Direct Tax Amicus, August 2026

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Article

Cancellation risk for GPU-based NPOs diluted: A shift under the Income-tax Act, 2025

By Ravi Sawana and Neha Sharma

The article in this issue of Direct Tax Amicus examines how the amendment by the Finance Act, 2026 in the Income-tax Act, 2025 changes the consequences for not-for-profit organisations (‘NPOs’) pursuing general public utility objects. Earlier, breach of conditions on commercial activities, such as exceeding the 20% receipts threshold, not maintaining separate books, or activities not being linked to charitable objects, could trigger cancellation of registration. The 2026 amendment removes such breaches from the ‘specified violations’, thus reducing the risk of cancellation. The authors however note that non-compliance may still lead to denial of exemption, taxation of commercial income, and scrutiny of charitable purpose. According to them, the change offers operational flexibility while preserving discipline governing NPOs.

Acts, Notifications and Circulars

·         Taxation & Other Laws (Amendment) Act, 2026 receives President’s assent on 17 August 2026

·         No TDS on certain categories of payments to Units in International Financial Services Centre

·         Cost Inflation Index for Financial Year 2026-27 notified at 384

·         India-Sri Lanka Double Taxation Avoidance Agreement – Protocol amending the DTAA notified

·         Definition of ‘specified fund’ substituted in the Income-tax Rules, 2026

·         Form ITR-BN prescribed for block-period returns

Ratio Decidendi

·         Public trust is not a ‘concern’ for purposes of deemed dividend; Shareholding of its trustee is irrelevant – Gujarat High Court

·         Discounting charges on a non-recourse assignment of future rent receivables are not ‘interest’ and do not attract withholding under Section 194A – ITAT Chennai

·         Search and seizure – For Section 153C limitation, transfer order under Section 127 starts the clock when Assessing Officer of the searched person and of the ‘other person’ is same – ITAT New Delhi

·         Fair market value of ESOP to be adopted as cost of acquisition upon sale, even where perquisite not taxed in India – ITAT Mumbai

·         First-year manufacturer entitled to capacity utilisation, start-up and working capital adjustments – ITAT Chennai

·         Expenditure by Real Estate Investment Trust on a public issue and listing of its units not eligible for deduction under Section 35D(2)(c) – ITAT Bengaluru