Clause 66 of the Finance Bill, 2026 seeks to amend section 332 of the Income-tax Act, 2025, which governs applications for registration by non-profit organisations (NPOs).
The amendment corrects the scope of section 332(1)(f) by removing certain specified funds and institutions from the requirement of registration, through a revised reference to Schedule VII. This change aligns the 2025 Act with the position that prevailed under the Income-tax Act, 1961, where such entities were not required to obtain registration to claim tax exemption.
The amendment is effective from 1 April 2026, i.e., from tax year 2026-27 onwards.
Existing Legal Position Under Section 332
Section 332 specifies the classes of persons who may apply for registration as a registered non-profit organisation. Clause (f) of section 332(1) presently refers to persons specified in Schedule VII, including those listed in:
- Table: Sl. Nos. 10 to 16, and
- Table: Sl. Nos. 17 to 19
However, the persons covered under Sl. Nos. 10 to 16 correspond to funds and institutions which, under the Income-tax Act, 1961, were eligible for exemption under section 10 and were not required to register as charitable or non-profit entities.
Their inclusion in section 332(1)(f) under the Income-tax Act, 2025 created ambiguity, as it appeared to introduce a new registration requirement that did not exist earlier.
What Does Clause 66 of Finance Bill 2026 Propose?
Clause 66 proposes to amend section 332(1)(f) by:
- Restricting the reference only to Schedule VII [Table: Sl. Nos. 17 to 19], and
- Removing the reference to persons listed under Schedule VII [Table: Sl. Nos. 10 to 16]
As a result, the persons/funds listed at Sl. Nos. 10 to 16 will no longer fall within section 332(1)(f) and will not be required to apply for registration under section 332 of the Income-tax Act, 2025.
Meaning of the Proposed Amendment
In effect, the amendment clarifies that:
- Certain specified funds and institutions listed in Schedule VII (Sl. Nos. 10-16) are outside the registration framework under section 332
- Only entities covered under Schedule VII (Sl. Nos. 17-19) are required to seek registration under clause (f)
- The Income-tax Act, 2025 does not impose a new registration obligation on funds that were earlier exempt from such requirements
The amendment is clarificatory and corrective, not substantive.
Rationale for the Amendment
- The Income-tax Act, 1961 did not require registration for persons covered under Schedule VII (Sl. Nos. 10-16)
- Their inclusion in section 332(1)(f) under the 2025 Act was inconsistent with the earlier framework
- The amendment restores continuity and alignment with the pre-existing exemption regime
Implications of the Amendment
1. No Registration Requirement for Specified Funds
- Funds and institutions covered under Schedule VII (Sl. Nos. 10-16) are not required to apply for NPO registration
- Avoids unnecessary compliance and administrative filings
2. Clarity in Registration Framework
- Section 332 now clearly applies only to intended categories of entities
- Reduces interpretational disputes during transition to the 2025 Act
3. Alignment with Earlier Law
- Ensures that the shift from the Income-tax Act, 1961 to the 2025 Act does not create unintended compliance burdens
- Maintains consistency in treatment of long-standing exempt funds
What the Amendment Does Not Do
- ❌ It does not grant a new tax exemption
- ❌ It does not alter the scope of income exemption under section 10
- ❌ It does not affect registration requirements for entities covered under Schedule VII (Sl. Nos. 17-19)
The amendment is limited to correcting the scope of section 332(1)(f).
Effective Date
✔ Applicable from 1 April 2026. ✔ Applies to tax year 2026-27 and subsequent tax years.
Conclusion
Clause 66 of the Finance Bill, 2026 introduces a narrow but important clarification to section 332 of the Income-tax Act, 2025. By removing certain Schedule VII funds from the ambit of mandatory NPO registration, the amendment restores the position under the earlier law and ensures that registration requirements are imposed only where intended.
The change should be viewed as a technical alignment measure, preventing unintended compliance obligations during the transition to the new Income-tax framework.
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