Regulatory Framework for Commercial Activities by Non-Profit Organizations: A Comparative Analysis of Income Tax Bill, 2025 and Income-tax Act, 1961 Clause 346 - Income Tax Bill, 2025

Clause 346 - Commercial Activities by Non-Profit Organizations vis-a-vis Charitable Purpose Income Tax Bill, 2025 1. Introduction The regulation of commercial activities undertaken by non-profit organizations has been a critical aspect of tax legislation in India. This article analyzes the proposed Clause 346 of the Income Tax Bill, 2025 , and compares it with the existing provisions u/s 2(15) of the Income-tax Act, 1961 , focusing on the restrictions placed on commercial activities by organizations pursuing objects of general public utility. 2. Objective and Purpose The primary objective of these provisions is to: Regulate commercial activities of non-profit organizations Ensure genuine charitable purposes are not compromised Maintain transparency in financial operations Prevent misuse of charitable status for commercial gains 3. Detailed Analysis 3.1 Scope of Charitable Purpose u/s 2(15) of the I ncome-tax Act, 1961 , charitable purpose includes: Relief of the poor Education - Yoga Medical relief Preservation of environment Preservation of monuments or places of artistic/historic interest Advancement of any other object of general public utility 3.2 Commercial Activity Restrictions 3.2.1 Income Tax Bill, 2025 ( Clause 346 ) The proposed clause establishes three key conditions: Commercial activities must be directly related to charitable objectives Revenue cap of 20% of total receipts Mandatory separate accounting for commercial activities 3.2.2 Income-tax Act, 1961 [Section 2(15)] The existing provision stipulates: Activities must be integral to charitable purpose 20% ceiling on receipts from commercial activities Applies to activities in nature of trade, commerce, or business 3.3 Comparative Analysis Aspect Income Tax Bill, 2025 Income-tax Act, 1961 Scope Specifically addresses registered non-profit organisations Applies to trusts and institutions Accounting Requirements Explicit requirement for separate books No explicit mention of separate accounting Revenue Threshold 20% of total receipts 20% of total receipts 4. Practical Implications 4.1 For Organizations Need for robust accounting systems Regular monitoring of commercial revenue Compliance with revenue thresholds Documentation of charitable activities 4.2 For Stakeholders Enhanced transparency Better accountability Clearer operational guidelines Improved governance structure 4.3 For Regulators Simplified monitoring mechanism Clear parameters for assessment Defined compliance requirements Better enforcement capabilities 5. Potential Challenges and Considerations 5.1 Implementation Challenges Defining commercial activities Measuring direct relationship with charitable objectives Maintaining separate accounts Monitoring compliance 5.2 Legal Interpretations Scope of commercial activity Definition of actual carrying out Calculation of percentage threshold Treatment of incidental income 6. Conclusion The proposed Clause 346 represents an evolution in the regulatory framework for non-profit organizations, building upon the foundation laid by Section 2(15) of the Income-tax Act, 1961 . While maintaining the core 20% threshold, it introduces additional compliance requirements and provides clearer operational guidelines. Full Text : Clause 346 - Commercial Activities by Non-Profit Organizations vis-a-vis Charitable Purpose