Section 115TD - Tax on Accreted Income of Trusts and Institutions
Section 115TD of the Income-tax Act, 1961 imposed additional income-tax on the accreted income of certain charitable trusts and institutions when they lost qualifying status, merged with an ineligible entity or dissolved without transferring their assets as required. For tax years beginning under the Income-tax Act, 2025, consult its corresponding Section 352; Section 115TD remains relevant to earlier years and transitional matters.
What is tax on accreted income?
Accreted income broadly represents the net value of a specified trust or institution on the relevant event date. The charge was introduced from 1 June 2016 to address the transfer of accumulated tax-exempt wealth outside the charitable sector. Under Section 115TD(1), additional income-tax was imposed at the maximum marginal rate, in addition to any tax otherwise payable on total income.
The expression specified person covers eligible trusts and institutions within the statutory registration or approval framework, including registration under Sections 12AA and 12AB and specified approvals under Section 10(23C). These provisions were expanded after the original 2016 enactment.
When did Section 115TD apply?
1. Conversion or loss of qualifying status - Section 115TD(1)(a) and (3)
A conversion event includes cancellation of registration or approval, a non-compliant change of objects without obtaining necessary fresh registration or approval, and certain failures to apply for renewal, regular registration or approval within the statutory time limit. The exact trigger depends on the applicable version of the law and the facts.
2. Merger with an ineligible entity - Section 115TD(1)(b)
A merger may trigger the charge where the receiving entity is not a qualifying trust or institution with similar objects and the registration or approval prescribed by law.
3. Dissolution without qualifying asset transfer - Section 115TD(1)(c)
Where a trust or institution dissolves, failure to transfer all its assets to another eligible specified person within 12 months from the end of the month of dissolution may attract accreted-income tax. Assets properly transferred within that period are disregarded as provided in the valuation rules.
How is accreted income calculated? - Section 115TD(2)
The statutory starting point is the aggregate fair market value of assets minus liabilities on the specified date, determined under the prescribed valuation method. Certain assets and related liabilities must be excluded, including qualifying assets acquired from income covered by Section 10(1), and certain assets acquired before effective registration or approval where the institution did not enjoy the relevant exemption. The applicable provisos govern any retrospective exemption and transfers on dissolution.
If the relevant fair market value is Rs. 5 crore and allowable liabilities are Rs. 1.2 crore, the preliminary net amount is Rs. 3.8 crore. Statutory exclusions, prescribed valuations and the applicable maximum marginal rate must then be checked before arriving at tax payable.
Other important provisions of Section 115TD
Subsection (4): tax even without ordinary taxable income
The additional charge can apply even if no income-tax is otherwise payable on the institution's computed total income.
Subsection (5): payment within 14 days
The principal officer or trustee and the specified person are liable to deposit tax within 14 days of the event prescribed for the relevant category. The triggering date may relate to finality of a cancellation or rejection order, the end of the previous year, the date of merger, or expiry of the dissolution transfer period. It is not a universal 14-day period from the original event.
Subsection (6): final tax payment
Tax paid on accreted income is treated as final payment for that income, and no further tax credit for it may be claimed.
Subsection (7): no deduction
No deduction is allowed for the income charged under subsection (1) or the tax paid on it.
Key statutory definitions
Date of conversion: determined by the relevant cancellation order, non-compliant modification of objects, or the applicable missed application deadline, as set out in the Explanation to Section 115TD.
Specified date: generally the date of conversion, merger or dissolution, as the case may be.
Maximum marginal rate: the highest applicable rate of income-tax (including surcharge where applicable) in relation to the highest slab of income, as defined by the relevant tax legislation.
Income-tax Act, 2025: transition from Section 115TD
The Income-tax Act, 2025 took effect on 1 April 2026. Its corresponding provision on tax on accreted income is Section 352. Historical liability and proceedings relating to periods governed by the Income-tax Act, 1961 require consideration of the applicable savings and transitional provisions. Do not assume the numbering or wording of the two Acts is identical.
Official legal sources
- Income Tax Department - Section 115TD (2025 version)
- Finance Act, 2022 - amendment to Section 115TD
- Income Tax Department - taxation of charitable or religious trusts
- Income Tax Department - official e-filing portal
This article is an explanatory guide. The applicable statutory text, rules, notification dates and case-specific facts prevail.