Section 354 of the Income Tax Act, 2025 establishes a new, streamlined approval route for non-profit organisations seeking tax-deductible donations, marking a departure from the previous framework and increasing regulatory oversight.
Section 354 of the Income Tax Act, 2025 sets out the approval route for registered non-profit organisations that want to receive donations eligible for tax deduction under Section 133(1)(b)(ii). The new regime separates the donor’s deduction from the charity’s approval, a change from the older Income-tax Act, 1961 framework in which Section 80G handled both sides of the process. Official text published by the Income Tax Department confirms that the provision applies to a registered non-profit organisation or a person listed in Schedule VII, Table Sl. No. 1, and that applications must be made in the prescribed form to the Principal Commissioner or Commissioner.
To qualify, an organisation must not be set up for the benefit of any particular religious community or caste, must be established in India for a charitable purpose and must keep religious spending within 5% of total income in the relevant tax year. The law also requires regular books of account, with records that clearly show receipts, donations, expenditure, assets and liabilities. Guidance published by the department further notes that approved bodies must issue donor certificates and maintain the reporting needed to support tax-deductible contributions.
The approval process now distinguishes between new organisations and those with an operating history. Where activities have not yet started, an applicant can seek provisional approval, while organisations that have begun work, are converting from provisional status or are renewing an existing approval use the regular route. Industry summaries of the section say provisional approval is generally granted for 3 tax years, while regular approval usually runs for 5 tax years. Ebizfiling’s guide says the relevant forms have been renumbered as Form 104 for provisional approval and Form 105 for regular approval or renewal, with the department issuing orders in Form 106 and Form 107 respectively.
Timing matters. According to the published guidance, an organisation whose activities have not commenced may apply at any time during the tax year from which approval is sought. If activities begin after provisional approval, the body must move to regular approval within 6 months of commencement. Where a provisional or regular approval is nearing expiry, renewal should be filed at least 6 months before the end date. The department may ask for documents, explanations and financial records, and it can examine whether the charity’s objects, funding and actual activities remain consistent with the approval conditions.
The compliance burden does not end once approval is granted. Approved organisations must continue to file donation statements, correct errors where necessary and provide donor certificates within the prescribed period. They also need to preserve evidence of charitable use, watch the 5% ceiling on religious expenditure and respond promptly to departmental notices. The point of the new structure is straightforward: it aims to keep the approval of non-profits under tighter administrative control while preserving the tax benefit for donors who contribute to qualifying organisations.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
