Finance Bill 2026: Belated Return Facility Restored for Registered NPOs under Section 349

1. Background and Context

Registered non-profit organisations (NPOs) operate under a special compliance regime in the Income-tax Act, 2025. One key aspect of this regime is the obligation to furnish a return of income within prescribed timelines in order to preserve exemptions or concessional treatment.

Under the current wording of section 349 of the Income-tax Act, 2025, an NPO that is duly registered is permitted to furnish its return of income only within the time allowed in section 263(1)(c). The provision, however, does not explicitly recognize the concept of a belated return for such NPOs.

In contrast, under the earlier Income Tax Act 1961, registered charitable and similar entities could file belated returns within the extended statutory time limit. This earlier framework offered more practical flexibility and allowed assessees in the non-profit sector to regularise inadvertent delays in return filing without automatically losing the ability to comply.

The Finance Bill, 2026 now seeks to realign the law under the Income-tax Act, 2025 with the more flexible position that existed under the Income Tax Act 1961, by specifically inserting a reference to section 263(4) into section 349.

2.1 Current text and effect

Presently, section 349 under the Income-tax Act, 2025 deals with the filing of return of income by a registered non-profit organisation under Chapter XVII. As it stands:

  • The section inter alia mandates that a registered NPO must file its return of income:

    • Within the time limit laid down in section 263(1)(c); and
    • In the prescribed form and manner, as relevant.

  • There is no reference in the existing provision to the belated return mechanism under section 263(4).

Resulting implication:
Once the due date prescribed in section 263(1)(c) lapses, section 349 does not itself provide any pathway for the NPO assessee to furnish a belated return as a matter of statutory right.

This omission has created interpretational and practical uncertainty, since registered NPOs historically enjoyed a specific facility of filing belated returns under the corresponding framework of the Income Tax Act 1961.

2.2 Departure from earlier regime under Income Tax Act 1961

Under the Income Tax Act 1961, charitable institutions and similar entities:

  • Were required to file their returns within a stipulated time; yet
  • Could still submit a belated return within the extended statutory deadline, subject to conditions.

This approach recognised genuine compliance delays while continuing to encourage timely filing. The transition to the Income-tax Act, 2025 created a divergence, because the new section 349 referenced only section 263(1)(c) without any mention of section 263(4).

This led to a more rigid outcome for NPO assessees: a missed due date potentially closed the door on filing a return altogether, unless other general remedies were available and successfully invoked.

3. Proposed Amendment by Finance Bill, 2026

3.1 Core proposal in Clause 67

Clause 67 of the Finance Bill, 2026 specifically targets the wording of section 349 of the Income-tax Act, 2025. The Bill proposes that:

In section 349 of the Income-tax Act, after the word, figures, brackets and letter “section 263(1)(c)”, the word, figures and brackets “or 263(4)” shall be inserted.

In substance, the amendment will ensure that: