The Income Tax Department has issued thousands of notices to charitable trusts, trade associations, and educational bodies, questioning whether certain income streams qualify for tax exemption under the Income-tax Act, 1961, according to sources. The notices were issued after these organisations applied for registration or renewal of their tax-exempt status under the Income-tax Act. Such registration allows charitable entities to claim exemption on their income under Section 12A, while approval under Section 80G enables donors to claim tax deductions.
An email sent to the Finance Ministry remained unanswered till the publication of this news.
According to copies of notices reviewed by Business Standard, tax authorities have flagged certain receipts as “commercial in nature”, potentially violating the proviso to Section 2(15). Section 2(15) defines “charitable purpose” and restricts entities engaged in activities of general public utility from carrying out activities in the nature of trade or business beyond specified limits.
As per the notices, applicants have been asked to justify why such receipts should not lead to rejection of registration, demonstrate that their activities remain charitable in substance, and maintain separate books of accounts for such income. The department has warned that failure to respond could result in an adverse view on the genuineness of charitable intent.
Organisations that received notices argue that activities such as conducting seminars, training programmes, issuing certificates, publications, and collecting membership fees are integral to their objectives and should not be treated as commercial activities. They maintain that these activities are incidental to charitable purposes, are not driven by profit motive, and the income generated is used solely to further their objectives.
The issue was earlier examined by the Supreme Court of India in key rulings, including Ahmedabad Urban Development Authority (AUDA) v. Commissioner of Income Tax (CIT). The court held that charitable institutions cannot engage in trade or business unless such activity is incidental to their main objective, and that the nature of the activity, pricing, and profit element must be examined. It clarified that recovering costs or charging nominal fees would not make an activity commercial, but a significant surplus could attract the provisions of Section 2(15).
At the same time, recent rulings by the Income Tax Appellate Tribunal (ITAT) have provided relief to several trade and industry bodies. In October 2025, the ITAT Kolkata allowed the appeal of the Bengal Chamber of Commerce & Industry, upholding its registration under Section 12A and exempt status under Section 11, based on earlier cases in its favour for assessment years (AY) 2011–12, AY 2012–13, and AY 1974–75.
In December 2025, the ITAT Delhi granted regular registration to the Federation of European Business in India (FEBI) and set aside the cancellation of provisional registration (which had been granted for AYs 2024–25 to 2026–27). It ruled that policy advocacy and promotion of EU-India business relations serve public utility. The tribunal relied on earlier Supreme Court precedents involving the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Andhra Chamber of Commerce. Similar relief was granted to jewellers’ and diamond traders’ associations in October 2025, where fee-based services were held to be incidental to broader objectives.
Commenting on the issue, an tax expert, said that courts and tribunals have consistently held that activities inextricably linked to charitable objects do not lose their character merely because they generate revenue. “The revenue department should target only those cases where there is a clear and independent profit motive. This distinction is fundamental and yet routinely overlooked in departmental proceedings.”
According to another tax expert, the rule of consistency, as relied on by the Supreme Court in the case of Radha Saomi Satsang, is pertinent in these cases. “The co-ordinate Benches of ITAT have relied upon this rule and focused on the fact whether the charitable organisations have had any change in their objects. In case they have been claiming the benefit of exemption under Section 11 for decades and there is no change in their objects, and the Income Tax Department has also accepted the position year after year and granted the registration certificate too in 2021, then now settled positions cannot be challenged.”
Also, chambers have represented before the CBDT that questioning the status of registration not only burdens charitable institutions administratively but also consumes Income Tax Department resources, Jalan stated. “Hence, settled position (sometimes decades old) should not be unsettled as the Income Tax Act 2025 makes a new beginning.”
