Income Tax Rules for NGOs & Charitable Trusts in India 2026: 12A, 80G, 85% Rule & New Tax Act Explained

Running a charitable trust or NGO is mostly about people, purpose and impact.

But behind every education program, medical camp, religious activity, food distribution drive or community project, there is another responsibility that trustees cannot ignore: financial and tax compliance.

For years, terms such as 12A, 12AB, 80G, Form 10, Form 10B and ITR-7 have been part of the regular vocabulary of Indian NGOs and charitable trusts.

Now there is another important development.

The Income-tax Act, 2025 came into effect from 1 April 2026, replacing the Income-tax Act, 1961 for the new tax framework. This has introduced new section numbers, forms and terminology for non-profit organisations, while existing registrations and transitional matters continue to be governed by specific provisions.

So, if you are a trustee, NGO administrator, accountant or someone managing a religious trust, what does all this actually mean?

Let's break it down in simple language.

Important: This article is for general awareness and does not replace professional tax, legal or accounting advice. The applicable rules can depend on the nature of the organisation, its registration, activities, income and specific circumstances.

What is the Income Tax Treatment of an NGO or Charitable Trust in India?

A charitable or religious trust is not automatically exempt from income tax simply because it is a non-profit organisation.

Tax exemption is linked to meeting the conditions prescribed under the applicable income-tax provisions.

Under the earlier Income-tax Act, 1961, Sections 11 and 12 provided the principal exemption framework for eligible charitable and religious trusts, subject to conditions including registration and application of income.

The new Income-tax Act, 2025 reorganises these provisions under a new framework for Registered Non-Profit Organisations (RNPOs).

The basic principle, however, remains familiar:

The organisation must qualify for the relevant tax benefits and use its income in accordance with the applicable charitable or religious purposes and compliance requirements.

This is why registration, accounting, documentation and timely filing are so important.

12A, 12AB and 80G: What Do They Actually Mean?

One of the most common sources of confusion for trustees is the difference between 12A/12AB and 80G.

A simple way to remember it is:

12A/12AB → primarily concerned with the organisation's income-tax exemption.

80G → primarily concerned with the tax benefit available to eligible donors.

Under the new Income-tax Act, 2025, the section numbers have changed. The Income Tax Department now uses Section 332 for registration of eligible non-profit organisations and Section 354 for approval relating to donation deductions.

This means trustees will continue hearing the familiar terms "12A" and "80G" in conversations, old documents and professional advice, but organisations applying under the new law need to pay attention to the corresponding provisions and forms under the 2025 Act.

What is 12A Registration for an NGO?

"12A registration" is the commonly used term for the registration that allows an eligible charitable or religious organisation to claim income-tax benefits under the charitable exemption framework.

Under the earlier law, this framework operated through Sections 12A and 12AB. Under the new Income-tax Act, 2025, the corresponding registration framework is covered by Section 332.

The important point for an NGO is not simply having a certificate. The organisation must also continue to satisfy the conditions attached to its registration.

This includes maintaining proper records, applying income appropriately, complying with applicable laws and completing the required filings.

The Income Tax Department's current Form 105 guidance specifically states that regular registration under Section 332 enables eligible non-profit organisations to continue claiming tax exemptions, subject to the applicable provisions.

What is 80G Registration?

80G is different. An organisation's 80G approval is primarily relevant to the donor.

When an eligible donor makes a qualifying donation to an approved organisation, the donor may be able to claim the applicable deduction under the income-tax provisions.

So think of it this way:

Registration / Approval	Main purpose
12A / 12AB / corresponding Section 332 framework	Tax exemption framework for the organisation
80G / corresponding Section 354 framework	Tax deduction benefit for eligible donors

This distinction is extremely important when managing donations. A trust should not tell every donor that "your donation is tax deductible" merely because the trust is a charitable organisation. The organisation needs the appropriate approval and the donation must satisfy the applicable conditions.

The Income Tax Department's 2026 guidance confirms that Section 354 approval relates to enabling eligible donors to claim deduction for donations.

What Changed for NGOs from 1 April 2026?

The biggest development is the implementation of the Income-tax Act, 2025. This does not mean that every existing NGO suddenly loses its previous registration or has to start from zero.

The Income Tax Department has specifically clarified that approvals and registrations granted under the earlier Income-tax Act can continue under the transition provisions, subject to the conditions of the new Act. The Department also states that applications filed on or after 1 April 2026 are governed by the Income-tax Act, 2025.

For trustees, the practical lesson is simple:

Don't throw away your old compliance records just because the section numbers have changed.

Old registration certificates, approval orders, returns, audit reports, donation records and supporting documents may still be important.

Form 104 and Form 105: Important for NGOs in 2026

Another visible change is the numbering of forms.

For organisations applying under the new Income-tax Act, 2025:

Form 104

Form 104 is used for provisional registration or provisional approval in specified situations where activities have not commenced.

The Income Tax Department describes Form 104 as the common application for provisional registration under Section 332 and provisional approval under Section 354.

Form 105

Form 105 is used for regular registration and/or approval under Sections 332 and 354.

One particularly useful change is that Form 105 is a consolidated application covering registration and donation-related approval.

The Department's guidance states that it can apply when activities have commenced, provisional registration is expiring, existing registration is due for renewal, or there is a modification in objects.

This is an important operational change for NGOs because trustees and accountants should no longer rely only on older form numbers from previous years.

Does the 85% Rule Still Apply to NGOs?

Yes, the 85% application principle remains an important part of the charitable tax framework.

In simple terms, an eligible organisation generally needs to apply the required proportion of its income towards its charitable or religious purposes in accordance with the applicable provisions.

Under the earlier framework, this is commonly described as the 85% rule, with the remaining 15% generally available as accumulation subject to the applicable rules.

The Income Tax Department explains that an organisation can generally accumulate up to 15% of its income, while specific conditions apply when income is accumulated beyond that amount. This is why an NGO should not wait until the end of the financial year to look at its income and expenditure.

A better approach is to monitor:

Total donations received
Other income
Programme expenses
Administrative expenses
Corpus donations
Restricted funds
Amount applied towards charitable/religious purposes
Amount accumulated
Supporting documentation

Good accounting makes this much easier.

What Happens If an NGO Cannot Apply 85% of Its Income?

There are provisions that can allow an organisation to deal with income that could not be applied during the year, subject to prescribed conditions and forms.

For example, the Income Tax Department explains provisions relating to accumulation and deemed application, including situations where income has not been received or could not be applied for specified reasons. This is where documentation becomes extremely important.

Instead of simply saying:

"We will spend this money next year."

the organisation needs to follow the applicable procedure and maintain the required records.

For larger trusts especially, this should be reviewed with the organisation's CA or tax professional before the relevant filing deadlines.

How Are Corpus Donations Treated?

Corpus donations are another area where NGOs need to maintain clear records. A corpus donation is generally a contribution received with a specific direction that it forms part of the corpus of the trust or institution. The Income Tax Department states that eligible corpus donations are not included in total income subject to the applicable conditions, and the corpus needs to be maintained/invested in the prescribed manner.

In practical terms, the trust should clearly record:

Donor details
Donation amount
Date
Payment mode
Specific corpus direction
Purpose, where applicable
Receipt number
Supporting documentation
Accounting treatment

Don't mix corpus donations casually with ordinary unrestricted donations. A clear accounting trail can make a major difference during audit or scrutiny.

What About Anonymous Donations?

Anonymous donations can create another tax issue. Under the earlier framework, anonymous donations received by specified trusts and institutions could become taxable beyond the prescribed threshold.

The Income Tax Department explains the threshold under the earlier provisions as the higher of ₹1 lakh or 5% of total donations received, with specific exclusions and conditions.

This is one reason donor information should be captured properly.

For every donation, a trust should ideally maintain a reliable record of:

Donor name
Address
PAN, where applicable
Contact information
Donation amount
Date
Payment mode
Donation purpose/category
Receipt number

A proper donation management system can significantly reduce the chances of missing information.

Can an NGO Run a Business Activity?

Some NGOs and trusts operate activities that generate income. That does not automatically mean that the entire organisation loses its charitable character. However, the activity and its accounting treatment need to comply with the applicable provisions.

The Income Tax Department specifically highlights situations involving business income that is not incidental to the objectives of the organisation and the requirement for separate books in relation to certain business activities.

So if your trust has income from activities such as:

Renting property
Selling products
Training programmes
Publications
Events
Service-related activities

Don't simply mix everything into one income account. Maintain clear records and discuss the tax treatment with your CA.

Why Proper Accounting Matters for Charitable Trusts

For many small trusts, accounting starts with a simple Excel sheet. That may work when there are only a few transactions. But as donations, expenses, bank accounts and projects increase, spreadsheets can become difficult to manage.

A trust may have to track:

Donations → Receipts → Income Ledger → Cash/Bank → Expenses → Vouchers → Reports → Audit

If these records are maintained separately, mistakes become much more likely.

For example, a cancelled donation receipt should not continue appearing as valid income.

Similarly, changing the payment mode from cash to bank should be reflected correctly in the corresponding books.

This is why accounting software designed specifically for trusts can be useful.

Books of Accounts and Record Keeping

Maintaining books is not optional simply because an organisation is non-profit.

The Income Tax Department states that eligible trusts are required to maintain books of account and supporting documents under the applicable conditions. Under the earlier framework, certain records were required to be retained for 10 years from the end of the relevant assessment year.

Modern record keeping should therefore cover much more than a single income statement.

A trust should maintain an organised record of:

Donation records

Donation receipts
Donor information
Payment details
Corpus directions
Donation categories

Accounting records

Income ledger
Expense ledger
Cash book
Bank book
Bank statements
Vouchers
Journal/adjustment entries

Governance records

Trust registration documents
PAN
Registration/approval certificates
Trustee details
Meeting records
Object documents

Compliance records

Income-tax returns
Audit reports
Applicable forms
Donation reporting
Supporting documents

Audit and Income Tax Return Compliance

Depending on the applicable conditions, a charitable or religious trust may need to get its accounts audited and furnish the applicable audit report. Under the earlier framework, the Income Tax Department refers to Forms 10B and 10BB for audit reporting in relevant cases.

The new 2026 framework has introduced new form numbering as well.

The Department's 2026 guidance identifies Form 112 as the audit report form corresponding to the earlier Forms 10B/10BB under the new rules.

The important takeaway for trustees is:

Don't rely on last year's checklist blindly.

Before every financial year-end, confirm the forms and deadlines applicable for that particular tax year.

What Happens If a Trust Violates Its Conditions?

Tax exemption is not unconditional. The Income Tax Department lists several situations that can result in specified violations or cancellation proceedings.

These can include:

Applying income outside the organisation's permitted objects
Certain non-incidental business activities
Failure to maintain separate books where required
Non-genuine activities
Violation of applicable conditions
False or incorrect information
Certain non-compliance with other applicable laws

The consequences can be significant.

Cancellation of registration can mean that exemption under the charitable framework is no longer available and income may be computed under the normal provisions. Other consequences can also arise, including possible impact on donation-related approval and accreted tax provisions.

This is why compliance should be treated as an ongoing process rather than a last-minute annual activity.

A Simple Compliance Checklist for Indian NGOs & Trusts

Here is a practical checklist trustees can use throughout the year.

Registration

Trust registration documents are available
PAN is active
Applicable income-tax registration/approval is valid
Registration renewal deadlines are tracked
Objects of the organisation are up to date

Donations

Every donation has a receipt
Donor information is recorded
Payment mode is recorded
Corpus donations are separately identified
Donation categories are properly maintained
Applicable donor reporting requirements are completed

Accounting

Tax compliance

Required audit completed
Applicable forms filed
Income-tax return filed on time
Accumulation/deemed application requirements reviewed
Applicable donation statements/certificates completed

Governance

Trustee records are updated
Meeting records are maintained
Major financial decisions are documented
Restricted/corpus funds are properly tracked

Why Digital Record Keeping Is Becoming Important for Trusts

The biggest change is not simply a change in section numbers.

It is the growing importance of having accurate records that can be produced when required.

Imagine a trust receiving hundreds of donations during the year.

If the information is spread across:

WhatsApp messages
Paper receipt books
Excel files
Bank statements
Separate expense registers
Email attachments

then preparing for an audit can become a major exercise.

A digital trust management system can bring these records together.

For example, a trust can maintain:

Member → Donor → Donation Receipt → Income Ledger → Cash/Bank Entry

in a connected workflow.

That means the accounting record does not have to be recreated manually every time.

How TrustSetu Can Help Trusts Manage Their Records

TrustSetu is designed specifically for Indian trusts, NGOs and religious organisations.

Instead of treating donation receipts, members and accounting as completely separate activities, TrustSetu connects these workflows.

With TrustSetu, a trust can manage:

Member and family records
Donation receipts
Donor information
Donation categories
Cash book
Bank book
Income ledger
Expense ledger
Receipt and payment vouchers
Financial reports
Trust-specific settings
Exportable records

TrustSetu's system is built around trust-specific data isolation, Indian financial-year handling and donation receipt workflows.

For example, when a donation receipt is created, the system can connect the receipt with the relevant income and cash/bank accounting records rather than requiring the administrator to enter the same information repeatedly. This is particularly useful for trusts that are moving away from paper registers and scattered spreadsheets.

Final Thoughts

The biggest lesson for NGOs and charitable trusts in 2026 is simple:

Tax compliance is no longer something to think about only when the CA asks for documents.

Whether your organisation is a small religious trust managing local donations or a larger NGO handling multiple projects, maintaining accurate records throughout the year can save significant time later. The Income-tax Act, 2025 has introduced a new framework, new section numbers and new forms, but the fundamental need remains the same:

Keep your organisation genuine, maintain proper records, use funds appropriately and complete your compliance on time.

For trustees, the best time to improve financial systems is not at year-end.

It is before the next donation is received.

And as compliance becomes increasingly digital, having a structured system for members, donations, receipts and accounting can make that process much easier.

Frequently Asked Questions

Is 12A registration still relevant in 2026?

Yes, "12A/12AB" remains widely used when discussing existing registrations and the earlier legal framework. However, applications under the Income-tax Act, 2025 use the new provisions, including Section 332 for the registration framework. Existing registrations are subject to the transition provisions of the new Act.

Is 80G still relevant in 2026?

Yes. The donor deduction framework continues under the new Act, with Section 354 covering the relevant approval framework. The Income Tax Department's Form 105 guidance specifically connects Section 354 approval with enabling eligible donors to claim deductions.

What is the 85% rule for NGOs?

Broadly, the charitable exemption framework requires the prescribed proportion of income to be applied towards charitable or religious purposes, with provisions dealing with accumulation and deemed application. The familiar 85% application principle continues to be important.

Can a trust receive corpus donations?

Yes, eligible corpus donations can receive specific tax treatment when the required conditions are satisfied. The contribution should have the necessary direction to form part of the corpus and should be maintained/invested according to the applicable requirements.

What is Form 104?

Under the Income-tax Act, 2025, Form 104 is used for specified applications for provisional registration and/or provisional approval.

What is Form 105?

Form 105 is the consolidated application for regular registration under Section 332 and/or approval under Section 354 in the situations specified by the Income-tax Act, 2025 and Rules.

Should a trust maintain digital accounting records?

Digital records can make it much easier to maintain donation, income, expense, cash and bank records and produce supporting documents when required. The Income Tax Department's earlier guidance expressly recognises electronic and digital forms of record keeping under the applicable framework.

Sources & further reading:
Income Tax Department — Taxability of income of charitable or religious trusts
Income Tax Department — Form 105 & 107 User Manual
Income Tax Department — Form 104 & 106 User Manual
Income Tax Department — Form 105 FAQs