Introduction

The Income-tax Act, 2025 has introduced a framework for classifying the income of registered non-profit organizations. For the purpose of calculating income tax payable, income is classified into three categories—Regular Income, Specified Income, and Residual Income. This classification is made after the determination of income of the organization and forms the basis for computation of tax under section 334.

As per section 334 of the Act, income-tax payable by a registered non-profit organization on its total income for any tax year shall be the aggregate of the amounts calculated:

1. at the rate of 30% on Specified income for such tax year; and
2. at the rate applicable on taxable Regular income and any Residual income for such tax year under other provisions of this Act.

Regular Income constitutes the primary category eligible for application and accumulation. Specified Income arises upon the occurrence of defined statutory violations and is subject to tax at 30%. Residual Income represents the balance income not falling within the other categories and is taxed under general provisions.

Regular Income

Regular Income is the primary category of income of a registered non-profit organization and is defined under section 335, which includes:

1. Income from charitable or religious activities for which the organization is registered.
2. Income (other than permissible business income) derived from property, deposits or investments held wholly or partly for charitable or religious purposes.
3. Voluntary contributions received by the organization.
4. Gains from permissible commercial activities.

Specified Income

Specified Income represents income that becomes subject to higher rate of ta, i.e. 30%, on account of specified non-compliances or violations under the Act, which includes:

1. Anonymous donations beyond the permissible limit.
2. Income applied for the benefit of related persons.
3. Income applied outside India in violation to the provisions of section 338(a).
4. Investment or deposit made in contravention to the provisions of section 350.
5. Deemed corpus donations in respect of which the conditions under section 340 are violated.
6. Accumulated income u/s.342 that:

• Is applied for purposes other than those for which it was accumulated,
• ceases to be accumulated or set apart for application to such purposes,
• is not applied within the period for which it was accumulated or set apart, or
• is credited or paid to any other registered non-profit organization.

7. Income applied for purposes other than the charitable or religious purposes for which the organization is registered.
8. Income determined under section 344 in excess of that recorded in the books of account.
1. Fair market value of assets not held in the prescribed modes within the prescribed period.
10. Any deemed application u/s 341(5) not actually applied within the period specified in section 341(6)

Residual Income

Residual Income refers to income that does not fall within the categories of Regular Income or Specified Income. Under section 334, such income is taxable at the rate applicable under the other provisions of the Act.