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Section 336Charitable Trusts & NPOswas IT Rules 2026 (Rule 182) in IT Act 1961

What Counts as Taxable Regular Income for an NPO

Section 336 defines the components of an NPO's regular income that become subject to tax — essentially the portion that fails to meet the 85% application test or is applied for non-exempt purposes. This provision bridges Section 335 and Section 337 by specifying the taxable base calculation.

Who this applies to

Registered NPOs whose income application falls below the 85% threshold or which apply income for disallowed purposes.

Key Points

  • Taxable regular income = total regular income minus 85% applied to objects minus amounts accumulated with Form 10
  • Any shortfall in the 85% application directly becomes taxable at MMR
  • Administrative expenses of the trust are counted as applied to objects — but excessive admin costs attract scrutiny
  • Deemed application rules allow certain set-asides to be treated as applied (e.g., repairs to trust property)
  • This computation is done annually and reported in the ITR filed by the trust

Worked Example

1

Computing Taxable Regular Income

Scenario

A charitable trust has regular income of ₹50 lakh. It spends ₹38 lakh on programs, ₹3 lakh on admin, files Form 10 for ₹6 lakh accumulation, and retains ₹3 lakh without Form 10.

Calculation

Regular income:                        ₹50,00,000
Required 85%:                          ₹42,50,000

Actual application to objects:
  Program expenses:                    ₹38,00,000
  Admin expenses:                      ₹ 3,00,000
Accumulated with Form 10:              ₹ 6,00,000
Total treated as applied:              ₹47,00,000  ✓ (94% > 85%)

Retained without Form 10:              ₹ 3,00,000
  → NOT treated as applied or accumulated
  → Taxable at MMR
  Tax (30%):                           ₹   90,000

Result

The ₹3 lakh retained without Form 10 is taxable even though the overall 85% test is met. Filing Form 10 for that amount would have saved ₹93,600 in tax (including cess).

Related Sections

Section 335Regular Income of Registered NPO — The Exemption Provision
Section 341Application of Income — The 85% Charitable Spending Rule
Section 337Specified Income — When NPO Funds Are Misused
Section 342Accumulation of Income — Beyond the 15%

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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.