The Islamic Research Foundation (IRF) founded by Dr Zakir Naik received millions of rupees in donations and used the money to propagate radical thought, Indian media report.
India’s Minister of State for Home Affairs G Kishan Reddy said the funds were obtained through charities and donations worldwide.
But Reddy said that action has been taken against the Mumbai-based charity organisation, while authorities continue to focus on the need for counter-radicalisation.
He said that terror organisations in some countries were misusing non-profit organisations to “propagate fundamentalism, radicalisation and to move funds to boost their interests”.
Naik, who is wanted by authorities in India for money laundering, has been given permanent resident status in Malaysia.
Last month, he denied claims by India’s National Investigation Agency (NIA) that the majority of Islamic State (IS) supporters arrested in the country had been radicalised through his videos.