Section 355 · Special persons
Section 355 of the Income-tax Act, 2025 — Interpretation (Definitions for the Registered Non-Profit Organisation Chapter)
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XVII
📜 What the law says — Section 355, Income-tax Act 2025
355. For the purposes of this Part,—
(a) “anonymous donation” means any voluntary contribution referred to in
section 2(49)(c), where a person receiving such contribution does not
maintain a record of the identity indicating the name and address of the
person making such contribution and such other particulars, as may be
prescribed;
(b) “approval” means an approval under the second proviso to section 80G(5)
of the Income-tax Act, 1961 (43 of 1961) or section 354;
(c) “cancellation” includes withdrawal;
(d) “donation” means any voluntary contribution received by a registered
non-profit organisation from any person;
69. Inserted by the Finance Act, 2026, w.e.f. 1-4-2026.
(e) “commercial activity” means any activity in the nature of trade, commerce
or business, or any activity of rendering any service in relation to any
trade, commerce or business, for a cess or fee or any other considera-
tion, irrespective of the nature of use or application, or retention, of the
income from such activity;
(f) “registration” includes provisional registration, provisional approval
or approval, as referred to in the second proviso to section 10(23C) or
12AB(1) of the Income-tax Act, 1961 (43 of 1961) and under section
332, but shall not include approval under the second proviso to section
80G(5) of the said Act or section 354;
(g) “registered non-profit organisation” means any person having a valid
registration under any specified provision and such registration has not
been cancelled;
(h) “related person” means any of the following persons:—
(i) the author or the founder of the registered non-profit organisa-
tion;
(ii) any person whose total contribution to such registered non-profit
organisation, during the relevant tax year exceeds ` 100000, or, in
aggregate up to the end of the relevant tax year exceeds ten lakh
rupees, as the case may be;
(iii) where such author, founder or person is a Hindu undivided family,
a member of the family;
(iv) any trustee or manager (by whatever name called) of the registered
non-profit organisation;
(v) any relative of any persons referred to in sub-clause (i), (iii) or (iv);
(vi) any concern in which any of the persons referred to in sub-clause
(i), (iii), (iv) or (v) has a su
In plain language
What Section 355 actually does
Section 355 is the "dictionary" for the entire non-profit organisation chapter of the Income-tax Act, 2025. That chapter — Part B of Chapter XVII (broadly Sections 332 to 355) — is the self-contained code that governs how charitable and religious trusts, societies, Section 8 companies and other institutions are registered, taxed and regulated. Section 355 does not by itself charge any tax or grant any exemption; instead it defines the key terms that every other section in the chapter uses. Because the meaning of the whole chapter turns on these definitions, this is one of the most important sections for any trust, NGO or its advisor to understand.
In the old law, these concepts were scattered across Sections 11, 12, 12A, 12AA, 12AB, 13 and 10(23C) of the Income-tax Act, 1961. The 2025 Act pulls them together and gives them one consolidated set of definitions in Section 355.
Who it applies to
- Registered Non-Profit Organisations (RNPOs) — the umbrella term the 2025 Act now uses for charitable/religious trusts and institutions.
- Trustees, founders, authors, managers and their relatives — because many definitions (like "related person") police benefits flowing to insiders.
- Donors, especially those giving large or anonymous contributions.
- Tax officers and appellate authorities interpreting the chapter.
The key definitions you must know
- Registered non-profit organisation: any person holding a valid registration under a "specified provision" whose registration has not been cancelled.
- Specified provision: the registration routes that qualify — Sections 12A, 12AA, 12AB and 10(23C) of the 1961 Act, and Section 332 of the 2025 Act. This "grandfathers" existing trusts into the new regime.
- Anonymous donation: a voluntary contribution where the recipient does not maintain a record of the donor's identity (name, address and other prescribed particulars). These are taxed harshly (see table).
- Donation: any voluntary contribution received by an RNPO from any person.
- Commercial activity: any activity in the nature of trade, commerce or business, or any service in relation to it, for a cess, fee or other consideration — regardless of how the resulting income is used.
- Related person: the author/founder, substantial contributors (broadly, those giving more than ₹1 lakh in a year or ₹10 lakh in aggregate), their relatives, trustees/managers, and any concern in which such persons have a substantial interest.
- Relative: spouse, brother, sister, lineal ascendants and descendants, and their spouses.
- Substantial interest: holding at least 20% of voting power in a company, or a 20% share of profits in any other concern.
- Regular income, specified income and residual income: "residual income" is total income reduced by regular income and specified income. These feed the 85%-application maths and the special 30% tax on specified income.
- Registration, approval, cancellation: defined inclusively — e.g. cancellation "includes withdrawal", and registration includes provisional registration.
How it interacts with the rest of the chapter
- Whether you even qualify for exemption depends on being an RNPO — defined here.
- The "related person" definition drives the anti-abuse rule: income diverted for the benefit of insiders becomes "specified income" taxed at 30%.
- The "anonymous donation" definition determines what falls into the punitive 30% bracket under the specified-income rules.
- The "commercial activity" definition guards against trusts running businesses under a charitable label.
Practical implications
Trusts should immediately (a) build a robust donor KYC system to avoid the anonymous-donation trap, (b) map every trustee, founder and major donor as a related person and avoid concessional benefits to them, and (c) treat any fee-earning activity as potential commercial activity requiring careful monitoring. Getting these definitions wrong can convert exempt income into 30%-taxed income or even trigger loss of registration.
💡 Example
Worked example 1 — anonymous donation. A charitable trust (an RNPO) collects a donation hundi of ₹40,00,000 during the year but keeps no record of who gave the money. It also receives ₹1,00,00,000 in donations with full donor details. The threshold for anonymous donations is the higher of 5% of total donations or ₹1,00,000. Total donations = ₹1.4 crore; 5% = ₹7,00,000. So the taxable anonymous donation = ₹40,00,000 − ₹7,00,000 = ₹33,00,000, taxed as specified income at 30% = ₹9,90,000 (plus surcharge and cess). Had the trust simply kept a donor register with names and addresses, none of this would be taxed.
Worked example 2 — related person benefit. A trust pays ₹6,00,000 rent to a building owned by the founder's son (a "relative", hence a "related person") when the fair rent is only ₹3,00,000. The excess ₹3,00,000 is treated as income applied for a related person's benefit — "specified income" taxed at 30% = ₹90,000, and it also risks the trust's registration.
A relatable story. Meera runs a small education trust in Jaipur. For years the temple-style donation box brought in unrecorded cash, and nobody worried. Under the 2025 Act her CA sat her down and explained Section 355: because she keeps no donor identity records, most of that cash is now an "anonymous donation" taxed at 30%. Meera set up a simple donation slip capturing each donor's name, address and PAN where available. The next year, with records in place, that same collection stayed fully exempt — a small paperwork change that saved lakhs.
| Term (Section 355) | Meaning in plain English | Key threshold / effect |
|---|
| Registered Non-Profit Organisation (RNPO) | Person with valid, uncancelled registration under a specified provision | Gate to all exemptions |
| Specified provision | Sec 12A / 12AA / 12AB / 10(23C) of 1961 Act; Sec 332 of 2025 Act | Grandfathers old registrations |
| Anonymous donation | Voluntary contribution with no donor identity record kept | Excess over higher of 5% of total donations or ₹1,00,000 taxed at 30% |
| Related person | Founder, major donors, relatives, trustees, their concerns | Major donor: > ₹1 lakh/year or ₹10 lakh aggregate |
| Substantial interest | Stake in a company/concern | 20% voting power or 20% profit share |
| Relative | Spouse, siblings, lineal ascendants/descendants and their spouses | Defines related-person circle |
| Commercial activity | Trade, business or service for consideration | Regardless of how income is used |
| Residual income | Total income minus regular income and specified income | Feeds application/tax computation |
Related sections
Section 332 — Registration of non-profit organisations (unified registration door) Section 335 — Regular income of a registered non-profit organisation Section 337 — Specified income taxed at special rate Section 341 — Application of income (85% requirement) Section 350 — Permitted modes of investment of accumulated funds Section 352 — Tax on accreted income on cancellation of registration
Frequently asked questions
Does Section 355 impose any tax by itself?
No. Section 355 is purely an interpretation (definitions) clause. It gives meaning to terms used across the non-profit chapter, but the charging and exemption provisions sit in the operative sections such as 335, 337 and 341.
My trust is registered under Section 12AB of the old 1961 Act — am I covered?
Yes. Section 355 defines 'specified provision' to include Sections 12A, 12AA, 12AB and 10(23C) of the 1961 Act, so existing registrations are recognised as valid RNPO registrations, provided they have not been cancelled.
What exactly makes a donation 'anonymous'?
A donation is anonymous when the receiving organisation does not maintain a record of the donor's identity — name, address and any other prescribed particulars. Keeping a proper donor register generally takes the donation out of the anonymous category.
Who counts as a 'related person'?
Broadly the author or founder, substantial contributors (generally those giving over ₹1 lakh in a year or ₹10 lakh in aggregate), their relatives, trustees and managers, and any concern in which such persons hold a substantial interest.
What is 'substantial interest' under Section 355?
It means holding at least 20% of the voting power in a company, or being entitled to at least 20% of the profits of any other concern such as a firm.
Why does the definition of 'commercial activity' matter?
Because it is defined widely — any trade, business or service for consideration, irrespective of how the income is used. This prevents trusts from sheltering genuine business income under a charitable label.
Where can I read the official text?
The consolidated provision appears in Part B of Chapter XVII of the Income-tax Act, 2025, on the Income Tax Department portal (incometaxindia.gov.in). Always confirm the current wording as amended by the Finance Act, 2026.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 05 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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