Section 350Charitable Trusts & NPOswas Section 11(5) in IT Act 1961

Permitted Modes of Investment for Charitable Trusts

Section 350 specifies the 'permitted modes' in which a charitable trust must invest its funds — particularly corpus and accumulated income. Investing in non-permitted modes makes the income attributable to such investments taxable, and can trigger registration cancellation in serious cases.

Who this applies to

All registered NPOs — applies specifically to corpus funds, accumulated income set aside via Form 10, and any funds not immediately required for charitable activities.

Key Points

Permitted modes: government securities, post office deposits, nationalised bank FDs, public financial institutions, listed debentures
NOT permitted: shares of private companies, personal loans, speculative derivatives, unlisted securities
Corpus and Form 10 accumulations MUST be in permitted modes — violation makes income taxable
Day-to-day working funds (to be spent within the year) are NOT required to be in permitted modes
Trust can hold immovable property for use in charitable activities — not treated as 'investment' for this purpose
Existing non-permitted investments must be converted within 1 year of the violation being noticed

Worked Example

Trust Investing Corpus in Non-Permitted Mode

Scenario

A charitable trust has a corpus fund of ₹80 lakh. The trustee invests ₹50 lakh in shares of a private limited company and ₹30 lakh in a nationalised bank FD.

Calculation

Corpus fund:                           ₹80,00,000

Investment 1: Private company shares   ₹50,00,000
  → NOT a permitted mode ✗

Investment 2: Nationalised bank FD     ₹30,00,000
  → Permitted mode ✓

Consequence for ₹50L non-permitted investment:
  Income attributable (6% on ₹50L):    ₹ 3,00,000
  Taxable at MMR (30%):                ₹   90,000
  Plus: registration cancellation risk

Result

The ₹50 lakh must be immediately moved to a permitted mode. The trust should create a written investment policy listing only government securities, nationalised bank FDs, and public financial institutions to prevent such errors.

Related Sections

Section 339Corpus Donations — Permanent Fund Contributions

Section 342Accumulation of Income — Beyond the 15%

Section 332Registration of Charitable Trusts and NPOs

Section 351Specified Violations — When NPO Registration is Cancelled

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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.