India’s growth story is often measured through economic expansion, infrastructure creation and technological advancement. Yet, many of its most meaningful social transformations have been driven by non-profit organisations (NPOs) that bridge the gap between policy and grassroots realities. Against this backdrop, understanding the tax regulatory framework governing non-profits becomes critical.

Encouragingly, the Income Tax Act, 2025, incorporated several reforms that the non-profit sector has sought for years and reflects a genuine effort to simplify a historically complex regime. For instance, trusts, societies and educational institutions have been brought under a unified framework, while the cumbersome three-tier structure of Sections 12A, 12AA and 12AB has been replaced by a single streamlined online registration process. Equally significant is the government’s willingness to refine the law in response to stakeholder feedback. Concerns over the proposed 30 per cent tax on all anonymous donations led the Select Committee to recommend restoring the exemption available to wholly religious institutions, a recommendation ultimately incorporated into the final Act.

The challenge now is to extend that same spirit to other provisions where the balance between accountability and sustainability remains unsettled.

As per estimates, India has roughly 33 lakh NGOs and community service organisations, while the NGO Darpan portal lists around 1.87 lakh. Yet only about 5 lakh NPOs are registered under the Income Tax framework, highlighting that the gap is not merely a story of paperwork or under-registration, but also partly reflects the incentives embedded........

© Free Press Journal