Section 353 of the Income-tax Act, 2025 — Other Violations by a Non-Profit Organisation (Trusts & Charitable Institutions)

In plain language

What Section 353 is about

Section 353 of the Income-tax Act, 2025 deals with the "other violations" by a registered non-profit organisation (NPO) — the older, familiar terms are "charitable trust", "society" or "Section 8 company" registered for tax exemption. It sits inside Part B of Chapter XVII (Sections 332 to 355), which is the single, self-contained code for taxing trusts and charitable institutions under the new Act (effective 1 April 2026).

The Act splits NPO breaches into two buckets. Section 351 covers "specified violations" — serious defaults (misapplication of income, sham activities, benefit to specified persons, breach of other laws) that can lead to cancellation of registration. Section 353 is the softer bucket — "other violations". These are essentially compliance/procedural failures. They do not automatically cancel your registration, but they switch off the exemption for that year and make the income taxable under Section 334 with only a narrow list of expenses allowed.

The four "other violations" that trigger Section 353

Section 353(1) applies where, in any tax year, a registered NPO:

• Fails to maintain books of account as required by Section 347 (ledgers, cash book, day-book, in written or electronic form).
• Fails to get its books audited as required by Section 348 and to furnish the audit report in the prescribed form.
• Fails to furnish its return of income within the time allowed under Section 349.
• Being a "general public utility" (GPU) entity, carries on commercial activity in breach of Section 346 — chiefly by letting business/trade receipts cross the 20% of total receipts ceiling, or not keeping separate books for such activity.

How the income is taxed when Section 353 bites

Once any of the above happens in a year, the exemption machinery is disturbed for that year:

• Section 353(1): The NPO's regular income for that year, reduced only by the limited expenditure in sub-section (3), becomes "taxable regular income" and is charged to tax under Section 334. The normal benefit of applying/accumulating 85% of income is not available in the usual way.
• Section 353(2): In addition, the NPO's specified income and residual income (to the extent not already taxed) are also charged under Section 334, and the protective provision of Section 338 does not apply.

The narrow list of allowed expenditure — Section 353(3)

This is the sting. Instead of the generous "application of income" rules, only expenditure that meets all of these tests is deductible:

• It is not capital expenditure;
• It is incurred in India for the objects of the NPO;
• It is not out of corpus standing at the end of the prior year, and not out of borrowings/loans;
• No depreciation is claimed on an asset whose cost was already treated as expenditure;
• It is not a donation/contribution to any other person; and
• It complies with the TDS and cash-payment disallowance rules referred to in the section.

Practical implications

• A missed audit, a late return, an unmaintained ledger or an over-20% commercial receipt can convert an otherwise exempt trust into a taxable entity for that year — a costly, avoidable outcome.
• Unlike Section 351, your registration survives; the hit is one-year and income-based, not existential.
• Because donations made out are disallowed and capital/corpus spends are disallowed, the taxable base is often much larger than the true "surplus". Timely compliance is far cheaper than the tax.