Incidental Commercial Activities

Incidental Commercial Activities (Section 345) 

Section 345 of the Income Tax Act, 2025, deals with the taxability of business income of an NPO. While trusts are generally eligible for exemption under Section 332, business income is an exception unless specific conditions are met. This provision is introduced to prevent the misuse of charitable status by NPOs running commercial businesses, while still allowing legitimate business activities that support the organization’s objectives.

Income from a business carried on by a trust shall not be eligible for exemption under Section 345(other than charitable organizations carrying out advancement of any other object of general public utility under section 346) unless:

• The business is incidental to the attainment of the objectives of the organization. In other words, the business should help in furthering the charitable or religious purpose of the organization; and
• Separate books of account are maintained for such business. In other words, the organization must keep distinct records for the business activity to ensure transparency and auditability.

Meaning of "Incidental to Objectives" 

A business is considered incidental to the objectives when it is closely connected with and accommodating to the main charitable purpose.

Examples of Incidental Business 

• A school trust running a bookshop or stationery store for students.
• A hospital trust operating a pharmacy or diagnostic lab.
• A religious trust selling religious books or artefacts.

Examples of Non- Incidental Business 

• A hospital trust operating a commercial catering service for external clients.
• A charitable trust running a shopping complex or multiplex.