Income Tax Act 2025: Section 345 for Tax Year 2026-27

Restriction on commercial activities by a registered non-profit organisation

[Section-345 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]

No registered non-profit organisation, other than a registered non-profit organisation, carrying out advancement of any other object of general public utility, shall carry out any commercial activity unless—

• (a) such commercial activity is incidental to the attainment of the objectives of the registered non-profit organisation; and
• (b) separate books of account are maintained for such activities.

FAQs on Section 345 of Income Tax Act 2025

What does Section 345 of the Income Tax Act, 2025 restrict?
Section 345 restricts registered non-profit organisations from carrying out commercial activities unless specific conditions are met.

Are all registered non-profit organisations prohibited from commercial activity under Section 345?
No. Only those registered non-profit organisations that are not engaged in the advancement of any other object of general public utility are restricted. Those engaged in such advancement have specific conditions to comply with.

What are the conditions under which a registered non-profit organisation can undertake commercial activities?
The commercial activity must be incidental to the attainment of the organisation’s objectives, and separate books of account must be maintained for such activities.

What does ‘incidental to the attainment of objectives’ mean under Section 345?
It means the commercial activity should directly support or be secondary to achieving the non-profit’s main charitable purposes.

Why is it mandatory to maintain separate books of account for such commercial activities?
Maintaining separate books ensures clear financial reporting and accountability, making it easier to assess whether the commercial activity is truly incidental and not a primary function.

What happens if a non-profit organisation fails to meet the conditions of Section 345?
Failure to comply with the conditions may lead to consequences such as loss of tax benefits or disqualification from being treated as a registered non-profit under the Act.

Does Section 345 apply from the beginning of the financial year 2025-26?
No, Section 345 comes into effect from 1st April, 2026, which corresponds to the assessment year 2026-27.

Can a non-profit organisation engage in any kind of commercial activity without restriction if it advances general public utility?
No. Even if the organisation advances general public utility, it must still ensure the commercial activity is incidental and maintain separate books of account.

Does Section 345 impose an absolute ban on commercial activities by non-profits?
No, it does not impose an absolute ban. It allows commercial activities under specific conditions.

Are donations or grants considered commercial activities under Section 345?
No, donations or grants are not considered commercial activities. Commercial activities generally involve the sale of goods or services for a fee or profit.

Is registration under the Income Tax Act, 2025 necessary to be considered a registered non-profit organisation under Section 345?
Yes, only entities registered under the Income Tax Act, 2025 as non-profit organisations are subject to this provision.

What kind of records should be kept to comply with the requirement of maintaining separate books?
Detailed financial statements including income, expenditure, assets, and liabilities specifically related to the commercial activity must be maintained separately from the main accounts.

Can income from incidental commercial activities be used for charitable purposes?
Yes, income generated from incidental commercial activities can be used for the charitable objectives of the organisation.

Is Section 345 applicable to both newly registered and existing non-profit organisations?
Yes, once in effect, it applies to all registered non-profit organisations regardless of their registration date.