Section 352 of the Income-tax Act, 2025 — Tax on Accreted Income (Exit Tax on Non-Profit Organisations)

In plain language

What Section 352 actually is

Section 352 of the Income-tax Act, 2025 is the "exit tax" on charitable and religious trusts and institutions — technically called tax on accreted income. It sits in Part B of Chapter XVII ("Special Provisions for Registered Non-Profit Organisations"). It is the direct successor to Section 115TD (and Chapter XII-EB) of the old Income-tax Act, 1961, re-written into a cleaner table-driven format effective 1 April 2026.

The core idea is simple. A charitable trust builds up assets over decades using tax exemptions funded by the public exchequer. If it later stops being a genuine non-profit — its registration is cancelled, it changes its objects, it converts into a company or merges into a taxable entity, or on dissolution it hands its wealth to someone who is not another charity — the Act "claws back" the tax benefit. It taxes the net accumulated wealth (accreted income) at the maximum marginal rate as a one-time exit levy.

Who it applies to (the "specified person")

• Any registered non-profit organisation (NPO) — trust, society, Section 8 company or institution — that has enjoyed exemption under the trust regime.
• Both the NPO itself and its principal officer or trustee are jointly liable to pay the tax.

The six triggering events (when the tax bites)

• Cancellation of registration — the department cancels/withdraws registration.
• Modification of objects that no longer conform to the conditions of registration, and the trust does not get fresh registration.
• Failure to re-apply / renew registration within the prescribed time (typically the 12-month window for revalidation).
• Conversion into any form not eligible for NPO registration.
• Merger with an entity that is not a similarly-registered NPO with matching objects.
• Dissolution where assets are not transferred to another eligible NPO within 12 months.

How accreted income is computed

The Act uses an explicit formula: A = B − C, where A is accreted income, B is the aggregate fair market value (FMV) of all assets on the specified date (valued by the prescribed method, i.e. the successor to Rule 17CB), and C is the total liabilities on that date. In short, accreted income = net worth (FMV of assets minus liabilities).

• Accreted income is reduced by amounts attributable to specified assets (broadly, assets acquired before the trust first got exemption, or corpus already taxed) and their related liabilities.
• The specified date depends on the event — e.g. date of the cancellation order, date the appeal period expires, date of modification/conversion/merger, or the day the 12-month transfer window ends.

Rate, payment and finality

• Tax is charged at the maximum marginal rate (MMR) — for a trust in FY 2026-27 this works out to roughly 39% (30% base plus the highest surcharge and 4% cess); the exact effective rate depends on the applicable surcharge slab, so treat 39% as indicative.
• This is in addition to regular income-tax on total income for that year.
• The tax must be paid within 14 days of the relevant date (order date/appeal expiry/event date).
• Late payment attracts simple interest at 1% per month under Section 352(7) on the unpaid amount.
• The payment is treated as final — no credit, refund or deduction can be claimed for it by the trust or anyone else.

How it interacts with other provisions

Section 352 works alongside the registration and exemption sections for NPOs in Chapter XVII. It only applies to trusts that were registered and claiming exemption; a trust that never claimed exemption is generally outside its scope. It reinforces the anti-abuse framework — it is the "penalty" for exiting the charitable regime improperly, distinct from ordinary tax on unspent or misapplied income.

Practical implications

• Trusts must renew registration on time — a missed deadline can itself trigger a tax on the trust's entire net worth.
• On dissolution, always transfer assets to another registered NPO with similar objects within 12 months.
• Any change of objects, conversion or merger needs professional tax advice first — the cost of getting it wrong is tax on the full accumulated corpus, not just one year's income.