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Section 336 Income Tax Act 2025: When Is NGO Income Taxable?

Section 336 determines the taxable regular income of a registered non-profit organisation (NPO). It links the taxable amount to how much of the year's regular income is applied or validly accumulated for charitable or religious purposes.

Current law: Income-tax Act, 2025 (Act 30 of 2025), as amended by the Finance Act, 2026; applicable from 1 April 2026. The statutory heading of Section 336 is "Taxable regular income".
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What does Section 336 provide?

The provision has two alternatives for calculating taxable regular income for a registered NPO in a tax year:

Section 336(a): When taxable regular income is nil

Taxable regular income is nil where 85% or more of the regular income of that tax year has been applied under Section 341 or accumulated under Section 342 for charitable or religious purposes during that tax year in accordance with this Part.

Section 336(b): When the threshold is not met

In any other case, taxable regular income is 85% of the regular income for that tax year, reduced by the qualifying application under Section 341 and qualifying accumulation under Section 342 for that year.

Formula: Taxable regular income = (85% × regular income) - qualifying application - qualifying accumulation, where the combined qualifying amount is below the 85% threshold.

The provision does not simply tax the entire unspent 15% of regular income. The first 15% need not be applied or accumulated to achieve nil taxable regular income under Section 336(a).

How is the 85% application or accumulation test calculated?

  1. Determine regular income for the tax year under Section 335.
  2. Calculate 85% of that regular income.
  3. Identify expenditure that qualifies as application under Section 341 and amounts validly accumulated under Section 342.
  4. Compare their combined qualifying amount with the 85% threshold.
  5. If the threshold is reached, taxable regular income under Section 336 is nil; otherwise, subtract the qualifying amount from 85% of regular income.

Amounts claimed as application or accumulation must satisfy the conditions of the respective sections. Merely retaining funds in a bank account does not, by itself, establish valid accumulation under Section 342.

Practical examples of Section 336

Example 1: At least 85% applied

An NPO has regular income of Rs. 10,00,000. It applies Rs. 8,60,000 for qualifying charitable purposes. Since application is 86%, taxable regular income is nil under Section 336(a).

Example 2: Less than 85% applied or accumulated

An NPO has regular income of Rs. 10,00,000. Qualifying application is Rs. 6,00,000 and qualifying accumulation is Rs. 1,00,000. The total is Rs. 7,00,000, below Rs. 8,50,000 (85% of regular income). Accordingly, taxable regular income is Rs. 1,50,000 under Section 336(b).

Example 3: Application plus valid accumulation reaches 85%

With regular income of Rs. 20,00,000, qualifying application of Rs. 12,00,000 and qualifying accumulation of Rs. 5,00,000, the combined amount is Rs. 17,00,000, exactly 85%. Taxable regular income is nil, assuming the requirements of Sections 341 and 342 are fulfilled.

These examples address only taxable regular income under Section 336; specified income and residual income, if any, are separately relevant under Section 334.

Relevant statutory definitions and related provisions

Regular income (Section 335). Includes income from registered charitable or religious activities, qualifying property or investments, voluntary contributions and gains from permissible commercial activities under Sections 344 to 346, subject to the statutory wording.
Taxable regular income (Section 336). The amount determined by the 85% application or valid accumulation test described above.
Application of income (Section 341). The qualifying use of income for charitable or religious purposes, subject to the detailed inclusions, exclusions and conditions in that section.
Accumulation of income (Section 342). Income set apart for charitable or religious purposes in compliance with the requirements of that section; it is distinct from unrestricted retention of money.
Specified income (Section 337). Separately identified categories of income, including certain violations, which are subject to the distinct treatment in Section 334.

Under Section 334, the income-tax payable by a registered NPO includes tax at 30% on specified income and tax at applicable rates on taxable regular income and any residual income. Section 336 determines only one component of that calculation.

Frequently asked questions

Must a registered NGO spend 100% of its regular income?

No. Under Section 336(a), taxable regular income is nil when at least 85% is qualifyingly applied or accumulated under Sections 341 and 342.

Is unspent income automatically taxable?

No. The 15% margin and valid accumulation under Section 342 are relevant. The taxable amount depends on the statutory calculation and qualifying application or accumulation.

Does Section 336 govern anonymous donations and other specified income?

No. Specified income is addressed separately in Section 337 and taxed as provided by Section 334.

Can a charity count amounts set apart for future activities?

Only where the accumulation satisfies Section 342. A bookkeeping designation alone is not necessarily sufficient.

Official statutory source

Read the Income-tax Act, 2025 as amended by the Finance Act, 2026 and consult Sections 334 to 342 together for a complete assessment.

Updated: 12 November 2026. This article is general legal information; the applicable statutory conditions and facts of each organisation should be verified.