TaxSaral
Section 338Charitable Trusts & NPOswas Section 11 in IT Act 1961

Income Excluded from Regular Income of an NPO

Section 338 lists specific receipts that are NOT included in an NPO's regular income computation — primarily corpus donations, deemed corpus amounts, and certain capital receipts. This ensures that structural funding (corpus) is not confused with operational income and is not subjected to the 85% application test.

Who this applies to

Registered NPOs that receive corpus donations, endowments, or other capital receipts to be maintained as the trust's permanent fund.

Key Points

  • Corpus donations (Section 339) are completely excluded from regular income — not subject to the 85% rule
  • Capital gains on sale of corpus assets are excluded IF reinvested in another capital asset within the prescribed period
  • Voluntary contributions specifically earmarked as 'corpus' by the donor in writing are excluded
  • Excluded income still needs to be tracked and reported in the trust's ITR
  • If corpus funds are later spent on non-corpus purposes, they become taxable at MMR

Worked Example

1

Separating Corpus and Regular Income

Scenario

A hospital trust receives ₹1.5 crore in regular operational donations and ₹50 lakh as corpus donation (donor wrote: 'for permanent endowment fund') during TY 2026-27.

Calculation

Regular donations:                     ₹1,50,00,000
  Subject to 85% application test ✓
  Required application (85%):          ₹1,27,50,000

Corpus donation (excluded):            ₹  50,00,000
  NOT subject to 85% rule
  Must be invested in Section 350 permitted modes

Investment in government bonds (6%)
Interest earned annually:              ₹   3,00,000
  This interest IS regular income → Subject to 85% rule

Result

The ₹50 lakh corpus is protected from the application test. However, the ₹3 lakh annual interest it earns is regular income — the trust must apply ₹2.55 lakh (85%) of that to charitable activities.

Related Sections

Section 339Corpus Donations — Permanent Fund Contributions
Section 340Deemed Corpus Donations
Section 335Regular Income of Registered NPO — The Exemption Provision
Section 350Permitted Modes of Investment for Charitable Trusts

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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.