Clause 445 of the Income Tax Bill, 2025 imposes penalties on...

Clause 445 of the Income Tax Bill, 2025 imposes penalties on registered non-profit organizations that divert income for the benefit of related persons, mirroring and expanding upon Section 271AAE of the Income Tax Act, 1961. It applies when specified income becomes taxable due to misuse of funds, with penalties set at 100% of the diverted amount for the first violation and 200% for subsequent violations. The provision covers direct and indirect benefits to related persons as defined under section 355(i) and grants discretionary power to the Assessing Officer to impose penalties during tax proceedings. Unlike its predecessor, Clause 445 broadly applies to all registered non-profits and links penalties directly to the charging provision under the new Bill. The strict liability nature aims to deter misuse of tax exemptions, though it raises interpretative challenges regarding inadvertent violations and procedural consistency. The provision reflects an evolving legislative approach to ensure accountability and protect the integrity of charitable activities.