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Section 355Charitable Trusts & NPOswas Sections 2(15), 11, 12, 13, 115BBC, 115TD–115TF in IT Act 1961

Key Definitions for the Charitable Trust Chapter

Section 355 consolidates the definitions of key terms used throughout the NPO/charitable trust chapter — including 'charitable purpose', 'author of the trust', 'specified person', 'regular income', and 'voluntary contribution'. Understanding these definitions is essential for correctly applying all other sections in this chapter.

Who this applies to

Relevant to all registered NPOs and their advisors when interpreting and applying the provisions of the charitable trust chapter.

Key Points

  • 'Charitable purpose' includes: relief of poor, education, yoga, medical relief, environment preservation, preservation of monuments, and General Public Utility (GPU)
  • 'Specified person' = author of trust, trustee, person making a substantial contribution (>₹50,000), and their relatives
  • 'Voluntary contribution' = any donation made without any service or goods in return
  • 'Author of trust' = the person who originally created the trust deed and contributed the initial assets
  • Definition of 'relative' is broad — includes spouse, children, siblings, parents, and their spouses

Worked Example

1

Testing Whether a Payment is to a Specified Person

Scenario

A charitable trust pays ₹3 lakh to a CA firm for audit services. The CA is the son-in-law of one of the trustees. Is this a benefit to a 'specified person'?

Calculation

Trustee's son-in-law = 'relative' of trustee
Relative of trustee = 'specified person' under Section 355

Payment of ₹3L to CA firm (son-in-law's firm):
  Nature: Professional fee for audit service

Is it at arm's length rate?
  If market rate is ₹2.5L but paid ₹3L:
    Excess ₹50,000 = Benefit to specified person ✗
    → Specified income (Section 337)
    Tax at MMR (30%):                    ₹   15,000

  If ₹3L IS the fair market rate:
    No excess benefit → Not specified income ✓
    Tax:                                 ₹         0

Result

All transactions with relatives of trustees must be at arm's length market rates and documented with quotes from at least two other comparable service providers. Overpaying a related party — even for genuine services — creates a tax liability for the trust.

Related Sections

Section 337Specified Income — When NPO Funds Are Misused
Section 351Specified Violations — When NPO Registration is Cancelled
Section 332Registration of Charitable Trusts and NPOs
Section 346General Public Utility Trusts — 20% Commercial Receipts Cap

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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.