Setting up and running an NGO or charitable trust
The registration stack, the 85% application rule, and the traps that lose the exemption
A charitable organisation in India can be a trust, a society or a Section 8 company (taxed identically once registered), and it must stack several registrations: Section 12AB for its own income-tax exemption, 80G so donors can claim a deduction, CSR-1 to receive corporate CSR funds, and FCRA to receive foreign contributions. The core operating rule is that at least 85% of income must be applied to charitable purposes (up to 15% can be accumulated freely). Two traps lose the exemption: a general-public-utility charity whose commercial receipts exceed 20% of total receipts is denied exemption for that year (Section 2(15)), and anonymous donations are taxed at 30% under Section 115BBC.
Last reviewed:
Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact Income Tax Department. Read our editorial scope →
Entity choice and 12AB registration
Set up as a trust (under the Trusts Act and any state Public Trusts Act), a society (Societies Registration Act 1860) or a Section 8 company, the tax treatment is identical once registered, though corporates and CSR funders often prefer a Section 8 company for its governance. The gateway to the income-tax exemption under Sections 11-13 is registration under Section 12AB: you apply on Form 10A (fresh registration, migration or first 80G) or Form 10AB (renewal or moving from provisional to regular), with a five-year validity (three years for provisional registration), renewed before expiry.
The 85% application rule and donations
To keep the exemption, the organisation must apply at least 85% of its income to its charitable purposes in the year; up to 15% can be accumulated freely, and accumulating more than 15% requires Form 10 (committing to specified purposes within five years and to investing the funds in the permitted Section 11(5) modes). Voluntary contributions are income unless specifically directed to corpus. Anonymous donations are taxed at 30% under Section 115BBC above the higher of Rs 1 lakh or 5% of total donations (wholly religious trusts are exempt from this).
warningAnonymous donations are taxed at 30% under Section 115BBC above a small threshold. Record donor identities, and use Form 10 if you need to accumulate more than 15% of income for a specific future purpose.
The exemption traps, 80G and foreign funds
Two Section 13 and 2(15) traps lose the exemption: providing a benefit to specified persons (founders, trustees and their relatives) is barred, and a general-public-utility charity whose commercial or business receipts exceed 20% of its total receipts is denied the 11-12 exemption for that year (so it pays tax at around 30%). For donors, 80G gives a 50% or 100% deduction (with or without a 10%-of-income cap), and the donee must file Form 10BD and issue Form 10BE, without the 10BE the donor's claim fails. To receive corporate CSR funds you need CSR-1 registration, and to receive foreign contributions you need separate FCRA registration with a designated bank account. Charitable activities of a 12AB entity are GST-exempt.
Related on this site
Source / notes
- Income-tax Act 1961 ss.11-13 (charitable exemption) + s.12AB (registration, Form 10A/10AB) (re-enacted in the Income-tax Act 2025)
- Income-tax Act 1961 s.2(15) (GPU 20% commercial cap) + s.115BBC (anonymous donations 30%) + s.80G (Form 10BD/10BE)
- FCRA 2010 (foreign contributions); CSR-1 (Companies Act CSR); GST Notification 12/2017 Entry 1 (charitable activities exempt)
Frequently asked questions
What registrations does an NGO need?+
Several, stacked for different purposes: Section 12AB for its own income-tax exemption (the gateway), 80G so donors can claim a deduction, CSR-1 to receive corporate CSR funds, and FCRA to receive foreign contributions (with a designated bank account). The entity can be a trust, society or Section 8 company, taxed identically once 12AB-registered. Each registration has its own renewal cycle to track.
What is the 85% rule for charitable trusts?+
To keep the income-tax exemption, the organisation must apply at least 85% of its income to its charitable purposes during the year. Up to 15% can be accumulated freely; accumulating more than 15% requires filing Form 10, committing the funds to specified purposes within five years and investing them in the permitted Section 11(5) modes. Failing the 85% application can cost the exemption.
Can a charity earn commercial income?+
A general-public-utility charity can, but only up to a limit: if its commercial or business receipts exceed 20% of its total receipts in a year, it loses the Sections 11-12 exemption for that year and is taxed (at around 30%). So a charity running a significant trading or fee activity must keep those receipts within 20% of the total, or risk losing its exemption. Education, medical relief and relief of the poor are treated differently from general public utility.
How do donors claim a deduction for giving to my NGO?+
Through Section 80G, but only if you are registered for it and you file correctly. The donor claims 50% or 100% (with or without a 10%-of-income cap depending on the category), and you as the donee must file Form 10BD (the donation statement) and issue the donor Form 10BE by 31 May. Without the 10BE certificate, the donor's 80G claim fails, so the deduction now depends on your filing.
Last reviewed: