Introduction

While Sections 332 to 342 provide tax exemptions to income earned by the registered non-profit organizations, these benefits are not unconditional. Section 351 outlines the specific scenarios where these exemptions can be denied. In essence, it acts as a check on misuse or deviation from the core charitable or religious purposes.

Non-availability of Exemption as per section 351

Section 351 lays down the general condition under which the registered non-profit organization loses its tax -exempt status, which are as under:

1. 1. Where any income of the registered non-profit organisation has been applied, other than for its objects.
   2. It carries out any commercial activity in contravention of the provisions relating to permissible commercial activities.
   3. Income from Private Religious Trust – An trust/organization created solely for a private religious purpose such as family rituals, where the general public is not allowed, will not get tax exemption. Only public religious purposes are eligible.
   4. Income for the Benefit of a Particular Religious Community or Caste - If an organization helps only one religious community or caste, it will not get tax exemption. The law requires charitable activities to be inclusive and open to the general public.
   5. If any activity being carried out by the registered non-profit organisation is not genuine or is not being carried out in accordance with the conditions of registration.
   6. Where the organisation has not complied with requirements of any other law and such non-compliance has attained finality.
   7. Where the application for registration contains any false or incorrect information.

Other condition for Non-availability of Exemption

• Investment in Prohibited Modes – Non-profit organizations must invest their money only in safe, government-approved instruments. If they invest in risky assets like shares (other than those allowed) or real estate not permitted by law, they lose the exemption. Moreover, the funds are to be invested in the modes specified u/s 350.
• Income Used for Related Person – Non-profit organizations are not allowed to use their income or assets to benefit certain people closely connected to the organization, i.e. related persons. These include the founder, trustees, their relatives and others who may have a personal or financial interest in the organization. If any such person receives a direct or indirect benefit like free use of organization property, personal payments from organization’s income, or business favours, the exemption is lost. Further, such income applied for the benefit of a related person is categorised as specified income as per section 337 of the Act and shall be liable for tax at higher rate of 30% in the hands of the registered Non-profit organization.