Section 354 of the Income Tax Act, 2025: Eligibility and Approval

Introduction

Section 354 of the Income Tax Act governs the approval of registered non-profit organizations seeking to receive donations eligible for deduction. Under the earlier Income-tax Act, 1961, these provisions were covered under Section 80G. From 1 April 2026, Section 133 covers the deduction for donations, while Section 354 covers the approval process for eligible organizations.

This blog explains the renumbering of Section 80G, eligibility conditions, application timelines, provisional and regular approval, approval validity, compliance requirements, and the procedure followed by the Commissioner under Section 354.

What Is Section 354 of the Income Tax Act?

Section 354 of the Income Tax Act allows a registered non-profit organization or a person referred to in Schedule VII, Table Sl. No. 1, to apply for approval for the purpose of Section 133(1)(b)(ii).

The application must be made in the prescribed form and manner to the Principal Commissioner or Commissioner.

The provision covers:

• Provisional approval for new organizations
• Regular approval where activities have commenced
• Conversion of provisional approval
• Renewal of existing approval
• Verification of charitable activities
• Rejection and cancellation of approval
• Donation reporting and donor certification

Under the Income-tax Act, 1961, Section 80G covered the deduction available to donors as well as the conditions for approval of eligible charitable institutions and funds.The Income-tax Act, 2025 has separated these two areas. Section 133 now deals with the deduction for eligible donations, while Section 354 of the Income Tax Act deals with the application, approval, renewal and verification of eligible non-profit organizations. Section 354 specifically refers to approval for the purpose of Section 133(1)(b)(ii).

Who Can Apply Under Section 354?

An application under Section 354 of the Income Tax Act may be filed by:

• A registered non-profit organization
• A person specified in Schedule VII, Table Sl. No. 1
• An organization whose activities have not commenced
• An organization whose activities have already commenced
• An organization holding provisional approval
• An organization whose regular approval is due to expire

The applicant must select the correct category because the filing deadline, verification procedure, and approval validity differ for each case.

Eligibility Conditions Under Section 354

An organization seeking approval under Section 354 of the Income Tax Act must satisfy the following conditions.

1. No Benefit to a Particular Religion or Caste

The organization must not be expressed to operate for the benefit of any particular religious community or caste.

Its governing documents and activities should reflect a genuine charitable purpose.

2. Established in India for a Charitable Purpose

The organization must be established in India for charitable purposes.

It may incur expenditure of a religious nature, but such expenditure must not exceed 5% of its total income during the relevant tax year.

3. Restriction on Transfer of Assets

The trust deed, memorandum, rules or other governing instrument must not permit the transfer of the whole or any part of the organization’s assets for a non-charitable purpose.

An appropriate dissolution or asset-transfer clause should ensure that the remaining assets continue to be used for charitable purposes.

4. Maintenance of Regular Accounts

The organization must maintain regular accounts of its receipts and expenditure.

The records should clearly establish:

• Sources of income
• Donations received
• Expenses incurred
• Application of charitable funds
• Religious expenditure, where applicable
• Assets and liabilities

5. Filing of Donation Statements

The organization must prepare and submit the prescribed statement containing details of donations and donors.

Under the new compliance framework, approved organizations are required to file the statement of donations in Form 113.

6. Filing of Correction Statements

Where information furnished in Form 113 is incorrect or incomplete, the organization must file a correction statement.

A correction statement may be used to rectify, add, delete or update information previously reported.

7. Certificate to Donors

The organization must issue a donation certificate to the donor specifying the donation amount and other prescribed particulars.

The certificate is issued in Form 114 after the donation statement is filed.

Forms Applicable Under Section 354

The form applicable under Section 354 of the Income Tax Act depends on whether the organization’s activities have commenced.

Form 104: Provisional Approval

Form 104 is used where the organization’s activities have not commenced.

After successful filing, the Income Tax Department issues an order in Form 106 along with a 16-digit Unique Registration Number.

Form 105: Regular Approval or Renewal

Form 105 is used where:

• Activities have commenced
• Provisional approval is being converted
• Existing approval is due for renewal
• Regular approval is required

After examination of the application, the Department issues its order in Form 107.

Application Timelines and Approval Validity

The application timelines under Section 354 of the Income Tax Act are:

Verification by the Commissioner

For regular approval, conversion, and renewal cases, the Principal Commissioner or Commissioner may call for documents, information or explanations.

While examining an application under Section 354 of the Income Tax Act, the authority may verify:

• Charitable objects of the organization
• Genuineness of its activities
• Financial statements and books
• Application of funds
• Details of assets and liabilities
• Compliance with other applicable laws
• Consistency between objects and actual activities
• If satisfied, the authority will pass a written approval order.

If the authority is not satisfied, it must provide the applicant with a reasonable opportunity of being heard before rejecting the application. In applicable cases, the existing approval may also be cancelled.

Provisional Approval vs Regular Approval

An organization should not treat provisional approval as permanent. Once its activities commence, it must apply for regular approval within the prescribed period.

Compliance After Receiving Approval

Approval under Section 354 of the Income Tax Act creates continuing responsibilities. An approved organization should:

• Maintain complete books of account
• Preserve donation and donor records
• File Form 113 within the prescribed time
• Submit correction statements where required
• Issue Form 114 to donors
• Use its income and assets for charitable purposes
• Monitor the 5% religious expenditure limit
• Apply for renewal at least six months before expiry
• Respond promptly to notices or information requests

Failure to comply may affect the organization’s approval and may also create difficulties for donors claiming deduction under Section 133.

Ebizfiling Support for Section 354 Approval

Ebizfiling helps NGOs, charitable trusts, societies and Section 8 companies manage approval and compliance under Section 354 of the Income Tax Act. Our experts assist with the complete process while ensuring the application is filed under the correct category and within the prescribed timeline.

• Eligibility review for Section 354 approval
• Provisional and regular approval application support
• Preparation and review of required documents
• Assistance with renewal and conversion of approval
• Support for donation statements and donor certificates

Need help with 80G(5) registration or Section 354 approval? Get professional filing support from Ebizfiling experts and complete your NGO approval process with accurate documentation and timely compliance.

Conclusion

Section 354 of the Income Tax Act provides the approval framework for registered non-profit organizations seeking recognition for donations under Section 133(1)(b)(ii). It replaces the earlier approval provisions associated with Section 80G(5) of the Income-tax Act, 1961. The new framework also introduces renumbered forms for provisional approval, regular approval, donation reporting, and donor certification.

Eligible organizations must identify the correct application category, file the prescribed form on time, maintain proper accounts and complete their post-approval reporting duties. Proper compliance with Section 354 of the Income Tax Act helps protect the organization’s approval and supports eligible donors in claiming the applicable tax deduction.

Frequently Asked Questions