Section 354: application for approval for purpose of Section 133(1)(b)(ii)

Introduction

Section 354 governs applications for approval connected with the deduction in section 133(1)(b)(ii). It specifies who may apply, how the authority decides and the approval’s duration.

Key takeaways

Who can apply, and the conditions

Sub-section (1): a registered non-profit organisation, or a person referred to in the relevant Table entry of Schedule VII, may apply to the Principal Commissioner or Commissioner, in the prescribed form and manner, for approval for the purpose of Section 133(1)(b)(ii), subject to these conditions:

• It is not expressed to be for the benefit of any particular religious community or caste
• It is established in India for a charitable purpose, and does not incur religious-nature expenditure exceeding 5% of its total income in a tax year
• The instrument or rules governing it do not allow transfer, at any time, of the whole or any part of its assets for any purpose other than a charitable purpose
• It maintains regular accounts of its receipts and expenditure
• It prepares and delivers a prescribed statement, for the prescribed period, to the prescribed income-tax authority in the prescribed form and manner, within the prescribed time
• It delivers a correction statement to rectify a mistake, or to add, delete or update information in that statement, in the prescribed form and manner
• It furnishes a certificate to the donor, specifying the amount of donation, within the prescribed period from the date of receipt, containing the prescribed particulars

Filing deadlines, order deadlines and validity of approval

Sub-section (2) sets out, case by case, when to apply, the time limit for the Principal Commissioner or Commissioner's order, and how long the approval remains valid:

How the application is processed

Sub-section (3): for applications under Cases 2 to 5, the Principal Commissioner or Commissioner calls for documents, information or makes inquiries to be satisfied about the genuineness of the activities and compliance with other applicable laws. If satisfied, an order approving the application is passed in writing. If not satisfied, after giving the applicant a reasonable opportunity of being heard, the officer either rejects the application (Case 2) or rejects the application and cancels the approval (Cases 3 to 5), sending a copy of the order to the applicant and the Assessing Officer.

Sub-section (4): for a Case 1 application, the Principal Commissioner or Commissioner passes an order granting provisional approval.

Why the starting tax year matters

Rows 1 to 3 count the approval period from the tax year in which the application is made. Rows 4 and 5 instead specify five tax years following that tax year. Do not treat all five categories as having the same start date.

The month-based order deadline in row 1 differs from the quarter-based deadline in rows 2 to 5. A pending application is not itself an approval order.

Step-by-step flow for approval under Section 354

1. 1

   Is the applicant a registered non-profit organisation or a person in Schedule VII (Table: Sl. No. 1)?

   • No: It cannot apply under Section 354(1).
   • Yes: Go to the next step.
2. 2

   Does it meet the conditions in Section 354(1)(a) to (g)?

   Not for a particular religious community or caste; established in India for a charitable purpose with religious-nature expenditure not exceeding 5% of total income in a tax year; no provision to transfer assets for a non-charitable purpose; regular accounts; prescribed statements and correction statements; and donor certificates as prescribed.

   • No: Approval should not be sought until the conditions are met.
   • Yes: Go to the next step.
3. 3

   Which case in the Table in Section 354(2) applies, and is the application within its time limit?

   Sl. No. 1: activities not commenced. Sl. No. 2: activities commenced. Sl. No. 3: provisional approval and activities commenced (within six months of commencement). Sl. No. 4: provisional approval expiring, activities not commenced. Sl. No. 5: approval expiring (Sl. Nos. 4 and 5 at least six months before expiry).

4. 4

   Is it a Sl. No. 1 case?

   • Yes: Provisional approval is granted (Section 354(4)), with the order within one month from the end of the month of application; valid for three tax years from the tax year of application.
   • No: Go to the next step.
5. 5

   Is the Principal Commissioner or Commissioner satisfied after inquiry?

   Under Section 354(3), he checks the objects, the genuineness of the activities and compliance with other laws material to the objects. The order is due within six months from the end of the quarter of application.

   • Yes: Approval is granted, valid for five tax years as stated in column E.
   • No: After a hearing, the application is rejected (Sl. No. 2) or rejected and the approval cancelled (other cases).

Practical checklist

Glossary

Provisional approval

The approval granted under subsection (4) for the table’s first category, where activities have not commenced.

Donor certificate

The certificate required by subsection (1)(g), containing the prescribed donation particulars within the prescribed period.

Approval validity

The period in column E of the application table; it differs by application category.

Frequently asked questions