Chapter XVII - Special Provisions Relating to Certain Persons
Section 350
Section 350: permitted modes of investment
Section 350 is the gatekeeping provision referenced throughout this Chapter (corpus donations, accumulated income, deemed accumulated income) - it fixes exactly where a registered non-profit organisation is allowed to park its money.
On this page
Need advice on Section 350?
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
(1) The modes of investing or depositing the money under this Part, shall be such as specified in Schedule XVI.
(2) The modes of investing or depositing money under this Part, other than the modes specified in Schedule XVI, shall be specified by the Central Government, by notification.
Introduction
Section 350 identifies the investment and deposit modes that this Part permits for non-profit funds.
Schedule XVI lists statutory modes, and the Central Government may notify additional modes. This rule affects corpus and accumulated funds elsewhere in the Part.
Key takeaways
Schedule XVI is the starting list
Modes of investment or deposit under this Part are those specified in Schedule XVI.
Notifications may add modes
The Central Government may specify additional modes outside Schedule XVI by notification.
Other NPO provisions rely on this rule
Corpus and accumulated-income provisions refer to Section 350 when requiring a qualifying investment or deposit mode.
What Section 350 says
Sub-section (1): the modes of investing or depositing money under this Part are as specified in Schedule XVI.
Sub-section (2): modes of investing or depositing money under this Part, other than those specified in Schedule XVI, may be specified by the Central Government by notification.
Why this matters
Sections 339, 340 and 342 refer to permitted modes for corpus, deemed corpus and accumulated income. Section 342(4) also provides for application for the stated purposes. Under section 343(1), if deemed accumulated income is invested or deposited, the investment or deposit must use a section 350 permitted mode; this does not require every such amount to be invested or deposited.
Section 350(1) refers to Schedule XVI and subsection (2) permits additional notified modes. Section 337 separately identifies contravening investments or deposits out of the listed funds as specified income. Check the applicable Schedule entry and current notification before selecting an instrument.
When this provision applies
Map each proposed investment or deposit to an exact Schedule XVI entry or an applicable Central Government notification. Check the instrument, issuer and all conditions attached to the entry.
The source of funds also matters for the linked NPO provisions. Maintain separate records for corpus, accumulated income, deemed accumulated income and other funds instead of treating a permitted product as proof of every exemption condition.
Limits and procedural safeguards
Schedule XVI is a list of defined categories, not approval of every product marketed as safe. For example, the company-debenture category in paragraph 1(6) requires both principal and interest to be fully and unconditionally guaranteed by the Central or a State Government.
A permitted investment mode does not by itself satisfy the purpose, application or record-keeping requirements for the fund concerned. Section 343’s deemed-accumulation rule is conditional where an investment or deposit is made.
A notification relied on for an additional mode must cover the actual instrument and relevant period. This guide does not assert that any unnamed commercial product has been notified.
Step-by-step review
1. Identify the fund category, proposed instrument, issuer and transaction date.
2. Locate the exact Schedule XVI entry or notification and check every qualifying condition.
3. Record the allocation of the investment to the fund and retain the supporting instrument and authority.
4. Review subsequent changes affecting eligibility and examine Section 337 if a contravening investment or deposit has been made.
Hypothetical example
Hypothetical: an organisation considers a corporate debenture because a brochure describes it as secure. That description does not establish paragraph 1(6) eligibility. The organisation must verify the required Government guarantee of both principal and interest, or identify another actually applicable permitted entry or notification.
Records to prepare
Maintain an investment register linking each instrument and fund allocation to its exact permitted mode.
Keep issuer documents, guarantee terms and any relied-on notification, including dates and conditions.
Official amended Act source
Step-by-step flow for checking a mode of investment under Section 350
- 1
Is money being invested or deposited under this Part?
For example, Section 342(4) (accumulated income) and Section 343(1) (deemed accumulated income) require investment in modes permitted under Section 350.
- No: Section 350 is not the relevant test.
- Yes: Go to the next step.
- 2
Is the mode specified in Schedule XVI?
- Yes: It is a permitted mode under Section 350(1); go to the last step.
- No: Go to the next step.
- 3
Has the Central Government specified the mode by notification?
Section 350(2) allows modes other than those in Schedule XVI to be specified by notification.
- Yes: It is a permitted mode under Section 350(2); go to the next step.
- No: It is not a permitted mode; choose a Schedule XVI or notified mode, then go to the next step.
- 4
Record the evidence
Keep proof of the mode for each investment or deposit, and of the Schedule XVI entry or notification relied on.
Practical checklist
Do
- Map each corpus or accumulated fund investment to a Schedule XVI or notified permitted mode.
- Retain the investment instrument and notification supporting the selected mode.
- Maintain an investment register linking each instrument and fund allocation to its exact permitted mode.
- Keep issuer documents, guarantee terms and any relied-on notification, including dates and conditions.
Avoid
- Treat an investment as permitted solely because it is low risk or common in the market.
Illustrative example
Worked example: placing accumulated income
Hypothetical facts (illustration only, not a real taxpayer): A registered trust has ₹10,00,000 of income accumulated under Section 342. It plans to put ₹6,00,000 in a deposit that it has confirmed is listed in Schedule XVI, and ₹4,00,000 in a high-yield instrument that is not listed there. All amounts are assumed.
Total
₹6,00,000 + ₹4,00,000 = ₹10,00,000, all of which Section 342(4) requires to be in a Section 350 mode unless applied for the stated purpose.
Listed deposit
The ₹6,00,000 deposit is in a Schedule XVI mode, so it is permitted under Section 350(1).
Unlisted instrument
The ₹4,00,000 instrument is not in Schedule XVI. The trust checks whether the Central Government has notified it under Section 350(2).
If not notified
If there is no notification, the ₹4,00,000 placement is not in a permitted mode, and the trust should use a Schedule XVI or notified mode instead.
Outcome
- ₹6,00,000 is clearly permitted; the ₹4,00,000 depends on a notification under Section 350(2).
- A good credit rating or return does not make a mode permitted; only Schedule XVI or a notification does.
Glossary
- Permitted mode
- An investment or deposit category specified in Schedule XVI or by a notification under Section 350(2).
- Corpus allocation
- Identification of the investment or deposit maintained specifically for the relevant corpus funds.
Frequently asked questions
Where must a registered non-profit organisation invest its corpus or accumulated income?
Only in the modes specified in Schedule XVI, or any additional mode the Central Government notifies under Section 350(2).
What happens if an investment or deposit contravenes Section 350?
It becomes specified income under Section 337 (item 4 of the table), taxable in the tax year the investment or deposit is made, at 30% under Section 334(1)(a).
Must all deemed accumulated income be invested or deposited?
Section 343(1) uses a conditional rule: where that income is invested or deposited, a section 350 permitted mode is required. It does not require every such amount to be invested or deposited.
Is a high credit rating enough to establish a permitted mode?
No. Compare the product with the actual statutory entry or notification. A credit rating is not a substitute for an entry’s issuer or guarantee conditions.
Can one permitted investment prove that all exemption requirements are met?
No. Investment mode is one requirement. The relevant corpus, accumulation, application and other conditions must be checked separately.
Need help applying this provision to your situation?
Check whether your investment mode is Section 350-compliantLast updated 10 October 2026