Section 336 of the Income-tax Act, 2025 — Taxable Regular Income of a Registered Non-Profit Organisation (RNPO) and the 85% Application Rule

In plain language

What Section 336 actually deals with

There is a lot of confusion online about "Section 336" because the topic label mentions "verify actual scope". Having checked the bare Act, here is the correct position: Section 336 of the Income-tax Act, 2025 is titled "Taxable regular income" and it is the heart of how a Registered Non-Profit Organisation (RNPO) — a charitable or religious trust or institution — is taxed. It sits inside Part B of Chapter XVII (Sections 332 to 355), the self-contained code for non-profits that replaces the old scattered provisions.

In one line: Section 336 is the new Section 11 of the Income-tax Act, 1961. It carries forward the famous "85% application rule" — the rule that a charity pays no tax if it spends (applies) or validly accumulates at least 85% of its income on its charitable or religious objects.

Who it applies to

• Registered Non-Profit Organisations (RNPOs) — the 2025 Act merges what used to be called charitable trusts, religious institutions, Section 10(23C) educational institutions and hospitals into ONE category: the RNPO.
• The entity must be registered under Section 332 (the successor to the old Sections 12A / 12AA / 12AB and 10(23C) approval).
• Existing trusts already registered under 12AB or 10(23C) on 1 April 2026 are automatically treated as RNPOs until their current registration expires — no fresh application needed immediately.

The 85% rule, in plain words

Section 336 computes your "taxable regular income" in two situations:

• If you apply or accumulate 85% or more of your regular income for charitable/religious purposes (accumulation being done under Section 342) — your taxable regular income is NIL.
• If you apply less than 85% — the shortfall is taxed. The taxable amount is 85% of regular income minus what you actually applied or validly accumulated. You are always allowed to keep 15% freely without tax, so only the gap up to the 85% line is taxed.

What is "regular income"?

"Regular income" (defined in the surrounding sections, notably Section 335) is built from four buckets:

• Receipts from the charitable or religious activity the RNPO is registered for;
• Capital and revenue receipts from property and investments held by the RNPO;
• Voluntary contributions (donations) received during the tax year (other than corpus donations, which are treated separately);
• Gains from any permitted commercial activity received in the year.

How it interacts with other sections

• Section 337 (Specified income): This is the sting in the tail. Even if you satisfy the 85% rule, certain "specified income" — anonymous donations, income applied for the benefit of related/interested persons, funds applied outside India without approval, and investments in breach of Section 350 — is taxed separately at a flat 30% and does not get the 85% shelter.
• Section 341 (Application): Defines what counts as "application" — actual spending on objects, and a "deemed application" election for money not yet spent, claimed by the return due date.
• Section 342 (Accumulation): Lets you set aside income you could not spend, for a stated purpose, for a maximum of 5 years, by filing a statement (the successor to old Form 10) on or before the ITR due date.
• Section 354: Separate approval so that donors to the RNPO can claim a deduction (successor to old Section 80G).

Practical implications

• Charities must track income and application on a cash/receipt basis and hit the 85% threshold every single tax year.
• If you fall short, plan an accumulation under Section 342 before the ITR due date, or the shortfall becomes taxable at normal rates.
• Keep "specified income" ring-fenced — related-party spending or anonymous donations can trigger the 30% charge even in an otherwise clean year.
• The 15% free retention is not taxed and need not be justified.