Many churches assume that they are automatically outside the Income Tax system once a PAN card and a bank account are obtained but they must claim Income Tax Exemption.
Income Tax Exemption
The simple answer is yes. But not by default. Many churches assume that once the church has a PAN card and a bank account, the church is automatically outside the Income Tax system, thinking that churches are not-for-profit organisations doing God's work.
Unfortunately, that's not how it works. The moment your church gets a PAN card and starts operating a bank account, every transaction becomes part of the formal financial system. Tithes, offerings, donations, building funds, salaries, and other payments can all be tracked. A PAN card allows your church to operate legally; it does not make your church tax-exempt.
To enjoy tax exemption, your church must apply for it, maintain it, and comply with certain legal requirements every year. Many churches only discover this after receiving a notice from the Income Tax Department.
Let's look at what every church should know
1. Register Your Church for Income Tax Exemption
For a church to claim exemption from income tax, it must obtain registration under Section 332 of the Income-tax Act, 2025 (which replaces the old Section 12AB of the legacy Income-tax Act, 1961). Without this registration, donations received by the church can technically be treated as taxable income.
New churches may initially apply for provisional registration through Form 104. Once activities commence, they must apply for regular registration through Form 105 within six months of the commencement of activities.
Registrations generally require renewal every five years. One important deadline that many churches miss is that the renewal application must be submitted through Form 105 at least six months before the registration expires. Missing this timeline can have serious tax consequences.
Another critical point that many churches overlook is that maintaining a valid Section 332 registration also requires proper audit compliance. An audit is a mandatory component of maintaining the tax exemption, and the audit report must be filed within the prescribed timelines before the Income Tax Return is submitted.
2. Being Tax-Exempt Doesn't Mean You Don't File Income Tax Returns
This is where we've seen many churches run into unnecessary trouble.
Usually, the church engages a Chartered Accountant to prepare the balance sheet and financial statements. Once those documents are ready, everyone assumes the return has also been filed. Sometimes it hasn't. The CA may have been asked only to prepare the accounts, not to submit the return. Years go by without anyone realizing that nothing was actually filed. Then one day, an Income Tax notice arrives. By then, what could have been a simple filing becomes a much bigger issue.
Every year, don't hesitate to ask your CA these simple questions:
● Has the balance sheet and Income & Expenditure Statement been finalised?
● Has the mandatory audit report been filed?
● Has the ITR-7 actually been submitted?
● Has it been e-verified? (An unverified return is treated as if it was never filed.)
● Can you show me the acknowledgment receipt (ITR-V)?
● Is there any renewal or additional filing due this year?
If your church also holds a Section 354 approval (formerly known as 80G registration), ask your CA whether Form 113 has been filed. This annual statement of donations is mandatory for approved organizations and enables donors to receive Form 114, which they strictly require to claim tax deductions on their own returns.
Every compliance filing comes with a due date. Missing this not only implies late fee, interest and penalty but also loss of exemption.
3. Section 354 Benefits Your Donors (Formerly 80G)
Section 354 gives tax benefits to the people who donate to the church. When your church has a valid Section 354 approval (historically known as an 80G certificate), eligible donors can claim deductions while filing their own Income Tax Returns.
For salaried members and corporate donors of your church, this can make a significant difference. If your Section 354 registration expires and isn't renewed, your donors lose that benefit. For churches that regularly receive larger donations or support from professionals and businesses, maintaining this registration is extremely important.
Remember that compliance doesn't end with obtaining the certificate. Every year, churches registered under Section 354 must file Form 113 and ensure their donors receive Form 114. Missing this compliance can attract penalties for the church and prevent your donors from successfully claiming their deductions.
4. Proper Bookkeeping is Essential
One of the biggest reasons churches struggle during audits and Income Tax filings is poor record keeping. Maintaining proper books of accounts throughout the year is not just good practice; it's essential for claiming and continuing your tax exemption.
Every receipt, payment, donation, asset, liability, and supporting document should be properly recorded. Waiting until the end of the financial year to organize accounts often leads to missing records and unnecessary stress.
This is where dedicated church accounting software becomes invaluable. Instead of handwritten registers or spreadsheets, relying on software helps maintain accurate books, simplifies audits, prepares financial reports, and makes Income Tax compliance much easier.
In fact, all CAs prefer software-based book of accounts as it reduces chances of errors and makes audit easier and considerably cheaper for the church.
So, Are Churches Really Exempt?
Yes. A church with a valid Income Tax Exemption Certificate can enjoy exemption from income tax on its eligible income. But tax exemption is not something you receive once and forget. It is a responsibility that must be maintained through timely renewals, annual filings, proper accounting, and good record keeping.
This isn't about politics or unnecessary bureaucracy. It's simply about respecting and complying with the laws of the country and being faithful stewards of the resources God has entrusted to the church. Good governance and financial accountability not only keep your church legally compliant but also strengthen its credibility and witness.
If you're unsure whether your church's Section 332 registration is still valid, whether your Section 354 approval has expired, or whether last year's Income Tax Return was actually filed, don't wait until a notice arrives. Similarly, if you are establishing a new church, do not delay your fresh registration application. Get in touch with your CA before the financial year ends to ensure timely and correct closure of book of accounts and get compliance calendar updated. Many a times churches reach out to CAs after the ship has sailed.
And if you're unsure where to begin, we're here to help. At Tabernacle, we work closely with experienced Chartered Accountants who regularly assist churches with registrations, renewals, audits, tax filings, and statutory compliance. Our Church Management and Accounting Software also helps churches maintain proper books of accounts throughout the year, making audits and Income Tax compliance much simpler.
A few hours of diligence today can save months of stress tomorrow. More importantly, it helps keep both you and your church safe, compliant, and free to focus on what matters most: serving God and serving people.
Er Atoba Longkumer
Cofounder - Tabernacle Technologies)