Chapter XVII - Special Provisions Relating to Certain Persons
Section 345
Section 345: restriction on commercial activities
Section 345 sets the general condition under which a registered non-profit organisation may carry out any commercial activity at all, without that activity disqualifying it from the exemption benefits of this Part.
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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
A registered non-profit organisation (other than a registered non-profit organisation mentioned in section 346) shall not carry out any commercial activity unless— (a) such commercial activity is incidental to the attainment of the objectives of the registered non-profit organisation; and (b) separate books of account are maintained for such activities.
Introduction
Section 345 restricts commercial activity by registered non-profit organisations other than those advancing an object of general public utility.
The activity must meet the stated linkage to the organisation’s objects and separate-books condition; general-public-utility activity is addressed separately in section 346.
Key takeaways
Two conditions must both hold
Commercial activity must be incidental to the organisation's objectives and it must maintain separate books for that activity.
Section 346 entities use a different test
The Section 345 rule expressly excludes registered organisations covered by Section 346's general-public-utility rule.
What Section 345 says
Section 345 permits commercial activity for an organisation outside Section 346 only when the activity is incidental to its registered objectives and it keeps separate books of account for the activity.
The two conditions
- The commercial activity must be incidental to the attainment of the organisation's own objectives - it cannot be a standalone commercial venture unrelated to the charitable or religious purpose
- Separate books of account must be maintained specifically for that commercial activity
A separate rule for "general public utility" organisations
Section 345 excludes organisations covered by Section 346, which sets a different and more specific rule for organisations carrying out advancement of any other object of general public utility - including a cap that aggregate receipts from commercial activity must not exceed 20% of the organisation's total receipts for the relevant tax year, along with its own separate books of account requirement.
Step-by-step flow for applying Section 345
- 1
Is the organisation one mentioned in Section 346 (advancing any other object of general public utility)?
- Yes: Section 345 does not apply; test the activity under Section 346.
- No: Go to the next step.
- 2
Is the activity a commercial activity?
Section 355(e) defines commercial activity as trade, commerce or business, or services in relation to them, for a cess, fee or other consideration, whatever is done with the income.
- No: Section 345 does not restrict it.
- Yes: Go to the next step.
- 3
Is the activity incidental to the attainment of the organisation's objectives?
- No: The activity is not allowed under Section 345(a); carrying it out is a specified violation under Section 351(1)(b).
- Yes: Go to the next step.
- 4
Are separate books of account maintained for the activity?
- No: The condition in Section 345(b) is not met; carrying out the activity is a specified violation under Section 351(1)(b).
- Yes: Both conditions are met and the activity may be carried on.
Practical checklist
Do
- Check the actual statutory condition for the organisation’s activity and objects.
- Maintain separate books for permitted commercial activity.
Avoid
- Apply the section 346 general-public-utility receipts test to every kind of registered non-profit organisation.
Illustrative example
Worked example: a school trust's side activities
Hypothetical facts (illustration only, not a real taxpayer): A registered educational trust runs a school. It sells textbooks and uniforms to its own students for a price, and is also considering a catering business for weddings in the town. It is not an organisation advancing any other object of general public utility.
Section 346 check
The trust's object is education, not any other object of general public utility, so Section 345 applies.
Textbooks and uniforms
These are sales for a price, so they are a commercial activity under Section 355(e). They support the school's teaching, so they may be treated as incidental to its objectives, provided separate books are kept for them.
Wedding catering
Catering for the public is a commercial activity with no clear link to education. It is unlikely to be incidental to the trust's objectives, so it would fail Section 345(a).
Risk
Running the catering business in contravention of Section 345 would be a specified violation under Section 351(1)(b).
Outcome
- Textbook and uniform sales can continue if they stay incidental and separate books are kept.
- The catering plan should not go ahead under Section 345 on these facts.
Frequently asked questions
Can any registered non-profit organisation run a commercial business alongside its charitable work?
Only if the commercial activity is incidental to the attainment of the organisation's own objectives, and separate books of account are maintained for it - as required by Section 345(a) and (b).
What happens if a registered non-profit organisation carries out commercial activity in contravention of Section 345?
This is listed as a specified violation under Section 351(1)(b), which can lead the Principal Commissioner or Commissioner to cancel the organisation's registration.
Need help applying this provision to your situation?
Structure your non-profit's commercial activities correctlyLast updated 9 October 2026