Sub-section (1) applies where, during a tax year, a registered non-profit organisation fails to maintain books of account under section 347, fails to get them audited under section 348, fails to furnish its return under section 349, or, carrying out the advancement of any other object of general public utility, carries out commercial activity in contravention of section 346. Its regular income for that year, as reduced by the expenditure described in sub-section (3), becomes taxable regular income chargeable under section 334.
Sub-section (2) adds that, irrespective of section 338, any specified income and residual income not covered by sub-section (1) is also chargeable under section 334.
Sub-section (3) defines the only expenditure that may be set against that income: expenditure incurred in India, other than capital expenditure, for the objects of the organisation, meeting eight conditions — incurred in India; for the objects of the organisation; not made from the corpus standing to credit at the end of the immediately preceding tax year; not out of any loan or borrowing; depreciation not claimed on an asset whose acquisition was claimed as application of income in the same or any other tax year; not a contribution or donation to any person; not a payment or aggregate of payments in contravention of section 36(4), (5), (6) and (7); and allowable under section 35(b)(i).
Sub-section (4) shuts out everything else: no set off, deduction or allowance of any application or expenditure other than that in sub-section (3) is allowed.
Why it is there
The concessional treatment of a registered non-profit organisation rests on it keeping records, being audited, filing, and staying out of commercial activity where its object is the advancement of any other object of general public utility. When those obligations fail, the section removes the concession for that year by taxing regular income under section 334 with only a tightly defined deduction.
Who it applies to
A registered non-profit organisation that fails to maintain books of account under section 347
One that fails to get them audited under section 348 or to furnish its return under section 349
One carrying out the advancement of any other object of general public utility that carries on commercial activity in contravention of section 346
Any registered non-profit organisation with specified income or residual income not covered by sub-section (1)
What this means in practice
The consequence is not a penalty but a change in the base: regular income becomes taxable regular income under section 334, and only expenditure clearing every one of the eight conditions reduces it. Several of those defeat spending that is genuinely charitable — money spent abroad, capital expenditure, a donation to another organisation, and anything paid out of corpus or borrowings. Sub-section (2) reaches further than sub-section (1), overriding section 338 to charge specified and residual income, and sub-section (4) makes the list exhaustive.
An example
Illustrative only, and invented for this page. The figures are chosen to show the rule biting, not taken from any real matter.
A registered non-profit organisation with regular income of Rs. 4 crore fails to get its books audited under section 348. That income becomes taxable regular income under section 334, reduced only by expenditure satisfying sub-section (3) — so Rs. 2.6 crore of revenue spending in India on its objects is allowed, while Rs. 60 lakh of capital expenditure, Rs. 40 lakh donated to another organisation and Rs. 30 lakh spent out of corpus are not.
Where you meet this section
You meet this section in an assessment order on a registered non-profit organisation for a year in which an audit, return, books or commercial-activity failure is found.
The words themselves
its regular income for such tax year as reduced by the expenditure referred to in sub-section (3) shall be taxable regular income which shall be chargeable to tax as per the provisions of section 334
Section 353(1), Income-tax Act, 2025.
no set off or deduction or allowance of any application or expenditure other than those referred to in sub-section (3) shall be allowed
Section 353(4), Income-tax Act, 2025.
What people get wrong
Treating the consequence as a penalty on top of the normal computation. Sub-section (1) makes regular income, less the sub-section (3) expenditure, taxable regular income under section 334.
Deducting capital expenditure or spending outside India. Sub-section (3) allows only expenditure incurred in India, other than capital expenditure, for the objects of the organisation.
Claiming a donation to another body as application. Sub-section (3)(f) excludes any contribution or donation to any person.
Spending from corpus or borrowings and claiming it. Sub-section (3)(c) and (d) exclude both.
Claiming depreciation on an asset whose cost was already claimed as application of income. Sub-section (3)(e) disallows it.
What this replaced
The correspondence is the Income Tax Department’s own, from its comparison utility for the 1961 and 2025 Acts. A renumbering is the easy half; whether the words changed is the half that decides cases.
A circular binds the department, not you and not a court. Every one below was written under the 1961 Act; it reaches this section because the department’s own concordance carries the provision it names to this one.
Circular No. 13/2024 — Extension of due date for furnishing return of income for the assessment year 2024 25 2024-10-26
Circular No. 17/2023 — Order under section 119 of the Income-tax Act, 1961 2023-10-09
Circular No. 6/2020 — Condonation of delay under section 119 2 b of the income tax act 1961 in filing of return of income for a.y 2016 17 2017 18 and 20 2020-02-19
Circular No. 2 — 233. Claim for depreciation - Where required particulars have not been furnished 2001-02-09
Circular No. 596 — 174. Clarification regarding applicability of section 13(1)(d) from assessment year 1984-85 and not from assessment year 1983-84 1991-03-15
Circular No. 557 — 125. Clarifications regarding Form Nos. 55 and 56 for grant of exemption 1990-03-19
Circular No. 322 — 175. Requirement of investing funds of trust in modes specified in section 13(5) during previous year commencing on or after April 1982-01-16
Circular No. 317 — 176. Pending amendment to modify mode of investment under section 13(5), Commissioners authorised to issue/renew recognition under 1981-12-19
Circular No. 143 — 172. Audit report in Form No. 10B in terms of rule 17B - Auditor can accept as a correct list of specified persons as given by man 1974-08-20
Circular No. 102 — Exemption of interest on savings certificates under clause (15)(ii) - Interest on holdings in the names of wife and minor children 1973-02-03
Circular No. 51 — 177. Whether provisions of section 13(2)(h), providing for forfeiture of exemption, apply with reference to shares in company init 1970-12-23
A notification is made under a power the Act gives and, within that power, is law. These too were made under the 1961 Act and are placed here by the department’s concordance.
Read this before you rely on it. Every decision below was decided under the Income-tax Act, 1961. It appears here because it is tagged to a 1961 provision that the department’s own mapping carries to section 353. That is an inference we have drawn, not a holding on the new section: where the words changed in the move, the reasoning may not survive. Treat this as the place to start looking, not as authority on the 2025 Act.
ACIT v Ahmedabad Urban Development AuthoritySupreme CourtCuts both waystagged s.13(8) We charge fees for our public utility work. Does that cost us charitable status under s.2(15)?
ACIT v Thanthi TrustSupreme CourtCuts both waystagged s.13(1)(bb) Our trust runs a business and puts the profit into its objects. Does s.11(4A) still deny the exemption?
CIT (E) v Hamdard National Foundation (India)High CourtHelps taxpayertagged s.13(2)(b) The officer says we let our building to a related party below market rent. Is that by itself a breach of s.13(2)(b)?
CIT (E) v IILM FoundationHigh CourtHelps taxpayertagged s.13(1)(c) Our trust pays a salary to its chairperson, who is a trustee. Does that cost us the s.11 exemption?
CIT (Exemptions) v Audyogik Shikshan MandalHigh CourtHelps taxpayertagged s.13 Trust funds went to a trustee. Does the trust lose exemption on all its income or only that amount?
CIT v Fr. Mullers Charitable InstitutionsHigh CourtHelps taxpayertagged s.13(1)(d) One deposit of ours breaks the s.11(5) modes. Will the department tax the trust's entire income?
Daujee Abhushan Bhandar P Ltd v UOIHigh CourtHelps taxpayertagged s.13 Information Technology Act, 2000 The s.148 notice was digitally signed on 31 March but the e-mail only went on 6 April. Was it issued in time?
What this page does not tell you. It does not reproduce the section. Everything above was written from the section’s own text as the Income Tax Department publishes it — the text is here, and nothing here is advice on your facts. Where a figure matters, read the sub-section it comes from.