Chapter XVII - Special Provisions Relating to Certain Persons
Section 336
Section 336: taxable regular income
Section 336 contains the core "85% rule" familiar to anyone dealing with charitable trusts - it fixes how much of a registered non-profit organisation's regular income actually becomes taxable, based on how much was applied or accumulated for charitable or religious purposes during the year.
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Need advice on Section 336?
This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
The taxable regular income of a registered non-profit organisation for any tax year shall be––
(a) nil, where 85% or more of the regular income of such tax year has been applied as per provisions of section 341 or accumulated under section 342 for charitable or religious purposes, in such tax year as per the provisions of this Part; and
(b) in any other case, 85% of the regular income for such tax year as reduced by its application for charitable or religious purposes as per provisions of section 341 or accumulation thereof under section 342 in such tax year as per the provisions of this Part.
Introduction
Section 336 tests whether at least 85% of a registered non-profit organisation’s regular income was applied or properly accumulated for charitable or religious purposes.
If the combined qualifying amount falls below that threshold, the shortfall from 85% is taxable regular income. Sections 341 and 342 govern which amounts count as application and accumulation.
Key takeaways
At least 85% qualifying use means nil
Taxable regular income is nil if 85% or more of regular income is applied under Section 341 or accumulated under Section 342 for the stated purposes in that tax year.
Otherwise only the shortfall is taxable regular income
Where qualifying application and accumulation are below 85%, taxable regular income is 85% of regular income less those qualifying amounts.
What Section 336 says
The taxable regular income of a registered non-profit organisation for any tax year is:
- Nil, where 85% or more of the regular income of that tax year has been applied under Section 341 or accumulated under Section 342 for charitable or religious purposes, in that tax year, as per the provisions of this Part
- In any other case, 85% of the regular income for that tax year, as reduced by the amount applied for charitable or religious purposes under Section 341 or accumulated under Section 342 in that tax year
Apply the 85% test to regular income
Start with regular income as defined in section 335, rather than total receipts or total income. Identify amounts validly applied under section 341 and accumulated under section 342 for charitable or religious purposes in that tax year.
If those qualifying amounts together reach at least 85% of regular income, taxable regular income is nil. Otherwise subtract the qualifying amounts from 85% of regular income. The remaining 15% is not automatically taxable regular income.
For example, if regular income is ₹100 and qualifying application plus accumulation is ₹70, the shortfall from the ₹85 target is ₹15. At ₹85 of qualifying application and accumulation, taxable regular income is nil. Whether an expenditure or accumulation qualifies must still be checked under sections 341 and 342.
Practical checklist
Do
- Calculate 85% of the year’s regular income.
- Record separately the amount applied under section 341 and accumulated under section 342.
- Treat any shortfall from the 85% threshold as taxable regular income.
Avoid
- Count an amount as applied or accumulated merely because it appears in a budget rather than meeting sections 341 or 342.
Illustrative example
Illustration: qualifying amount below 85%
Hypothetical facts (illustration only, not a real taxpayer): A registered non-profit organisation has ₹10 lakh regular income. It applies ₹8 lakh under Section 341 and has no qualifying Section 342 accumulation for the tax year.
Find 85% of regular income
85% of ₹10 lakh is ₹8.5 lakh.
Subtract qualifying application and accumulation
₹8.5 lakh minus ₹8 lakh minus nil accumulation is ₹50,000.
Outcome
- Under Section 336(b), taxable regular income in this simplified illustration is ₹50,000. The illustration does not calculate any other category of income or tax.
Frequently asked questions
Does unspent income automatically become taxable regular income?
No. Section 336 uses an 85% threshold and recognises qualifying accumulation under section 342. The result depends on valid application under section 341 and accumulation under section 342 for that tax year.
What is the minimum percentage of income a non-profit organisation must apply to charitable purposes to avoid tax?
85% of its regular income for the tax year, whether applied under Section 341 or accumulated under Section 342 - if 85% or more is applied or accumulated, taxable regular income is nil.
What happens if less than 85% of regular income is applied or accumulated?
The taxable regular income becomes 85% of the regular income for the year, reduced by whatever amount was actually applied under Section 341 or accumulated under Section 342.
Need help applying this provision to your situation?
Plan your non-profit's 85% application requirementLast updated 2026-10-10