We simply missed the deadline for the fresh application under s.12A(1)(ac). We have not been cancelled and nobody has rejected anything. Can the exit tax under s.115TD really apply to us?
Yes. Since the Finance Act 2022, s.115TD(3)(iii) deems a specified person to have been converted into a form not eligible for registration where it simply fails to make the application required by s.12A(1)(ac)(i), (ii) or (iii), or by the corresponding clauses of the first proviso to s.10(23C), within the period specified, where that period expires in the previous year. The consequence is tax on accreted income at the maximum marginal rate, payable within fourteen days of the end of that previous year, in addition to any income tax otherwise chargeable, with no credit and no deduction against it.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2023-04-01, reported as Section 115TD, Income-tax Act, 1961 (inserted by the Finance Act 2016 with effect from 1 June 2016; sub-section (3)(iii) and the extension to 'specified person' inserted by the Finance Act 2022). It bears on section 115TD, section 12AA, section 12AB, section 12A(1)(ac), section 10(23C), section 10(1), section 12A(2), section 253 of the Income Tax Act 1961, in Charitable Trusts & Exemption and Capital Gains Exemptions matters.
This is the most expensive consequence in the whole trust area and the one practitioners consistently underestimate, because until AY 2023-24 s.115TD could only be triggered by something the Department did — a cancellation or a rejection. Now inaction alone is enough, and the trigger runs on a calendar the trust controls: the last date for the application under s.12A(1)(ac) becomes the date of conversion, and the accreted income as on that date is the base. Two features make it worse than an ordinary demand. The charge is the excess of the aggregate fair market value of all assets over total liabilities, so it reaches the accumulated corpus of decades, not the year's income; and s.115TD(4) makes it payable even where no income tax is payable on the total income at all. The exceptions worth knowing are in the provisos to s.115TD(2) — assets acquired out of agricultural income within s.10(1), and assets acquired before registration became effective where no benefit under ss.11 and 12 was allowed for that period — and, on dissolution, assets transferred within twelve months to another specified person. A pending appeal is relevant only to the fourteen-day clock in a cancellation or rejection case; for a failure to apply, the clock simply runs from the end of the previous year.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 115TD charges tax on accreted income where, in any previous year, a specified person has converted into a form not eligible for registration under s.12AA or s.12AB or for approval under sub-clauses (iv), (v), (vi) or (via) of s.10(23C); or has merged with an entity other than one having similar objects and so registered or approved; or has failed, on dissolution, to transfer all its assets to any other specified person within twelve months from the end of the month of dissolution. 'Specified person' means a fund, institution, trust, university, other educational institution, hospital or other medical institution referred to in those sub-clauses of s.10(23C), or a trust or institution registered under s.12AA or s.12AB. Accreted income is the amount by which the aggregate fair market value of the total assets as on the specified date exceeds the total liability, computed in the prescribed manner. Sub-section (3) deems a conversion where the registration or approval has been cancelled; or where the objects have been modified so as not to conform to the conditions of registration and the person has either not applied for fresh registration or approval in that previous year or has applied and been rejected; or, under clause (iii), where it fails to make an application in accordance with clause (i), (ii) or (iii) of the first proviso to s.10(23C), or sub-clause (i), (ii) or (iii) of s.12A(1)(ac), within the period specified, which expires in that previous year.
Statutory position — no holding is asserted; this entry reproduces statutory text. The tax is at the maximum marginal rate on the accreted income and is payable in addition to the income tax chargeable on the total income (sub-section (1)), and is payable even where no income tax is payable on the total income at all (sub-section (4)). It is to be paid to the credit of the Central Government within fourteen days from the dates set out in sub-section (5): in a cancellation case, from the expiry of the s.253 appeal period without an appeal or from receipt of the appellate order confirming the cancellation; in a case falling under sub-clause (a) of clause (ii) or under clause (iii) of sub-section (3), from the end of the previous year; in a rejection case, from the expiry of the s.253 appeal period or receipt of the confirming appellate order; on a merger, from the date of merger; and on a dissolution, from the expiry of the twelve months. Payment is final: no further credit may be claimed by the specified person or anyone else (sub-section (6)), and no deduction is allowed under any other provision in respect of the income charged or the tax on it (sub-section (7)). For a clause (iii) failure, the 'date of conversion' is the last date for making the application under s.12A(1)(ac)(i), (ii) or (iii) or under clause (i), (ii) or (iii) of the first proviso to s.10(23C).
Not applicable — this entry sets out the statutory scheme rather than a court's route. The structure is worth noting: the charge in sub-section (1) is on conversion, merger or failure to transfer on dissolution, and sub-section (3) is the deeming provision that supplies most conversions in practice. Before the Finance Act 2022 that deeming provision reached only cancellation, and modification of objects followed by a failure to re-apply or a rejection; clause (iii) added a free-standing trigger that requires no departmental act at all. The first proviso to sub-section (2) excludes from accreted income assets directly acquired out of income of the nature referred to in s.10(1) and assets acquired between creation and the date registration became effective where no benefit under ss.11 and 12 was allowed for that period, the second proviso deeming registration to have become effective from the first day of the earliest previous year where the first proviso to s.12A(2) has allowed those benefits for earlier years; the third proviso excludes assets and related liabilities transferred, within the twelve months, to another registered or approved entity in a dissolution case.
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Handle my notice → Ask a CA on WhatsAppYes. Since the Finance Act 2022, s.115TD(3)(iii) deems a specified person to have been converted into a form not eligible for registration where it simply fails to make the application required by s.12A(1)(ac)(i), (ii) or (iii), or by the corresponding clauses of the first proviso to s.10(23C), within the period specified, where that period expires in the previous year. The consequence is tax on accreted income at the maximum marginal rate, payable within fourteen days of the end of that previous year, in addition to any income tax otherwise chargeable, with no credit and no deduction against it. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 115TD, section 12AA, section 12AB, section 12A(1)(ac), section 10(23C), section 10(1), section 12A(2), section 253 of the Income Tax Act 1961. It is reported as Section 115TD, Income-tax Act, 1961 (inserted by the Finance Act 2016 with effect from 1 June 2016; sub-section (3)(iii) and the extension to 'specified person' inserted by the Finance Act 2022). This is the most expensive consequence in the whole trust area and the one practitioners consistently underestimate, because until AY 2023-24 s.115TD could only be triggered by something the Department did — a cancellation or a rejection. Now inaction alone is enough, and the trigger runs on a calendar the trust controls: the last date for the application under s.12A(1)(ac) becomes the date of conversion, and the accreted income as on that date is the base. Two features make it worse than an ordinary demand. The charge is the excess of the aggregate fair market value of all assets over total liabilities, so it reaches the accumulated corpus of decades, not the year's income; and s.115TD(4) makes it payable even where no income tax is payable on the total income at all. The exceptions worth knowing are in the provisos to s.115TD(2) — assets acquired out of agricultural income within s.10(1), and assets acquired before registration became effective where no benefit under ss.11 and 12 was allowed for that period — and, on dissolution, assets transferred within twelve months to another specified person. A pending appeal is relevant only to the fourteen-day clock in a cancellation or rejection case; for a failure to apply, the clock simply runs from the end of the previous year. If it applies to you, the first step is this: Diarise the s.12A(1)(ac) application dates as an exit-tax deadline rather than a registration formality, and do the same for the s.10(23C) first proviso where the institution is approved rather than registered.
Section 115TD charges tax on accreted income where, in any previous year, a specified person has converted into a form not eligible for registration under s.12AA or s.12AB or for approval under sub-clauses (iv), (v), (vi) or (via) of s.10(23C); or has merged with an entity other than one having similar objects and so registered or approved; or has failed, on dissolution, to transfer all its assets to any other specified person within twelve months from the end of the month of dissolution. 'Specified person' means a fund, institution, trust, university, other educational institution, hospital or other medical institution referred to in those sub-clauses of s.10(23C), or a trust or institution registered under s.12AA or s.12AB. Accreted income is the amount by which the aggregate fair market value of the total assets as on the specified date exceeds the total liability, computed in the prescribed manner. Sub-section (3) deems a conversion where the registration or approval has been cancelled; or where the objects have been modified so as not to conform to the conditions of registration and the person has either not applied for fresh registration or approval in that previous year or has applied and been rejected; or, under clause (iii), where it fails to make an application in accordance with clause (i), (ii) or (iii) of the first proviso to s.10(23C), or sub-clause (i), (ii) or (iii) of s.12A(1)(ac), within the period specified, which expires in that previous year. The matter was decided on 2023-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Statutory position — no holding is asserted; this entry reproduces statutory text. The tax is at the maximum marginal rate on the accreted income and is payable in addition to the income tax chargeable on the total income (sub-section (1)), and is payable even where no income tax is payable on the total income at all (sub-section (4)). It is to be paid to the credit of the Central Government within fourteen days from the dates set out in sub-section (5): in a cancellation case, from the expiry of the s.253 appeal period without an appeal or from receipt of the appellate order confirming the cancellation; in a case falling under sub-clause (a) of clause (ii) or under clause (iii) of sub-section (3), from the end of the previous year; in a rejection case, from the expiry of the s.253 appeal period or receipt of the confirming appellate order; on a merger, from the date of merger; and on a dissolution, from the expiry of the twelve months. Payment is final: no further credit may be claimed by the specified person or anyone else (sub-section (6)), and no deduction is allowed under any other provision in respect of the income charged or the tax on it (sub-section (7)). For a clause (iii) failure, the 'date of conversion' is the last date for making the application under s.12A(1)(ac)(i), (ii) or (iii) or under clause (i), (ii) or (iii) of the first proviso to s.10(23C).
Not applicable — this entry sets out the statutory scheme rather than a court's route. The structure is worth noting: the charge in sub-section (1) is on conversion, merger or failure to transfer on dissolution, and sub-section (3) is the deeming provision that supplies most conversions in practice. Before the Finance Act 2022 that deeming provision reached only cancellation, and modification of objects followed by a failure to re-apply or a rejection; clause (iii) added a free-standing trigger that requires no departmental act at all. The first proviso to sub-section (2) excludes from accreted income assets directly acquired out of income of the nature referred to in s.10(1) and assets acquired between creation and the date registration became effective where no benefit under ss.11 and 12 was allowed for that period, the second proviso deeming registration to have become effective from the first day of the earliest previous year where the first proviso to s.12A(2) has allowed those benefits for earlier years; the third proviso excludes assets and related liabilities transferred, within the twelve months, to another registered or approved entity in a dissolution case.
It was decided by the CBDT Circulars & Instructions on 2023-04-01 and is reported as Section 115TD, Income-tax Act, 1961 (inserted by the Finance Act 2016 with effect from 1 June 2016; sub-section (3)(iii) and the extension to 'specified person' inserted by the Finance Act 2022). Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 115TD, section 12AA, section 12AB, section 12A(1)(ac), section 10(23C), section 10(1), section 12A(2), section 253, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Statutory position — no holding is asserted; this entry reproduces statutory text. The tax is at the maximum marginal rate on the accreted income and is payable in addition to the income tax chargeable on the total income (sub-section (1)), and is payable even where no income tax is payable on the total income at all (sub-section (4)). It is to be paid to the credit of the Central Government within fourteen days from the dates set out in sub-section (5): in a cancellation case, from the expiry of the s.253 appeal period without an appeal or from receipt of the appellate order confirming the cancellation; in a case falling under sub-clause (a) of clause (ii) or under clause (iii) of sub-section (3), from the end of the previous year; in a rejection case, from the expiry of the s.253 appeal period or receipt of the confirming appellate order; on a merger, from the date of merger; and on a dissolution, from the expiry of the twelve months. Payment is final: no further credit may be claimed by the specified person or anyone else (sub-section (6)), and no deduction is allowed under any other provision in respect of the income charged or the tax on it (sub-section (7)). For a clause (iii) failure, the 'date of conversion' is the last date for making the application under s.12A(1)(ac)(i), (ii) or (iii) or under clause (i), (ii) or (iii) of the first proviso to s.10(23C). It arises in Charitable Trusts & Exemption and Capital Gains Exemptions matters, on section 115TD, section 12AA, section 12AB, section 12A(1)(ac), section 10(23C), section 10(1), section 12A(2), section 253 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If a deadline has already been missed, identify the previous year in which the period expired — that is the year of deemed conversion and it fixes both the valuation date and the fourteen-day payment date under s.115TD(5)(ii). Value the exposure before deciding what to do: aggregate fair market value of all assets less total liabilities, as on the last date for making the application, taxed at the maximum marginal rate. Test each asset against the first proviso to s.115TD(2) — anything acquired out of s.10(1) agricultural income, and anything acquired before the registration became effective where no s.11 or s.12 benefit was allowed for that period, is left out. On a dissolution, transfer every asset to another specified person within twelve months of the end of the month of dissolution; the third proviso to s.115TD(2) then leaves those assets out of the computation. Do not assume that paying the tax on accreted income buys anything back — s.115TD(6) makes it final with no credit, and s.115TD(7) bars any deduction in respect of the income charged or the tax on it.
Searched for later treatment; none was found. That is not the same as a source affirming it. The provision stands as this entry states it. The most recent published text of s.115TD prints sub-section (1) — 'Notwithstanding anything contained in this Act, where in any previous year, a specified person has -' — and sub-section (3) with clause (iii), the limb inserted by the Finance Act, 2022 which deems conversion where the specified person simply fails to make the application required by clause (i), (ii) or (iii) of s.12A(1)(ac) within the period specified. Section 115TD is not among the sections amended by the Finance Bill, 2025. No later decision construing sub-section (3)(iii) has been found, which is why the entry is not put higher than 'no later treatment found'. Read that for what it is: the clause has been in force only since assessment year 2023-24, the trusts caught by it are those that missed a deadline rather than those the Department has proceeded against, and the disputes it will generate — on the computation of accreted income, on the valuation of assets held for decades, and on whether a belated application condoned under the proviso to s.12A(1)(ac) undoes the deemed conversion — have not yet reached the Tribunals in any reported form. None of those questions can be answered out of this entry. This states the law under the Income-tax Act, 1961, which governs every assessment year up to and including AY 2026-27 and the disputes arising from those years; the corresponding provision of the Income-tax Act 2025 has not been examined here and must be read separately for a later year. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This entry states the statute, not a decision, and the sourcing needs to be read with care. The value in 'decided_on', 1 April 2023, is the date from which sub-section (3)(iii) takes effect and is not the date of any decision. The text here is taken from the most recent published version of s.115TD and has been checked against the three preceding published versions, all four of which carry sub-section (3)(iii) in identical terms. The version published for 2022 does not carry clause (iii) at all, which places its insertion between those two versions and is consistent with the Finance Act 2022. THE COMMENCEMENT DATE OF 1 APRIL 2023 IS STATED ON THAT BASIS AND WAS NOT READ FROM THE TEXT OF THE FINANCE ACT 2022, which is not available here. A reader who needs the commencement for a contested year should go to the amending Act. That the section was originally inserted by the Finance Act 2016 with effect from 1 June 2016 is taken from two Tribunal orders read in full — ITAT Chandigarh in Punjab Cricket Association (9 July 2020) and ITAT Mumbai in Sarvajanik Seva Trust (28 January 2025) — and not from the section itself. TWO POINTS ON THE MACHINERY THAT ARE EASY TO GET WRONG. The Explanation's definition of 'specified date' refers only to cases falling under clauses (a), (b) and (c) of sub-section (1). In a deemed-conversion case under sub-section (3) the route is clause (a) of sub-section (1), and the applicable date is the 'date of conversion', which for a clause (iii) failure is defined as the last date for making the application under s.12A(1)(ac)(i), (ii) or (iii) or under clause (i), (ii) or (iii) of the first proviso to s.10(23C). That is the date on which the accreted income is measured, and it is a date the trust itself controls. And sections 115TE and 115TF, which carry interest on late payment and the liability of the principal officer and the trustees, have not been examined for this entry; nothing is stated about them, and anyone advising on exposure must read them, because the personal liability they create is the part clients care about most. One further point of scope: this entry sets out sub-sections (1) to (7) and the provisos to sub-section (2), but not the manner in which the fair market value of the total assets and the total liability is to be computed, which is prescribed by rule and has to be read separately before any figure is put to a client. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Statutory position — no holding is asserted; this entry reproduces statutory text. The tax is at the maximum marginal rate on the accreted income and is payable in addition to the income tax chargeable on the total income (sub-section (1)), and is payable even where no income tax is payable on the total income at all (sub-section (4)). It is to be paid to the credit of the Central Government within fourteen days from the dates set out in sub-section (5): in a cancellation case, from the expiry of the s.253 appeal period without an appeal or from receipt of the appellate order confirming the cancellation; in a case falling under sub-clause (a) of clause (ii) or under clause (iii) of sub-section (3), from the end of the previous year; in a rejection case, from the expiry of the s.253 appeal period or receipt of the confirming appellate order; on a merger, from the date of merger; and on a dissolution, from the expiry of the twelve months. Payment is final: no further credit may be claimed by the specified person or anyone else (sub-section (6)), and no deduction is allowed under any other provision in respect of the income charged or the tax on it (sub-section (7)). For a clause (iii) failure, the 'date of conversion' is the last date for making the application under s.12A(1)(ac)(i), (ii) or (iii) or under clause (i), (ii) or (iii) of the first proviso to s.10(23C).
TaxSphere, “Statutory position — section 115TD: the exit tax on accreted income, and the Finance Act 2022 extension to a mere failure to re-apply in time”, https://taxnotice.vittsphere.com/caselaw/case/section-115td-exit-tax-failure-to-apply-for-re-registration/ (validity last checked 2026-09-08)
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CPC denied my trust's section 11 exemption in a section 143(1) intimation for a late Form 10B, and a regular assessment has since been completed and separately appealed. What happens to my appeal against the intimation, and to the demand in it?
I did not file the Rule 17A documents in time and the CIT(E) rejected my Form 10AB, cancelled the provisional registration and directed computation of tax under s.115TD. Can a rejection for non-filing carry all that?
Our society wants to merge into a larger trust that does the same work. Both are registered. Will the merger trigger the exit tax on accreted income, and what do we have to get right?
My Form 10AB for final registration under s.12AB was rejected as time-barred because I missed the 30 June 2024 date in Circular 7/2024. Is anything left to me?
