Yes. Section 115TD charges tax at the maximum marginal rate on a trust's accreted income — broadly the fair market value of its total assets less its total liabilities on a specified date — when the trust converts into a non-eligible form, merges with a non-eligible entity, or fails to transfer its assets to a qualifying institution within twelve months of dissolution. Conversion includes cancellation of registration and failure to apply for fresh registration or approval in time.
The idea behind Chapter XII-EB, in force from 1 June 2016, is that a registered trust builds its corpus out of income that escaped tax on the promise that it would be applied to charity. If the trust steps outside the charitable framework, the state takes back the benefit on the whole accumulated pool in one charge. Section 115TD calls it tax on accreted income; practitioners call it exit tax.
There are three trigger events. Conversion into any form not eligible for registration; merger with an entity that is not a registered trust or institution with similar objects; and failure, on dissolution, to transfer all assets to a qualifying institution within twelve months.
Conversion is defined far more widely than the word suggests. Under section 115TD(3) it includes cancellation of registration under section 12A, 12AA or 12AB or of approval under section 10(23C), and adoption or modification of objects that do not conform to the conditions of registration without applying for fresh registration or where the application is rejected. The Finance Act 2022 extended the chapter to institutions approved under section 10(23C)(iv), (v), (vi) and (via). The Finance Act 2023, with effect from 1 April 2023, brought in failure to apply for re-approval or re-registration within the prescribed time — an ordinary compliance slip becoming an exit event.
Accreted income is, under section 115TD(2), the amount by which the aggregate fair market value of the total assets of the trust exceeds its total liabilities, computed on the specified date. Valuation follows the method prescribed by CBDT — Rule 17CB, introduced by the Income-tax (8th Amendment) Rules, 2017. Certain assets are ignored: those acquired out of agricultural income under section 10(1), those acquired before registration took effect where no benefit under sections 11 and 12 was claimed in that period, and assets transferred to a qualifying institution within the twelve-month dissolution window.
The specified date shifts with the trigger. For conversion by cancellation it is the date of the cancellation order; for modification of objects it is the date of adoption or modification, or the last date for the application; for merger the date of merger; for dissolution the date the dissolution takes effect.
The charge is at the maximum marginal rate and it is in addition to income tax on the trust's total income. Section 115TD(6) makes it the final payment of tax on that income with no further credit claimable, and section 115TD(7) denies any deduction to the institution or anyone else in respect of income already charged under it.
Collection is quick and personal. Under section 115TE the tax is payable within fourteen days of the later of the expiry of the appeal period under section 253 against the cancellation or rejection order, or the receipt of the appellate order confirming it. Section 115TF(1) makes the trust and its principal officer or trustee an assessee in default on failure to pay, with simple interest at one per cent per month. Section 115TF(2) reaches further: a person to whom any asset counted in the accreted income has been transferred is deemed an assessee in default, capped at the fair market value of that asset.
This is not a tax on a year's income; it is a tax on the entire net worth of the institution, and it can be triggered by something as mundane as missing a re-registration deadline. Trustees are personally exposed as assessees in default, and so is anyone who received the assets — so a well-meaning distribution to a non-registered body can follow the recipient.
We charge fees for our public utility work. Does that cost us charitable status under s.2(15)?
The prescribed authority has refused our s.10(23C)(vi) approval because we have not shown that income was applied the way the third proviso requires. Can it refuse on that ground at the approval stage?
Our society runs a college but also earns from hostels and events. Can we get 10(23C)(vi) approval?
The CIT (Exemptions) refused our trust's registration under s.12AB because the trust deed has no irrevocability or dissolution clause, and treated our 'Yes' in Row 6 of Form 10AB as false information. Is that a lawful ground of refusal?
Our trust is religious and charitable and holds 80G approval. Can the officer tax our hundi collections under s.115BBC?
The Assessing Officer has added our society's donations to our college's fee receipts to push us over the s.10(23C)(iiiad) limit. Can he club them?
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?
My trust filed Form 10BD for the whole financial year although its s.80G provisional approval began mid-year, so Forms 10BE were generated for pre-approval donations too. The CIT (Exemption) has refused final registration and approval on that ground. Is that a valid reason?
Every page in this library links to what it was written from, so you can check it rather than take our word for it.
