By – Akshara Gupta
Abstract
The intersection of taxation and religion remains one of the most contentious areas in modern law and public policy. This is because the Constitution itself draws an explicit boundary where Article 27 bars the state from using tax revenue to promote any religion. Across various democratic nations, religious organisations enjoy exemptions from various taxation, including that from income, property, sales, etc. India’s version of this problem feels structurally different, but still no less consequential. The country sort of regulates its biggest religious communities through entirely separate administrative regimes: Hindu Religious and Charitable Endowments (HR&CE) departments that directly handle temple finances, Waqf Boards which hold Islamic charitable endowments at a kind of remove from government and then privately administered trusts for Christian, Sikh and other institutions. But even with all that separation, all three regimes share the same underlying policy failure. It is a combination of tax exemption and autonomy, without reliable financial disclosure. This article treats that failure as a public-policy design problem, not only a constitutional one, and raises questions about what a coherent disclosure regime that’s genuinely religion-neutral would need to look like.
Constitutional Foundations and Principles
India’s framework rests upon three articles. Article 25 gives individuals the freedom of conscience and the right to freely profess, practise and propagate religion. Article 26, meanwhile, tells us that each “religious denomination” has the right to manage its own affairs in matters of religion, and to own, acquire, and administer property in line with law. Article 27 then steps in and prohibits compelling any person to pay taxes where the money is specifically earmarked for promoting or keeping up any particular religion.
The main case that sort of explains the whole setup is Commissioner, Hindu Religious and Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt (1954). It was decided by a seven-judge bench of the Supreme Court. At the time, the Madras Hindu Religious and Charitable Endowments Act, 1951, had placed an annual “contribution” on temples and mutts, to help finance the state department that supervised them. The Court had said that even if it was called a fee, it really operated as a sort of tax— but it was not unconstitutional under Article 27, because the proceeds were used for the secular, day to day running of religious institutions, not for promoting any religion itself.
Under the Income Tax Act, 1961 (Sections 11, 12, 12A/12AB, and 13), a religious or charitable trust keeps its exemption only if it registers with the tax department. It then needs to apply at least 85% of its income to its stated end within India, keep properly audited accounts and not divert funds for private, caste or community-oriented benefit.
That doctrine is rarely litigated today. The live policy issue isn’t really whether the fee/tax line is legally sound; it is more about whether anybody is actually checking which side of the line an institution’s finances fall on, and how unevenly that scrutiny gets done across states, religions, and institution sizes.
Waqf Boards and the Failure of its Regulatory Model
Waqf properties kinda sit at the very opposite end of the regulatory spectrum— like there’s minimal external oversight, not the heavy state control you see elsewhere, and so they’ve generated a mirror image of issues. Things like forged trusteeship records, land declarations that are disputed, and even rental income that gets diverted away from community welfare purposes. Now, prior to the Waqf (Amendment) Act, 2025 (the “UMEED Act”), more than two lakh Waqf properties had no digital land records whatsoever. The 2025 Act responds with concrete regulatory tools rather than abstract principles; i.e. mutawallis must register their property details on a central national portal within six months. Meanwhile, the mandatory contribution to Waqf boards was nudged down from 7% to 5% so there is more room for charitable use, and also institutions earning more than ₹1 lakh each year are now subject to government- mandated audit. Critics say this kind of thing trades one problem for another, like removing the recognition of “waqf by user” and then adding non-Muslim board members. Opponents frame those moves as a bit of intrusion on the religious-denomination autonomy that Article 26 is meant to protect, and honestly it sounds plausible to them. But whichever side a person takes, the Act is basically an admission that self-governance without the right disclosure infrastructure had failed, on its own terms, to do the job.
The Economic Footprint
Even the economic scale of religious tax exemptions is vast. Economist and legal scholars frequently challenge the characterisation of tax exemption as mere neutrality. In the United States, what individuals give to religious organisations is usually fully tax deductible, and American churches are estimated to keep somewhere between $300 billion and $500 billion tied up in untaxed property. The European Union and Turkey, by contrast, put materially tighter gates and additional oversight in place before religious donations get favourable tax treatment, so they’re basically conditioning the fiscal benefit on demonstrated public interest, rather than saying religious status alone should be enough.
Billions of dollars in this potential revenue are forgone annually through the immunities given to religious institutions and through corporate tax exemption is on institutional revenue and charitable contribution deductions that promote individual giving. In Tamil Nadu, as well, rents of many temples’ owned lands have gone unrevised for years. These structural differences highlight a persistent global tension, determining whether a tax relief is a fundamental recognition of autonomy or an unearned economic privilege.
The Common Thread
Under the sectarian details, India’s religious institutions still share the same kind of background tension you see elsewhere too: broad exemption or autonomy, alongside thin and unevenly used financial disclosure. Whether it’s a temple connected to a state HR&CE department, a Waqf board handling endowed property, a church trust holding some of the biggest non-governmental landholdings in the nation, or even a private trust running the Ram Janmabhoomi temple built in Ayodhya— which itself ran into allegations, including from opposition politicians, about irregular land purchases — the habit shows up again and again. Institutions that get exemptions or self-governance under the banner of religious autonomy are examined unevenly, and the public has no straightforward route to confirm how donated or endowed money is really spent.
Conclusion – Toward a More Coherent Framework
In India, tax exemptions were originally imagined to honour spiritual autonomy and somehow back public welfare too. But without solid transparency and impartial oversight, these fiscal privileges can turn into a kind of shelter for financial corruption, and for administrative abuse as a quiet misuse of power. A more coherent Indian policy would not need to pick between the HR&CE model of state control and the Waqf model of board autonomy, both of which have spawned their own set of corruption allegations. Instead, it would mean applying a uniform, religion-neutral disclosure standard — think audited annual accounts, public filing of income and expenditure, and a crisp, judicially reviewable way to investigate credible complaints across temples, mosques, churches and gurdwaras too, rather than what happens now, where the level of scrutiny an institution gets depends more on which state it is in, and which religion it belongs to. Article 27 already sets the right boundary in principle: government may regulate the secular administration of religious money without advancing or throttling any religion. The remaining task is just to make that boundary apply evenly, not let it drift with the political weather, so it doesn’t end up tracking the political leverage of whichever community currently has the least legislative count.
About the Author:
Akshara, is a fourth-year law Student at the Jindal Global Law School. She poses an avid interest in financial law, Social Justice, and emerging technology. Passionate about researching and diving into untold stories.
Image Source – https://lawtrend.in/taxation-of-religious-institutions-and-temples-in-india-between-faith-and-revenue/