Section 344Charitable Trusts & NPOswas IT Rules 2026 (Rule 182) in IT Act 1961

Business Undertaking Held as Property of an NPO

When a business undertaking is part of the trust's assets — typically received through a bequest or donation — Section 344 governs how income from that business is treated. Profits from business undertakings incidental to charitable objects can remain exempt; purely commercial unconnected businesses lose the exemption.

Who this applies to

Registered NPOs that hold or operate business undertakings as part of their trust corpus — typically received through inheritances, donations, or as part of their charitable objects.

Key Points

A charitable trust can hold a business undertaking only if it is not operated for profit as the primary goal
Profits from business undertakings incidental to charitable activity are included in regular income and eligible for exemption
If the business is incidental to the main charitable activity (e.g., a hospital's pharmacy), profits are fully eligible for exemption
If the business is purely commercial and unconnected to charitable objects, it loses exempt status
Separate books of accounts must be maintained for each business undertaking

Worked Example

Hospital Trust Operating an In-House Pharmacy

Scenario

Healing Hearts Charitable Hospital Trust runs an in-house pharmacy as part of its medical services. The pharmacy earns ₹40 lakh profit, entirely used for patient welfare.

Calculation

Pharmacy profit (incidental to hospital objects): ₹40,00,000

Incidental to charitable objects? → YES ✓
  (pharmacy directly serves hospital patients)

Treatment: Part of regular income (Section 335)
  Subject to 85% application rule
  Applied to patient care: ₹40L → EXEMPT

If pharmacy sells to general public (not patients):
  Excess profits → NOT incidental → Taxable at MMR

Result

The pharmacy profit is fully exempt as it is incidental to the hospital's charitable activity. If the pharmacy opens to the general public, that portion of income loses the exemption.

Related Sections

Section 345Restriction on Commercial Activities by Registered NPOs

Section 346General Public Utility Trusts — 20% Commercial Receipts Cap

Section 335Regular Income of Registered NPO — The Exemption Provision

Section 337Specified Income — When NPO Funds Are Misused

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Section references are based on the Income Tax Act 2025 (Tax Year 2026-27). Examples are illustrative — verify with a Chartered Accountant before filing.