Section 341: application of income

What counts as application of income

Sub-section (1): the following sums are allowed as application of income:

• Any sum (other than a donation to another registered non-profit organisation) applied for a charitable or religious purpose in India for which the organisation is registered, paid during the tax year, subject to Sections 35(b)(i) and 36(4) to (7)
• 85% of the sum paid by way of donation made to any other registered non-profit organisation

Corpus withdrawals and loan repayments also count

Sub-section (2): application of income under sub-section (1) also includes:

• An amount invested or deposited back into the corpus during the tax year, if such investment/deposit is made within 5 years from the end of the tax year the original application from the corpus was made, and that original application (made after 31 March 2021) did not violate any provision of this Part or the corresponding Income-tax Act, 1961 provision
• An amount repaid during the tax year towards a loan or borrowing, if such repayment is within 5 years from the end of the tax year the application from the loan/borrowing was made, and that original application (made after 31 March 2021) did not violate any provision of this Part or the corresponding Income-tax Act, 1961 provision

What does not count as application of income

Sub-section (3): the following claims are not allowed as application of income under sub-sections (1) and (2):

• Depreciation or other allowance on an asset whose acquisition has already been claimed as application of income (in the same or any other tax year, under this Part or the corresponding 1961 Act provision)
• A claim of set-off, deduction or allowance of any excess application from a preceding year
• Any sum paid as a corpus donation to another registered non-profit organisation

Applications from corpus, loans or accumulated funds don't count separately

Sub-section (4): an application from corpus, loan or borrowing, accumulated income, specified income or deemed accumulated income is not itself considered application for the purposes of sub-sections (1) and (2) - this prevents double counting.

Deemed application - the shortfall option

Sub-section (5): where the regular income applied towards charitable or religious purposes in India in a tax year is less than 85% of regular income, the shortfall (or any part of it) may, at the organisation's option, be treated as deemed application.

Sub-section (6): any deemed application under sub-section (5) must actually be applied for the organisation's objects in India - during the tax year the income is received, or the immediately succeeding tax year, if the shortfall is because income was not yet received; or in the tax year immediately succeeding the tax year the income was derived, for any other reason.

Sub-section (7): the option under sub-section (5) must be exercised on or before the due date under Section 263(1) for filing the return of income, in the prescribed form and manner.

Sub-section (8): application of income under sub-section (1) includes deemed application under sub-section (5).

Capital gains reinvestment treated as application

Sub-section (9): where a capital asset held wholly for charitable or religious purposes is transferred, and the net consideration (or part of it) is used to acquire another capital asset to be held for the same purpose, the capital gain is deemed as application of income - the whole gain if the whole net consideration is reinvested, or a proportionate amount if only part is reinvested.

A similar proportionate rule (using the "appropriate fraction") applies where the asset was held only partly for charitable or religious purposes.

Sub-section (10) defines "appropriate fraction" (the fraction of income from the transferred asset that was applicable to charitable/religious purposes immediately before transfer), "cost of transferred asset" (aggregate cost of acquisition and improvement) and "net consideration" (full value of consideration received, less transfer expenses) for this purpose.

Frequently asked questions