Approval Under Section 354

Registration Procedure

Introduction

Section 133(1)(b)(ii) of the Income Tax Act, 2025, provides tax deductions to donors who contribute to certain funds or charitable institutions. The objective is to encourage philanthropy and public welfare by offering a deduction from gross total income, subject to specified conditions. However, to ensure accountability, only those NPOs that are approved under Section 354 can offer this tax benefit to their donors.

Approval Procedure

The NPOs seeking approval under section 354 must comply with following provisions mentioned:

The organisation must not be established for the benefit of any particular religious community or caste, thereby ensuring that its activities are directed towards the public at large.
It must be established in India for charitable purposes, and any expenditure of a religious nature during a tax year must not exceed 5% of its total income, maintaining its primary character as a charitable entity.
The founding instrument or governing rules of the organisation must not permit, at any stage, the transfer or application of its assets for purposes other than charitable objectives.
The organisation is required to maintain proper and regular books of account reflecting its receipts and expenditure to ensure financial transparency.
It must prepare and furnish prescribed statements within the stipulated time, in the prescribed form and manner, to the relevant income-tax authority, ensuring timely and structured reporting.
In case of any errors or omissions in the filed statements, the organisation must submit correction statements for rectification, updation or modification of information, as prescribed.
The organisation is also required to issue a certificate to donors specifying the amount of donation and other prescribed particulars within the stipulated time, thereby enabling donors to claim eligible tax benefits.

The kind of approval, the applicable clause under which the approval is given, timeline to submit the form, type of the form to be filed for approval and validity of the obtained approval has been summarized below for the better understanding. The details are given in the table below:

Sl. No.	Type of Approval	Sl. no. of Table Under Section 354	Form to be Filed	Timeline to Apply	Validity of Approval
1	Renewal before expiry of 5-year registration	5	Form No. 105	At least 6 months prior to expiry of current registration	5 years
3	Provisional registration for new trusts (newly created institution)	1	Form No. 104	At any time during the tax year from which approval is sought.	3 years (Provisional)
4	Direct Regular Registration (where activity has already Commenced)	2	Form No. 105	At any time during the tax year from which approval is sought	5 years
5	Conversion of provisional to regular registration	3 & 4	Form No. 105	At least 6 months prior to expiry of provisional registration or within 6 months of commencement of activities, whichever is earlier.	5 years (Regular)

Mode of Payment

Only the monetary donations qualify for the deduction. In other words, no deduction is available for:

Donations in kind (e.g., food, clothes)

Cash donations more than Rs.2000 under section 133(5)

All other modes of payments such as cheque, Demand Draft, Electronic transfer and other banking channels are acceptable mode for receiving the donation.