Section 338 Income Tax Act 2025: Which Income Is Excluded from an NGO's Regular Income?
Section 338 identifies two categories of income that are not included when computing the regular income of a registered non-profit organisation: certain overseas applications of income approved by the Board and qualifying corpus donations.
What does Section 338 provide?
While computing regular income of a registered non-profit organisation, Section 338 directs that the following income shall not be included:
- Income applied outside India in the circumstances specified in Section 338(a), where the Board has issued the requisite general or special order.
- Corpus donations received under Section 339, as provided in Section 338(b).
The provision addresses the computation of regular income. It does not mean that every payment made overseas or every donation labelled as corpus automatically qualifies for exclusion.
Section 338(a): When can income applied outside India be excluded?
The exclusion applies only where the Board, by general or special order, directs that the income applied outside India shall not be included in total income in the case of a registered non-profit organisation falling within one of two categories:
Section 338(a)(i): Organisations created before 1 April 1952
A registered non-profit organisation created before 1 April 1952 for charitable or religious purposes may qualify for the exclusion if the Board makes the necessary direction.
Section 338(a)(ii): Organisations created on or after 1 April 1952
A registered non-profit organisation created on or after 1 April 1952 for charitable purposes may qualify where its application of income outside India tends to promote international welfare in which India is interested, and the Board makes the necessary direction.
Section 338(b): Are corpus donations included in regular income?
No, where they are corpus donations received under Section 339. Section 339 defines a corpus donation as a donation accompanied by a specific direction from the donor that it form part of the organisation's corpus, provided the donation is invested or deposited in modes permitted under Section 350 and maintained specifically for that corpus.
Consequently, a voluntary contribution is not excluded under Section 338(b) merely because an organisation records it as a corpus receipt. The donor's direction and statutory investment or deposit conditions are material.
Section 340 separately addresses deemed corpus donations for renovation or repair of specified places of worship, subject to its own conditions. Such receipts should be assessed under that provision rather than assumed to be corpus donations without verification.
Relevant statutory definitions and expressions
Practical illustrations
Example 1: Corpus contribution
A donor gives Rs. 5 lakh with written instructions that it form part of a registered organisation's corpus. If the organisation invests or deposits it in permitted modes and maintains it specifically for the corpus as required by Section 339, the receipt is excluded from regular income under Section 338(b).
Example 2: Overseas charitable expenditure
An organisation created in 2010 applies income to an overseas charitable project. The project is not excluded from regular income merely because it is charitable. For Section 338(a)(ii), the application must tend to promote international welfare in which India is interested and the Board must issue the requisite direction.
Example 3: General donation
An unrestricted donation without a specific donor direction to corpus does not qualify as a Section 339 corpus donation solely because the organisation chooses to earmark it internally. Its treatment must be determined under the other applicable provisions.
Frequently asked questions
Does Section 338 exclude all income spent outside India?
No. Only the specified categories of overseas application, supported by a general or special order of the Board, fall within Section 338(a).
Is a Board order necessary for corpus donations?
Section 338(b) refers to corpus donations under Section 339; the Board-order condition appears in Section 338(a), not clause (b).
Can a religious organisation formed after 1 April 1952 rely on Section 338(a)(ii)?
Clause (ii) refers to organisations created for charitable purposes, whereas clause (i) expressly refers to charitable or religious purposes for organisations created before 1 April 1952. The precise statutory category and facts must be checked.
What happens if corpus money is not invested in permitted modes?
The definition in Section 339 requires permitted investment or deposit maintained specifically for the corpus. Non-compliance may prevent the receipt from satisfying that definition and can have other consequences under the Act.
Related provisions and official text
Read Section 335: Regular income, Section 336: Taxable regular income, and Section 337: Specified income. The full legislation is available in the official Income-tax Act, 2025 text as amended by the Finance Act, 2026.
Updated: 12 November 2026. This article is general legal information; the actual tax treatment depends on statutory compliance and relevant Board orders.