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?
Section 12AC, inserted after section 12AB by the Finance (No. 2) Act, 2024 with effect from 1 April 2025, says that where a trust or institution registered under section 12AB, or approved under sub-clause (iv), (v), (vi) or (via) of clause (23C) of section 10, merges with another trust or institution, the provisions of Chapter XII-EB shall not apply if three conditions are met: the other trust or institution has same or similar objects; the other trust or institution is registered under section 12AA or section 12AB or approved under those same sub-clauses of section 10(23C); and the merger fulfils such conditions as may be prescribed. Chapter XII-EB is the exit tax — the charge on accreted income under section 115TD, the interest under section 115TE and the personal liability under section 115TF. Where any of the three conditions fails, the section simply does not apply and the Chapter is left in place.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2025-04-01, reported as Section 12AC of the Income-tax Act, 1961, as amended up to 2026. It bears on section 12AC, section 12AB, section 12AA, section 10(23C)(iv), section 10(23C)(v), section 10(23C)(vi), section 10(23C)(via), section 115TD, section 115TE, section 115TF of the Income Tax Act 1961, in Charitable Trusts & Exemption, Capital Gains Exemptions and Assessment & Scrutiny matters.
Until this section came in, a charitable merger was a trap with no exit. Section 115TD charges tax on accreted income at the maximum marginal rate when a registered trust merges with an entity that is not itself registered or approved and does not have similar objects, and the charge falls on the value of the whole corpus, not on any gain. Boards that had spent thirty years building a school or a hospital found that consolidating it into a larger institution could cost more in tax than the assets were worth in cash. Section 12AC is the answer Parliament gave, and it is drafted as a carve-out rather than as an exemption: the Chapter 'shall not apply' if the three conditions hold. The practical weight sits on clause (b) and clause (c). Clause (b) is a status test that can be verified on the day — is the transferee registered under section 12AA or section 12AB, or approved under one of the four named sub-clauses of section 10(23C)? A transferee whose application for registration is still pending fails it, and no amount of similarity in objects rescues the merger. Clause (c) is the one that will generate the disputes, because it makes the relief depend on conditions to be prescribed; a merger completed on the strength of clauses (a) and (b) alone is exposed if conditions are later found to have been prescribed and not followed. Clause (a) looks the softest and is not. 'Same or similar objects' is a comparison of instruments. A relief trust merging into an education trust may be doing similar work in the ordinary sense and still fail, because the objects clauses do not correspond. Where the transferee's trust deed carries a wide general-public-utility clause and the transferor's is narrow, the comparison is worth making in writing, with the two clauses set out, before the scheme is executed. If any of the three fails, what returns is not a smaller charge but the whole of Chapter XII-EB, with interest under section 115TE and personal liability under section 115TF.
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 12AC, printed under the heading 'Merger of charitable trusts or institutions in certain cases', reads in full: 'Where any trust or institution registered under section 12AB or approved under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, as the case may be, merges with another trust or institution, the provisions of Chapter XII-EB shall not apply if- (a) the other trust or institution has same or similar objects; (b) the other trust or institution is registered under section 12AA or section 12AB or approved under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, as the case may be; and (c) the said merger fulfils such conditions as may be prescribed.' The section has no sub-sections, no proviso and no Explanation. It was inserted by Act No. 15 of 2024, the Finance (No. 2) Act, 2024, with effect from 1 April 2025, and it sits after section 12AB in the Income-tax Act, 1961. Chapter XII-EB of the Act, which the section disapplies, is the chapter headed 'Special provisions relating to tax on accreted income of certain trusts and institutions' and comprises sections 115TD, 115TE and 115TF.
A merger of a registered or approved trust or institution into another escapes Chapter XII-EB only where all three conditions in clauses (a), (b) and (c) are satisfied. Clause (a) is about the objects of the transferee, clause (b) about its registration or approval status, and clause (c) about conditions to be prescribed by rule. The relief is expressed negatively — 'the provisions of Chapter XII-EB shall not apply' — so where a condition fails the section drops out and the accreted-income charge under section 115TD, the interest under section 115TE and the liability under section 115TF operate as they would have done without the section. The section applies to a trust or institution registered under section 12AB, or approved under sub-clause (iv), (v), (vi) or (via) of clause (23C) of section 10; for the transferee, clause (b) accepts registration under section 12AA as well as under section 12AB.
Not applicable — this is a statement of statutory text read on two departmental pages for the section. No judicial reasoning is involved, and no decision on section 12AC was located.
Where any trust or institution registered under section 12AB or approved under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, as the case may be, merges with another trust or institution, the provisions of Chapter XII-EB shall not apply if— (a) the other trust or institution has same or similar objects; (b) the other trust or institution is registered under section 12AA or section 12AB or approved under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, as the case may be; and (c) the said merger fulfils such conditions as may be prescribed.
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Handle my notice → Ask a CA on WhatsAppSection 12AC, inserted after section 12AB by the Finance (No. 2) Act, 2024 with effect from 1 April 2025, says that where a trust or institution registered under section 12AB, or approved under sub-clause (iv), (v), (vi) or (via) of clause (23C) of section 10, merges with another trust or institution, the provisions of Chapter XII-EB shall not apply if three conditions are met: the other trust or institution has same or similar objects; the other trust or institution is registered under section 12AA or section 12AB or approved under those same sub-clauses of section 10(23C); and the merger fulfils such conditions as may be prescribed. Chapter XII-EB is the exit tax — the charge on accreted income under section 115TD, the interest under section 115TE and the personal liability under section 115TF. Where any of the three conditions fails, the section simply does not apply and the Chapter is left in place. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 12AC, section 12AB, section 12AA, section 10(23C)(iv), section 10(23C)(v), section 10(23C)(vi), section 10(23C)(via), section 115TD, section 115TE, section 115TF of the Income Tax Act 1961. It is reported as Section 12AC of the Income-tax Act, 1961, as amended up to 2026. Until this section came in, a charitable merger was a trap with no exit. Section 115TD charges tax on accreted income at the maximum marginal rate when a registered trust merges with an entity that is not itself registered or approved and does not have similar objects, and the charge falls on the value of the whole corpus, not on any gain. Boards that had spent thirty years building a school or a hospital found that consolidating it into a larger institution could cost more in tax than the assets were worth in cash. Section 12AC is the answer Parliament gave, and it is drafted as a carve-out rather than as an exemption: the Chapter 'shall not apply' if the three conditions hold. The practical weight sits on clause (b) and clause (c). Clause (b) is a status test that can be verified on the day — is the transferee registered under section 12AA or section 12AB, or approved under one of the four named sub-clauses of section 10(23C)? A transferee whose application for registration is still pending fails it, and no amount of similarity in objects rescues the merger. Clause (c) is the one that will generate the disputes, because it makes the relief depend on conditions to be prescribed; a merger completed on the strength of clauses (a) and (b) alone is exposed if conditions are later found to have been prescribed and not followed. Clause (a) looks the softest and is not. 'Same or similar objects' is a comparison of instruments. A relief trust merging into an education trust may be doing similar work in the ordinary sense and still fail, because the objects clauses do not correspond. Where the transferee's trust deed carries a wide general-public-utility clause and the transferor's is narrow, the comparison is worth making in writing, with the two clauses set out, before the scheme is executed. If any of the three fails, what returns is not a smaller charge but the whole of Chapter XII-EB, with interest under section 115TE and personal liability under section 115TF. If it applies to you, the first step is this: Establish the transferee's status in writing before anything is signed. Clause (b) requires the other trust or institution to be registered under section 12AA or section 12AB, or approved under sub-clause (iv), (v), (vi) or (via) of clause (23C) of section 10. A transferee with only an 80G approval, or with an application pending, does not satisfy clause (b).
Section 12AC, printed under the heading 'Merger of charitable trusts or institutions in certain cases', reads in full: 'Where any trust or institution registered under section 12AB or approved under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, as the case may be, merges with another trust or institution, the provisions of Chapter XII-EB shall not apply if- (a) the other trust or institution has same or similar objects; (b) the other trust or institution is registered under section 12AA or section 12AB or approved under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, as the case may be; and (c) the said merger fulfils such conditions as may be prescribed.' The section has no sub-sections, no proviso and no Explanation. It was inserted by Act No. 15 of 2024, the Finance (No. 2) Act, 2024, with effect from 1 April 2025, and it sits after section 12AB in the Income-tax Act, 1961. Chapter XII-EB of the Act, which the section disapplies, is the chapter headed 'Special provisions relating to tax on accreted income of certain trusts and institutions' and comprises sections 115TD, 115TE and 115TF. The matter was decided on 2025-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. A merger of a registered or approved trust or institution into another escapes Chapter XII-EB only where all three conditions in clauses (a), (b) and (c) are satisfied. Clause (a) is about the objects of the transferee, clause (b) about its registration or approval status, and clause (c) about conditions to be prescribed by rule. The relief is expressed negatively — 'the provisions of Chapter XII-EB shall not apply' — so where a condition fails the section drops out and the accreted-income charge under section 115TD, the interest under section 115TE and the liability under section 115TF operate as they would have done without the section. The section applies to a trust or institution registered under section 12AB, or approved under sub-clause (iv), (v), (vi) or (via) of clause (23C) of section 10; for the transferee, clause (b) accepts registration under section 12AA as well as under section 12AB.
Not applicable — this is a statement of statutory text read on two departmental pages for the section. No judicial reasoning is involved, and no decision on section 12AC was located. In the words reproduced by the source cited on this page: "Where any trust or institution registered under section 12AB or approved under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, as the case may be, merges with another trust or institution, the provisions of Chapter XII-EB shall not apply if— (a) the other trust or institution has same or similar objects; (b) the other trust or institution is registered under section 12AA or section 12AB or approved under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, as the case may be; and (c) the said merger fulfils such conditions as may be prescribed."
It was decided by the CBDT Circulars & Instructions on 2025-04-01 and is reported as Section 12AC of the Income-tax Act, 1961, as amended up to 2026. 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 12AC, section 12AB, section 12AA, section 10(23C)(iv), section 10(23C)(v), section 10(23C)(vi), section 10(23C)(via), section 115TD, section 115TE, section 115TF, 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. A merger of a registered or approved trust or institution into another escapes Chapter XII-EB only where all three conditions in clauses (a), (b) and (c) are satisfied. Clause (a) is about the objects of the transferee, clause (b) about its registration or approval status, and clause (c) about conditions to be prescribed by rule. The relief is expressed negatively — 'the provisions of Chapter XII-EB shall not apply' — so where a condition fails the section drops out and the accreted-income charge under section 115TD, the interest under section 115TE and the liability under section 115TF operate as they would have done without the section. The section applies to a trust or institution registered under section 12AB, or approved under sub-clause (iv), (v), (vi) or (via) of clause (23C) of section 10; for the transferee, clause (b) accepts registration under section 12AA as well as under section 12AB. It arises in Charitable Trusts & Exemption, Capital Gains Exemptions and Assessment & Scrutiny matters, on section 12AC, section 12AB, section 12AA, section 10(23C)(iv), section 10(23C)(v), section 10(23C)(vi), section 10(23C)(via), section 115TD, section 115TE, section 115TF 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. Compare the objects clause of both instruments side by side. Clause (a) asks whether the other trust or institution has 'same or similar objects', and it is the objects as they stand that are compared, not the activities actually carried on. Read clause (c) as an open condition. The section says the merger must fulfil 'such conditions as may be prescribed'. Check whether a rule has been notified for this purpose before you rely on the section, because until one is, the third condition has nothing in it to satisfy and nothing to breach. Work out the exposure the section is protecting you from. Chapter XII-EB taxes accreted income — broadly the excess of the fair market value of assets over liabilities on the specified date — at the maximum marginal rate, with interest under section 115TE and personal liability on the principal officer and trustees under section 115TF. Value the assets before the merger so you know what is at stake if a condition fails. Do not treat section 12AC as covering the transferee's own registration. It disapplies Chapter XII-EB to the merger; it says nothing about whether the merged entity's registration continues, or about fresh registration for an entity that changes its objects. Where the merging entity's own registration is under challenge, deal with that first. The library already carries the position where a rejection of Form 10AB cancels registration and triggers section 115TD, and the case on a registration surrendered before June 2016 — read those before assuming a merger solves the problem. Keep the board resolutions, the scheme or deed of merger, and the transferee's registration order in one file. On these facts the whole defence to a section 115TD demand is documentary.
Searched for later treatment; none was found. That is not the same as a source affirming it. Section 12AC is new and has not yet been amended. Two consolidations, of 2026 and 2024 vintage, print the same three clauses word for word - the later as an inserted section with the footnote 'Ins. by Act No. 15 of 2024, w.e.f. 1-4-2025' and no other footnote against its words, the earlier prospectively, as a section to be inserted after section 12AB by the Finance (No. 2) Act, 2024 with effect from 1 April 2025. That the two agree is the evidence available here that nothing moved between them. One part of the section is incomplete on its own terms. Clause (c) requires the merger to fulfil 'such conditions as may be prescribed', and no rule prescribing conditions for this purpose has been found. Searches for a rule answering to clause (c) returned nothing, and neither consolidation of the section carries a footnote pointing to a rule or a form, as such texts ordinarily do where one exists. That is a negative finding about what could be located, not a statement that no rule exists; check the current Rules before advising that clause (c) is empty. What can be said is that the relief is conditional on three things and that one of them is left to subordinate legislation. No judicial decision on section 12AC has been found, which is unsurprising for a provision operative only from the tax year beginning 1 April 2025. Nothing is therefore said here about what 'same or similar objects' will be taken to mean, about whether a merger sanctioned by a court or a registrar under a State public trusts enactment is a 'merger' for this section, or about how the section works where more than two entities combine. The successor provision under the Income-tax Act, 2025 has not been read and none is stated. 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.
ON THE TEXT AND ITS CORROBORATION. The section is taken from two consolidations that print it word for word identically, one of 2026 and one of 2024 vintage, both headed 'Income-tax Act, 1961'. The later carries the footnote 'Ins. by Act No. 15 of 2024, w.e.f. 1-4-2025'; the earlier carries the corresponding prospective note naming the Finance (No. 2) Act, 2024 and the same date. The 'decided_on' date on this entry, 1 April 2025, is that commencement date taken from those footnotes and nothing else. It is not a decision date. WHAT WAS NOT DONE. The text of Chapter XII-EB has not been re-read for this entry. What is said here about sections 115TD, 115TE and 115TF is a description of the chapter the section disapplies, at the level of what the chapter is for - a charge on accreted income at the maximum marginal rate, interest, and liability on the principal officer and trustees - and not a transcription of those sections. Anyone advising on the exposure should read section 115TD itself, in particular the definition of the specified date and the computation of accreted income, because the amount at stake turns on both and neither is stated here. This library carries separate entries on the exit tax, on a Form 10AB rejection that cancels registration and triggers section 115TD, and on a registration surrendered before June 2016; those, rather than this entry, are where the detail of the charge lives. NO RULE, NO FORM, NO CASE LAW. No rule prescribing conditions under clause (c) has been found; searches directed at a rule serving section 12AC returned nothing, and neither consolidation of the section carries the rule-and-form footnote that such texts usually carry where a rule has been made. That is recorded as what was found and not as a finding that no such rule exists. No form for a merger under this section has been found either, and none is named anywhere in this entry. No judicial decision on section 12AC has been found; the section has been operative only from the tax year beginning 1 April 2025, so an absence of authority is what one would expect, and the entry claims no case law. NO SUCCESSOR PROVISION under the Income-tax Act, 2025 has been read, so none is given here and the entry carries no 2025-Act section label. 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.
A merger of a registered or approved trust or institution into another escapes Chapter XII-EB only where all three conditions in clauses (a), (b) and (c) are satisfied. Clause (a) is about the objects of the transferee, clause (b) about its registration or approval status, and clause (c) about conditions to be prescribed by rule. The relief is expressed negatively — 'the provisions of Chapter XII-EB shall not apply' — so where a condition fails the section drops out and the accreted-income charge under section 115TD, the interest under section 115TE and the liability under section 115TF operate as they would have done without the section. The section applies to a trust or institution registered under section 12AB, or approved under sub-clause (iv), (v), (vi) or (via) of clause (23C) of section 10; for the transferee, clause (b) accepts registration under section 12AA as well as under section 12AB.
TaxSphere, “Statutory position — s.12AC: a registered trust may merge into another without Chapter XII-EB, but only on three conditions, one of which is still to be prescribed”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-12ac-merger-of-charitable-trusts-without-the-exit-tax-and-the-three-conditions/ (validity last checked 2026-09-23)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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My trust is surrendering registration or merging. What is the s.115TD tax on accreted income?
My institution advances an object of general public utility but charges fees and ends up with a surplus — does the proviso to section 2(15) knock out my exemption?
My institution is a statutory regulator that charges fees for coaching and placement and ends up with a surplus — does that make it a trade or business under the proviso to section 2(15)?
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?
