Approval for Donation-Eligible Institutions: Section 354 Explained (Income Tax Act 2025)

Under the Income Tax Act 2025, a charity must hold approval under section 354 before its donors can claim the 50% deduction under section 133(1)(b)(ii). A registered non-profit organisation (or a regimental or non-public fund of the armed forces listed in Schedule VII) applies to the Principal Commissioner or Commissioner. Approval lasts three tax years if it is provisional and five tax years if it is regular, and the charity must then file a yearly donation statement and give each donor a certificate.

This guide covers the conditions, the five application cases, the forms, the time limits and the donor-side consequences. It uses the Act as amended by the Finance Act, 2026 and the Income-tax Rules, 2026, and every figure carries its section or rule number. It is general information, not tax advice. Last reviewed on 10 November 2026.

What is approval under section 354 and why does it matter?

Section 133(1)(b)(ii) lets a donor deduct 50% of a donation made to a fund or institution that (A) is established in India for a charitable purpose and (B) is a registered non-profit organisation, or a fund mentioned in Schedule VII (Table: Sl. No. 1), and is approved under section 354. Registration alone is therefore not enough for donors to get a deduction. The charity needs this second approval.

For the donor side (rates, the 10% cap, the cash limit), see our guide on donation deduction rates, limits and qualifying institutions. For the registration that comes first, see registration of trusts and non-profit organisations.

Who can apply for approval under section 354?

Section 354(1) allows two kinds of applicant:

• a registered non-profit organisation, meaning a person with a valid registration under a "specified provision" that has not been cancelled (section 355(g)); and
• a person referred to in Schedule VII, Table Sl. No. 1, which is any regimental fund or non-public fund established by the armed forces of the Union, for the welfare of past and present members of those forces or their dependants.

"Specified provision" means section 12A, 12AA or 12AB or section 10(23C) of the Income-tax Act, 1961, or section 332 of the 2025 Act (section 355(m)).

What conditions must the institution satisfy?

Clause	Condition under section 354(1)
(a)	It is not expressed to be for the benefit of any particular religious community or caste.
(b)	It is established in India for a charitable purpose, and its expenditure of a religious nature in a tax year does not exceed 5% of its total income.
(c)	Its constituting instrument or governing rules do not allow its assets, wholly or partly, to be transferred at any time for a non-charitable purpose.
(d)	It maintains regular accounts of receipts and expenditure.
(e)	It delivers the prescribed statement (of donations) in the prescribed form, manner and time.
(f)	It delivers a correction statement to fix mistakes or to add, delete or update information.
(g)	It gives the donor a certificate of the donation amount within the prescribed period.

Section 133(7)(b) adds that "charitable purpose" does not include a purpose the whole or substantially the whole of which is of a religious nature.

Which application case applies, and how long does approval last?

Section 354(2) has five cases. The application can be made at the stated time, the Commissioner passes an order within the stated limit, and approval, if granted, runs for the stated period.

Sl. No.	Case	When to apply	Order within	Validity
1	Activities not yet commenced	At any time during the tax year from which approval is sought	One month from the end of the month of application	Three tax years from the tax year of application
2	Activities have commenced	At any time during the tax year from which approval is sought	Six months from the end of the quarter of application	Five tax years from the tax year of application
3	Provisional approval held and activities have commenced	Within six months of commencement of activities	Six months from the end of the quarter of application	Five tax years from the tax year of application
4	Provisional approval about to expire and activities not commenced	At least six months before the provisional approval expires	Six months from the end of the quarter of application	Five tax years following the tax year of application
5	Existing approval period about to expire (renewal)	At least six months before expiry	Six months from the end of the quarter of application	Five tax years following the tax year of application

Which form and authority does the application go to?

Rule 181 is a common application rule for registration under section 332 and approval under section 354.

Case	Form	Authority	Result
Provisional approval, section 354(2) Table Sl. No. 1	Form 104	Commissioner of Income Tax (CPC)	Order in Form 106 with a 16-digit alphanumeric Unique Registration Number (URN)
Section 354(2) Table Sl. Nos. 2 to 5	Form 105	Principal Commissioner or Commissioner having jurisdiction	Order in Form 107: URN and approval, or rejection, or rejection with cancellation

The application is filed electronically, under digital signature if the applicant's return needs one, otherwise through an electronic verification code. It is verified by the person authorised to verify the applicant's return under section 265 (rule 181(3)).

How does the Commissioner decide?

• Provisional approval (Sl. No. 1). The Commissioner passes an order granting provisional approval (section 354(4)). There is no inquiry stage.
• Cases 2 to 5. The Commissioner calls for documents and makes inquiries to be satisfied about the genuineness of the activities and compliance with other laws material to the objects (section 354(3)). If satisfied, an order approving it follows. If not, after a reasonable opportunity of being heard, the application is rejected. In cases 3 to 5 the existing approval is also cancelled. In case 2 there is no approval to cancel, so only the application is rejected.
• A copy of the order goes to the applicant and to the Assessing Officer.

What happens after the application is filed or the order is passed?

Rule 181 also covers what follows:

• Withdrawal: allowed if requested within seven days of filing (rule 181(11)).
• Correction: if an erroneous section code or nature of activity was entered in Form 105, a correction request can be made before the order in Form 107 is passed (rule 181(15)).
• Re-application after rejection or cancellation: once only, in Form 105, within one month from the end of the month of the order. It is available only where the reason was failure to supply documents sought under section 332(7), not availing a hearing, or trust deed terms that made the applicant ineligible and have since been modified. The applicant must give reasons and an undertaking not to appeal against the earlier order (rule 181(12) and (13)).
• Cancellation for false information: approval and URN granted on Form 104 can be cancelled after a hearing if the form had false or incorrect information or did not meet the filing requirements, and then they are treated as never granted (rule 181(6) and (7)).
• Surrender: possible only if no benefit was claimed in any return under the provisions listed in rule 181(8), with an undertaking not to claim later. The approval is then treated as never granted (rule 181(8) and (9)).

What must an approved charity file and issue every year?

Section 354(1)(e), (f) and (g) are made operational by rule 190.

Duty	Form	Due date	Source
Statement of particulars of donations received in the financial year (and correction statement)	Form 113, to the Director General of Income-tax (Systems)	31 May following the financial year of receipt	Rule 190(1), (2), (6)
Certificate to each donor of the amount received from that donor in the financial year	Form 114	31 May following the financial year of receipt	Rule 190(7), (8)

Form 113 is filed electronically (digital signature if the return needs it, otherwise electronic verification code) and verified by the person who can verify the return under section 265 (rule 190(4), (5)).

On aggregation, the charity must add up all donations of the same nature from the same person during the financial year. If a donation is recorded in more than one name and the donors have not specified shares, it is attributed equally to all of them (rule 190(3)).

Worked example 1: timing the approval for tax year 2026-27

Assumptions: a trust already registered, whose activities have started, applies for approval from tax year 2026-27. Treat a quarter as a calendar quarter.

Step	Working	Result
1. Case	Activities commenced, no provisional approval: section 354(2) Table Sl. No. 2	Form 105
2. Application date	Filed on 12 August 2026, within tax year 2026-27	Valid window
3. Order deadline	Quarter of application is July to September 2026, ending 30 September 2026. Six months from that date	31 March 2027
4. Validity	Five tax years from 2026-27	2026-27 to 2030-31
5. Renewal	Expiry at the end of 2030-31 (31 March 2031). File at least six months before (Sl. No. 5)	By 30 September 2030

A renewal under Sl. No. 5 gives five tax years following the tax year of application. If the trust files the renewal in 2030-31, the new approval would cover 2031-32 to 2035-36.

Worked example 2: the 5% religious expenditure test

Assumptions: a charitable society has total income of Rs 40,00,000 in tax year 2026-27. It runs a school and a medical clinic and also spends on an annual religious festival.

Item	Case A	Case B
Total income	Rs 40,00,000	Rs 40,00,000
Limit: 5% of total income	Rs 40,00,000 x 5% = Rs 2,00,000	Rs 2,00,000
Religious-nature expenditure	Rs 1,80,000	Rs 2,40,000
As % of total income	4.5%	6%
Section 354(1)(b) met?	Yes	No, exceeds the limit by Rs 40,000

Worked example 3: aggregating donations for Form 113 and Form 114

Assumptions: an approved trust receives donations in financial year 2026-27. All are donations of the same nature.

Donor	Receipts	Aggregation under rule 190(3)
Ravi	Rs 20,000 + Rs 15,000 + Rs 25,000	Rs 60,000 reported against Ravi
Ravi and Meena (joint, no split stated)	Rs 80,000 in both names	Rs 80,000 / 2 = Rs 40,000 each

The trust reports these in Form 113 and issues Form 114 certificates by 31 May 2027. If Ravi also appears as a joint donor elsewhere, his share of that gift is added to his Rs 60,000, because rule 190(3) aggregates all donations of the same nature by one person.

Real-life example 1: a new trust that has not started work

Anita sets up a trust to run a free tuition centre. It is new, has not registered under any specified provision and has no classes yet. She files Form 104 during the tax year from which she wants approval (rule 181(5) treats a Form 104 as non est if activities have commenced or the applicant is already registered under a specified provision). The CPC issues provisional approval and a URN within a month from the end of the month of application. It lasts three tax years. Once classes start she must apply again under Sl. No. 3 within six months of commencing, or, if she has not started, apply at least six months before the provisional approval ends (Sl. No. 4).

Real-life example 2: a donor whose deduction is held back

Suresh gives Rs 50,000 by bank transfer to an approved charity and claims 50% (Rs 25,000) in his return, subject to the 10% cap in section 133(2). Section 133(6) allows a claim for this type of donation only on the basis of information the charity has furnished to the prescribed authority, and subject to verification under the Board's risk management strategy. If the charity has not filed Form 113 for that year, there is nothing for the claim to match. Suresh should ask the trust for its Form 114 certificate and confirm the filing was made.

What are the common mistakes?

• Assuming registration is enough. A registered non-profit organisation still needs section 354 approval for donors to claim under section 133(1)(b)(ii).
• Missing the renewal window. Sl. Nos. 4 and 5 require filing at least six months before expiry.
• Crossing the 5% religious expenditure limit. This is tested on the tax year's total income.
• Filing Form 113 late. The date is 31 May after the financial year, and donor claims are matched against it.
• Not issuing Form 114. Each donor needs a certificate of the amount received in the financial year, by 31 May.
• Using the wrong form. Provisional approval is Form 104; every other case is Form 105.

Quick reference

Item	Rule
Religious expenditure cap	5% of total income in a tax year
Provisional approval validity	Three tax years
Regular approval validity	Five tax years
Renewal filing	At least six months before expiry
Withdraw application	Within seven days of filing
Re-apply after rejection	Once, within one month from the end of the month of the order
Form 113 and Form 114	31 May after the financial year

How do CA firms keep track of approvals and filings?

A CA firm serving several trusts has to watch approval expiry dates, the six-month renewal window and the 31 May filings for each one. Finexo's practice management software tracks these deadlines across a client book and reminds the team before they pass. It does not file the forms for you.

Where this is in the Act

• Section 354: application for approval, conditions, time limits, validity.
• Section 133(1)(b)(ii), (6), (7): donor deduction and its link to approval.
• Section 355(g), (m): "registered non-profit organisation" and "specified provision".
• Schedule VII, Table Sl. No. 1: armed forces regimental and non-public funds.
• Rule 181: Forms 104, 105, 106, 107 and procedure.
• Rule 190: Forms 113 and 114, due date 31 May.

This article explains the Income-tax Act, 2025 (as amended by the Finance Act, 2026) and the Income-tax Rules, 2026. It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.