Updated: 2 September 2026
Permitted Modes of Investment for Charitable Trusts, NGOs, Societies & Section 8 Companies
Charitable and religious organisations cannot treat every commercially safe investment as tax-compliant. For periods governed by the Income-tax Act, 2025, registered non-profit organisations must examine Section 350 read with Schedule XVI. For earlier periods governed by the Income-tax Act, 1961, the familiar framework is Section 11(5) read with Rule 17C.
Why the permitted-investment rules matter
The investment rules are part of the exemption framework for charitable and religious organisations. Under the new Act, Section 342(4) requires accumulated or set-apart income to be invested or deposited in a mode permitted under Section 350, unless it is applied for the stated purpose in accordance with the statutory framework. Corpus donations are also linked to permitted modes: Section 339 requires a corpus donation to be maintained specifically for the corpus in a mode permitted under Section 350.
For earlier tax years governed by the 1961 Act, accumulated income under Section 11(2) had to remain invested or deposited in the forms or modes specified by Section 11(5), read with Rule 17C. A breach can affect the exemption and trigger tax consequences.
Permitted modes under Section 350 and Schedule XVI
- Government savings certificates and Small Savings securities: qualifying savings certificates and other Central Government securities or certificates covered by the Schedule.
- Post Office Savings Bank: deposits in an account with the Post Office Savings Bank.
- Scheduled banks and eligible co-operative banks: deposits with scheduled banks or qualifying co-operative societies carrying on banking business.
- Units of Unit Trust of India: the Schedule continues the statutory category relating to UTI units.
- Central or State Government securities: investment in securities issued by the Central Government or a State Government.
- Government-guaranteed debentures: qualifying debentures where both principal and interest are fully and unconditionally guaranteed by the Central or a State Government.
- Public sector companies: investment or deposits in public sector companies, including the statutory transitional treatment when public-sector status changes.
- Specified industrial-development bonds: qualifying deposits or bonds issued by specified financial corporations providing long-term industrial finance.
- Specified housing-finance bonds: qualifying bonds issued by eligible public companies financing construction or purchase of residential houses in India.
- Specified urban-infrastructure bonds: qualifying bonds issued by eligible public companies financing urban infrastructure.
- Immovable property: investment in immovable property is expressly recognised, subject to the statutory meaning and other applicable tax rules.
- Specified IDBI deposits: the Schedule retains the statutory IDBI category.
- Specified mutual fund units: only units falling within the prescribed statutory category should be treated as qualifying.
- Public Account of India: transfer of deposits to the Public Account of India.
- Statutory housing and development authorities: qualifying deposits with authorities constituted under law for housing, planning, development or improvement of cities, towns or villages.
- Depository equity shares: acquisition of equity shares of a depository where the statutory requirements are met.
Specialised investment categories in Schedule XVI
Schedule XVI also incorporates specialised categories relevant to particular entities or transactions. These include specified investments by recognised stock exchanges, certain persons authorised under the Payment and Settlement Systems Act, investments relating to Open Network for Digital Commerce Ltd., qualifying incubator investments, shares of the National Skill Development Corporation, specified debt instruments issued by an RBI-registered infrastructure finance company, Sovereign Gold Bond-related stock certificates, units of Power Grid Infrastructure Investment Trust, and certain historical corpus assets and debentures. These categories should be relied upon only after matching the exact statutory conditions.
Legacy law: Section 11(5) and Rule 17C
For periods governed by the Income-tax Act, 1961, Section 11(5) listed the principal statutory investment modes and clause (xii) authorised additional prescribed modes. Rule 17C added categories such as specified mutual fund units, transfer to the Public Account of India, deposits with statutory housing/development authorities and specified depository investments.
The Income Tax Department's guidance also identifies immovable property, Government savings certificates, Post Office deposits, scheduled/co-operative bank deposits, UTI units, Government securities, Government-guaranteed debentures and public-sector-company investments among the recognised Section 11(5) modes.
Can a charitable trust invest in private-company shares?
Ordinary shares of a private company are not automatically permitted merely because the investment appears prudent or profitable. The investment must fit within a specific permitted statutory category. The same caution applies to listed equity, unlisted shares, corporate bonds, structured products and alternative investments.
Can a charitable trust invest in mutual funds?
Yes, but not every mutual fund product should be assumed to qualify. The organisation should confirm that the scheme falls within the specified statutory category applicable to the relevant tax year and retain the scheme documents, purchase records, folio details, statements and redemption records.
Can a charitable trust keep funds in a bank fixed deposit?
Yes, subject to the statutory conditions. Deposits with qualifying scheduled banks and eligible co-operative banking societies are recognised modes. The fixed deposit should be held in the name of the trust or institution and properly recorded in its books and investment register.
Can a charitable trust invest in immovable property?
Yes. Immovable property is an expressly recognised investment mode. However, the transaction must still be reviewed for charitable objects, source of funds, valuation, related-party restrictions, application-of-income rules, registration and stamp-duty requirements, accounting treatment and other provisions applicable to the organisation.
Corpus funds
Under the 2025 Act, Section 339 links corpus treatment to investment or deposit in a mode permitted under Section 350 and requires the investment to be maintained specifically for that corpus. Separate corpus-wise records are therefore important. Similar ring-fencing principles applied under the 1961 Act after the corpus-investment amendments.
Accumulated income
Section 342 of the 2025 Act permits a registered non-profit organisation to accumulate or set apart regular income for a stated purpose and period, generally not exceeding five years, subject to the prescribed statement and statutory conditions. Section 342(4) expressly links such accumulated income to the modes permitted under Section 350.
Practical compliance checklist
- Identify whether the relevant tax year is governed by the Income-tax Act, 1961 or the Income-tax Act, 2025.
- Identify whether the funds are ordinary income, corpus, accumulated income or another separately regulated category.
- Match the proposed investment to an express statutory mode.
- Check related-party and specified-person restrictions before investing.
- Keep investments in the organisation's own name unless the law specifically provides otherwise.
- Maintain separate records for corpus and accumulated funds.
- Retain bank advice, contract notes, certificates, deeds, scheme documents and maturity/redemption evidence.
- Maintain an investment register with date, amount, nature, institution, account/folio number, source of funds, maturity and income details.
- Ensure return and audit disclosures correctly reflect the investment.
- Review every redemption, transfer or reinvestment to ensure the funds continue to remain in a permitted mode where required.
Section 11(5) vs Section 350: quick comparison
| Subject | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Main investment provision | Section 11(5) | Section 350 |
| Detailed additional modes | Rule 17C | Schedule XVI |
| Accumulated income | Section 11(2) / 11(3) | Section 342 |
| Corpus investment requirement | Section 11 framework, as amended | Section 339 read with Section 350 |
| Government securities | Permitted | Permitted |
| Scheduled-bank deposits | Permitted | Permitted |
| Immovable property | Permitted | Permitted |
| Specified mutual fund units | Rule 17C / specified category | Schedule XVI |
| Specialised newer categories | Added through rules over time | Consolidated in Schedule XVI |
Official references
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Conclusion
For tax years governed by the Income-tax Act, 2025, registered non-profit organisations should work from Section 350 and Schedule XVI rather than relying solely on old Section 11(5) references. The new framework substantially carries forward the traditional permitted modes while consolidating additional specialised categories. For earlier periods, Section 11(5) read with Rule 17C remains the relevant framework.