India has over 3.3 lakh registered NGOs and trusts (per NITI Aayog 2025). While most people believe charitable organisations pay zero tax, the reality is far stricter after the Finance Acts of 2020–2024. Here’s exactly how income tax works for NGOs and charitable trusts.
Key Tax Exemptions Available to NGOs:
Most NGOs seek tax benefits under Sections 12A and 80G. These registrations reduce tax liability and build donor trust. Moreover, donors can claim tax deductions on eligible donations.
NGOs must apply through the Income Tax portal using Form 10A or 10AB. Once approved, they enjoy tax exemptions on income used for charitable purposes. According to an IBEF report, India’s social sector spending grew nearly 12% in FY2023, showing stronger compliance and reporting trends in the non-profit space. In addition, NGOs can receive corpus donations, which remain exempt when used as per donor instructions.
Essential Compliance Rules Under Indian Tax Laws:
Every NGO must maintain transparent accounts. Therefore, accurate books of accounts, audited statements, and timely filings are crucial. The law also requires that at least 85% of annual income be applied to charitable activities each financial year.
In addition, NGOs must file Form 10B or 10BB depending on their structure. These forms report how funds were used and whether the organisation followed its stated objectives. Non-compliance may lead to loss of exemption, making understanding income tax for NGOs and charitable trusts in India essential for all trustees.
Taxability of Donations, Grants, and Foreign Contributions:
NGOs receive funds from individuals, companies, and international agencies. Therefore, it is important to classify income correctly. Voluntary contributions are generally taxable unless they are corpus donations. Moreover, foreign grants require FCRA registration. The Ministry of Home Affairs monitors these flows to ensure transparency.
If an NGO earns income from events or asset rentals, such income is taxable unless directly linked to charitable work. Maintaining clear records helps avoid disputes.
Common Compliance Pitfalls and How to Avoid Them:
Many NGOs lose exemptions due to simple mistakes. For example, not filing the income tax return (ITR-7) on time can lead to penalties. In addition, mixing charitable and commercial income without proper accounting may trigger tax scrutiny.
Therefore, organizations should adopt consistent documentation practices. Maintaining minutes of meetings, activity reports, and audit trails helps during reviews. Moreover, NGOs should avo
Outbound transactions, foreign contributions, and grant utilization must follow regulatory standards set by authorities such as SEBI and the Ministry of Home Affairs. Following these rules protects the organization’s reputation and ensures long-term impact.id cash transactions above prescribed limits, as these can raise compliance flags.
Conclusion:
Income tax for NGOs and charitable trusts in India may seem complex. However, with proper planning and timely compliance, organisations can maximise exemptions and support their mission effectively. Stay registered, spend 85%, file on time, and keep charity truly charitable.
– Ketaki Dandekar (Team Arthology)
Read more about Income Tax for NGOs and Charitable Trusts here – https://cleartax.in/charitable-trusts-ngo-tax-benefits