A society or a section 8 company or a trust or an institution carrying on charitable activity (defined under 2(15)) may voluntarily wind up its activities and dissolve or may also merge with any other charitable or non-charitable institution, or it may convert into a non-charitable organisation.
Earlier there was no provision in the Income-tax Act which ensured that the corpus and asset base of the trust accreted over period of time, with promise of it being used for charitable purpose, continues to be utilized for charitable purposes and is not used for any other purpose. Now new provisions under section 115TD is introduced to ensure that the benefit conferred over the years by way of exemption claimed by charitable trusts is not misused by converting it into non-charitable organization. It is a kind of exit tax that we usually call tax on accredited income.
Section 115TD prescribes circumstances under which exit tax is leviable. There are three conditions under which exit tax would become leviable:
ii) Trust has adopted or undertaken modification of its objects which do not conform to the conditions of registration and it:
Tax on accreted income is to be paid at Maximum Marginal Rate; this levy is in addition income-tax chargeable in hands of entity and is calculated as below:
Accreted Tax = Accreted Income * Maximum Marginal Rate (42.744% for AY 2020-21)
Accreted income is FMV of assets and Liabilities of trust/institution as on specified date. In computing FMV of assets, following assets shall not be included:-
i) Assets, which have been acquired directly out of agriculture income referred to in section 10(1).
ii) Assets which have been acquired between the period beginning from the date on which trust in created and ending on the date on which registration u/s 12AA become effective, if no benefit u/ 11 and 12 is given during said period.
iii) In case of dissolution of trust , the assets which have been transferred to either Trust/institution registered u/s 12AA or other institution registered u/s 10(23C)((iv)/(v)/(vi/(via), within period of 12 months from the end of the month in which dissolution take place
| S.no | Situation | PY in which accreted Income is taxable | Specified date for computing accreted income | Date of Payment of Tax (max time) |
|---|---|---|---|---|
| 1 | No appeal has been filed against cancellation order | FY in which order is passed by Commissioner cancelling the registration | Date of order of Commissioner cancelling the registration | 74 (60+14) days from the date, on which order of Commissioner cancelling the registration is received |
| 2 | Appeal is filed but cancellation of registration is confirmed in appellate proceedings | FY in which appellate order is received | Date of order of Commissioner cancelling the registration | 14 days from the date on which appellate order is received |
| 3 | Has not applied for fresh registration u/s 12AA on modification of objects | FY in which modification of object is done | Date on which modification of object is done | 14 days from the end of the previous year in which modification of object is done |
| 4 | No appeal is filed against order rejecting application | FY in which order is passed by Commissioner rejecting the application. | Date on which modification of object is done | 74 days from the date, on which order of Commissioner rejecting the application is received. |
| 5 | Appeal is filed but rejection of registration in confirmed in appellate proceedings | FY in which appellate order is received | Date of order of Commissioner rejecting the application. | 14 days from the date on which appellate order is received |
| 6 | FY in which merge is done | Date of Merger | 14 days from the date of merger | |
| 7 | FY in which 12 months from end of month in which dissolution take place falls | Date of dissolution | 14 days from the date on which said period of 12 months expires. |
