TaxSaral

Section 336 · was Sections 11, 12 & 13 in the 1961 Act

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 it 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 No. 109 (earlier 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

Computing Taxable Regular Income

A charitable trust has regular income of ₹50 lakh. It spends ₹38 lakh on programs, ₹3 lakh on admin, files Form No. 109 for ₹6 lakh accumulation, and retains ₹3 lakh without Form No. 109.

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 No. 109:         ₹ 6,00,000
Total treated as applied:              ₹47,00,000  ✓ (94% > 85%)

Retained without Form No. 109:         ₹ 3,00,000
  → NOT treated as applied or accumulated
  → Taxable at MMR
  Tax (30%):                           ₹   90,000

Result: The ₹3 lakh retained without Form No. 109 is taxable even though the overall 85% test is met. Filing Form No. 109 for that amount would have saved ₹93,600 in tax (including cess).

Related sections

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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.