form 10AB applications for both Sections 12A and 80G. The rejections were passed by the Commissioner (Exemption) on a single date. Forms 36 have since been filed before the Income-tax Appellate Tribunal in respect of both, and the appeals are pending.

Distilled into its generic form, the Commissioner's reasoning illustrates the kind of fault lines that have caused Form 10AB rejections across many trusts. First, an inadequate response to a deficiency letter - where clarifications sought on the actual activities, the disposal of certain receipts, and the relationship with related parties were not satisfactorily answered. Second, an apparent inconsistency between the objects clause and the activities actually undertaken, raising doubt about whether the activities fell within Section 2(15) of the 1961 Act. Third, a documentation gap on a specific category of receipts that the Commissioner viewed as casting doubt on whether income was being applied in accordance with the objects.

The teaching points are practitioner-facing and, with the new regime now operative, are even more important than under the old. Section 332 of the new Act will face the same kinds of inquiry, because the substance of what the Commissioner tests - genuineness of activities, conformity with objects, application of income - is unchanged. The procedural and evidentiary discipline practitioners brought to Form 10AB must travel forward to Form 105 under the new regime. A response to a clarification letter is not a routine compliance step; it is the case for registration, and a perfunctory reply that fails to address the Commissioner's specific concerns is itself a ground for rejection. The case file at the application stage should anticipate the inquiries likely to be raised - related parties, use of premises, source and disposition of corpus contributions, alignment of activities with objects - and arm the applicant with documentary evidence on each, filed proactively.

One further point, peculiar to the new regime. Under the 1961 Act, a Form 10AB rejection in renewal categories typically cancelled registration and exposed the trust to Section 115TD. Under the 2025 Act, the equivalent rejection of a Section 332 application in Sl. Nos. 3, 4, 5 or 7 categories may, depending on the category and circumstances, cancel existing registration and trigger Section 352 - tax on accreted income, computed as fair market value of assets less total liabilities at the date of cancellation. Not every rejection will automatically cancel registration; the specific category and the terms of the order matter. But the structural risk is materially higher under the new Act than under the old, and case preparation discipline must scale up accordingly.

12. What every CA handling trust files should do this quarter

Reduced to a checklist, the practitioner's response to the transition is a sequence of nine moves. They are not exhaustive - every file calls for some judgment specific to its facts - but they form the foundation.

1. Compile a list of all trust clients with their current registration status. For each, note the registration provision under the 1961 Act (12A, 12AA, 12AB, 10(23C) sub-clause), the date of the existing certificate, and the date of expiry. This is the foundation document for the next twelve months of compliance work.

2. Diary the renewal dates. For trusts whose registration expires during tax year 2026-27 or 2027-28, the Form 105 renewal application under Section 332 will be the next big filing. Build a renewal calendar with at least three months' lead time before each expiry.

3. Reconfirm activity-objects alignment. Through Section 332(3) Sl. No. 7 in cases of objects modification, and through Section 351 in cases of specified violations, the Department has clear statutory handles to test whether actual activities are consistent with the deed. Section 333 should separately be kept in view where the entity has switched, or is contemplating switching, to another exemption route under the Schedules. Trusts that have drifted should be advised to formally update objects, or to scale activity back to the registered objects, before the next inquiry.

4. Audit the donation-receipt documentation discipline. Section 337 read with Section 355(a) carries the anonymous donation rule forward, and the line between a documented and an anonymous donation is whether the donor's name, address and such other particulars as may be prescribed are on the record. Every donation in the current tax year should be supported by name-and-address documentation before the audit closes.

5. Confirm the investment modes. Section 350 (read with Schedule XVI) governs permissible modes of investment for accumulated income and corpus. Investments in modes that do not satisfy Section 350 should be rebalanced before the tax year closes; an impermissible mode is a Section 337 trigger.

6. Plan the deemed-application election. Under the current procedural framework, the deadline runs up to the income-tax return due date specified in Section 263(1) - a relaxation that should be used wherever application falls short of 85% in a tax year. Build the election into the return-filing workflow rather than treating it as a fall-back.

7. Reconcile the 12A and 80G validity dates. The two approvals run on parallel but not identical tracks. A trust whose 12A is valid for another four years but whose 80G is due for renewal in twelve months needs to plan the 80G renewal under Section 354 separately.

8. Model the accreted-income exposure. For trusts whose registration is at any risk - pending rejection, lapsed renewal, threatened cancellation, contemplated objects modification - calculate the Section 352 exposure now (fair market value of assets less total liabilities at the relevant specified date). The number is sobering and is often the decisive factor in advising on whether to fight a cancellation, restore registration, or plan an orderly asset transfer.

9. Brief the trustees on the new vocabulary. Trustees who have, for years, referred to the trust as a "12A trust" or "80G institution" will need to be re-educated to the RNPO framework, the two-stage approval process, and the consequences of Sections 333, 351 and 352. This is a continuing professional education conversation, not a one-meeting briefing.

The checklist will not eliminate disputes. It will not prevent every Form 105 rejection or every Section 333 controversy. What it will do is ensure that, when a dispute arises, the trust's file is in a position to defend itself. Under the 1961 Act, many trust matters were lost because the application file was thin, the documentation discipline was weak, or the objects-activity drift had become too wide to defend at the rejection stage. The new Act, with its sharper architecture and its higher accreted-income stakes, will be even less forgiving.

13. The full mapping - Section by section

Part B of Chapter XVII is large, and only a working map fits in an article of this length. For the section-by-section concordance - covering Sections 332 through 355 of the 2025 Act with their 1961-Act equivalents, the corresponding Rules and prescribed forms under the Income-tax Rules, 2026, and the live CBDT circulars and clarifications affecting each section - practitioners are welcome to consult the free knowledge bank at itact2025.org. The site covers all 536 sections of the new Act, the Rules and prescribed forms, and a curated set of CBDT circulars and instructions, with backlinks between old and new numbering. It is free, ad-free, and intended as a working reference for the profession during the transition.

The pattern across the three articles in this series is the same: the substance of the law has, in most places, been preserved; the architecture has not. The work of the practitioner over the next year is to bring the file room and the head office up to the new architecture. The clients will need the help.

Disclaimer: This article is intended for professional education and general guidance. It is based on the Income-tax Act, 2025 as amended up to the Finance Act, 2026, the draft Income-tax Rules, 2026, and CBDT form and FAQ guidance available as on the date of writing. The Rules, prescribed forms and portal utilities are still being calibrated; readers should verify the final notified position before taking any filing or advisory action on specific facts.

About the author: CA Abhay Anant Shastri is a Fellow Chartered Accountant (FCA, M.No. BB 037158) and Senior Partner at M/s SSAM & Co., Chartered Accountants, Pune. He maintains itact2025.org, a free section-by-section knowledge bank on the Income-tax Act, 2025.