As a Section 8 Company, what options do we have to protect money coming from donations that could not be utilized in the current financial year, or needs to be reserved to continue services in the next financial year, without incurring taxes for the current FY because of under-utilization?
Under Income tax law, if 85% income is not applied, there are 2 options so that the shortfall is not taxed. One, deemed application where carry forward is permitted for application in the next financial year and Two, Accumulation where carry forward is available for 5 years. If application is not done within timelines, the income not applied will be taxable. Under Income Tax Act 2025 effective 1.4.2026, the deemed application provision has been deleted.
CS Sharad Bhargava
Dear Sharadji, I would like to understand the implications on the “deemed application” cause not being there from 1st April 2026. Does it mean the NPOs have to spend 100% or the balance would be taxed?
Under ITA 1961, if 85% income is not applied, there were two options-deemed application or accumulation. In ITA 2025, deemed application option has been done away with. Now shortfall in 85% application qualifies only as accumulation i.e. needs to be spent in 5 years, repurposing allowed, invested in specified modes and no inter charity donation of such accumulation. This is a simplification effort of the Govt.
A registered NPO effective April 2026 will not be taxed for shortfall of 85% application provided it opts for accumulation (accumulated income as per Section 342 of ITA 2025). It is also not necessary that 100% income is to be spent under ITA 2025.
Hope it clarifies Soma Sastry
CS Sharad Bhargava