Section 350 of the Income-tax Act, 2025 — Permitted Modes of Investment for a Non-Profit Organisation (Schedule XVI)

In plain language

What Section 350 actually says

Section 350 sits in Chapter XVII, Part B of the Income-tax Act, 2025 — the part that governs the taxation of registered non-profit organisations (RNPOs), i.e. charitable and religious trusts and institutions. The section is short but powerful. It has two sub-sections:

• Section 350(1): The modes of investing or depositing money under this Part shall be such as are specified in Schedule XVI.
• Section 350(2): Modes other than those in Schedule XVI may be specified by the Central Government by notification.

In plain words: a charitable trust or institution can only park its accumulated or invested money in the specific "safe" instruments listed in Schedule XVI (or any extra ones the Government later notifies). Everything else is a prohibited mode.

The 1961 Act equivalent

Section 350 + Schedule XVI is the re-drafted successor of Section 11(5) of the Income-tax Act, 1961. Under the old law, Section 11(5) contained the full list of "forms and modes" in which trust funds had to be invested. The 2025 Act keeps the substance identical but moves the long enumerated list out of the section body and into Schedule XVI, leaving Section 350 as a clean enabling provision. So if you knew the old 11(5) list, Schedule XVI will feel familiar.

Who it applies to

• Charitable and religious trusts and institutions registered as RNPOs under the 2025 Act.
• Any accumulated income that is set apart for future application (the trust's corpus and accumulations).
• Investments held on the trust's behalf.

What Schedule XVI permits (the "safe list")

Schedule XVI is a closed, enumerated list that privileges Government-backed and regulated instruments. Broadly it includes:

• Government-backed savings: savings certificates and notified small-savings schemes; Post Office Savings Bank deposits.
• Bank deposits: deposits with a scheduled bank or a co-operative bank (including co-operative land mortgage/land development banks).
• Government securities: Central and State Government securities; Sovereign Gold Bonds; deposits with the Public Account of India.
• Units and funds: units of UTI and of notified mutual funds.
• Public sector companies: investment/deposit in any Public Sector Company (with transitional protection if a company later ceases to be a PSU).
• Housing & infrastructure: bonds of approved financial corporations, housing finance companies and infrastructure finance / development entities; units of InvITs.
• Immovable property: investment in immovable property (excluding plant and machinery integral to a building).

How it interacts with related sections

• Regular income & accumulation: To enjoy exemption on accumulated income, the money must be invested in Schedule XVI modes.
• Specified income (the penalty route): Money invested or held outside the permitted modes is treated as "specified income" and taxed at the maximum marginal rate of 30% (plus surcharge and cess), rather than enjoying exemption. This is the teeth behind Section 350.
• Registration & anti-abuse: Persistent violation can also feed into cancellation of registration.

Practical implications for trustees

• Do not put trust money in equity shares of private companies, corporate FDs of unlisted companies, chit funds, cryptocurrency, or lend to trustees/relatives — these are prohibited modes.
• Only the corpus/accumulation actually invested off-list is taxed, not the whole trust income — but the tax hit is steep.
• Keep documentary proof (FD receipts, bond certificates, mutual fund statements) mapping every rupee to a Schedule XVI head, ready for the auditor's report and Form 10B/10BB.