Everything You Need to Know About Tax Exemptions For NGOs
If you run an NGO in India, you’ve likely heard of tax exemptions under the Income Tax Act. But what actually qualifies as a “charitable purpose”? What are the limits on business income? And what common mistakes get NGOs disqualified?
This guide breaks it all down in simple language, so you can focus on impact without risking your tax benefits.
What is a “Charitable Purpose”?
To qualify for tax exemption, your NGO must be registered for a charitable or religious purpose.
As per Section 2(15), charitable purpose includes:
- Relief of the poor
- Education
- Yoga
- Medical relief
- Preservation of environment (including forests, wildlife, watersheds)
- Preservation of monuments or cultural heritage
- Advancement of any other object of general public utility
If your work clearly fits into any of the first six categories, you don’t have to worry.
But if your NGO falls under the “general public utility” category, the rules are stricter, especially if your NGO earns money.
The 20% Rules For NGOs That Earn Money
If your NGO under “general public utility” does any business-like activity (selling products, ticketed services, paid events), then two conditions must be met to keep your tax exemption:
- The activity must be incidental to your main charitable objective.
- The total income from such activity must not exceed 20% of your total receipts in that financial year.
This 20% cap only applies to the “general public utility” category. If your NGO works in education, yoga, or healthcare, you’re exempt from this limit.
What About Religious Trusts?
Though the Act doesn’t define “religious purpose,” Section 11(1)(a) allows tax exemption for trusts set up wholly for charitable or religious purposes.
However, you should be careful of Section 13(1)(b). It disqualifies any trust created for the exclusive benefit of a particular religious community or caste.
What if Your NGO Runs a Business Activity?
Even if your NGO’s object clause is fine, running a business means extra care.
To claim tax exemption on business income, you must:
- Prove that the business is incidental to your main objectives.
- Maintain separate books of accounts for the business activity.
If you fail either condition, the income from that business will be taxable, even if everything else is compliant.
How to Stay Compliant (and Stress-Free)
Here’s a quick checklist to make sure your NGO remains eligible for tax exemption:
| Area | Action |
| Purpose | Register under approved charitable or religious objectives only |
| Proportion | If under “general public utility,” keep business income under 20% |
| Proof | Maintain separate, audit-ready accounts for revenue activities |
| Paperwork | Stay compliant with 12A/80G registration and annual filing norms |
Conclusion
NGO tax exemption isn’t just about paperwork. It’s about aligning your mission, money, and management. Understand the rules, structure your activities wisely, and consult a professional when in doubt.