Amendments in the Finance Bill 2016

The Finance Bill 2016 has added new sections 115TD, 115TE & 115TF which propose to tax the ‘accreted income’ of an organization registered under section 12AA of the Income Tax Act. The summary of the amendments is given below: –

  • The accreted income of an organization shall be subjected to tax at the maximum marginal rates under three circumstances:
    1. If the organization gets converted into any form which is not eligible under section 12AA
    2. If the organization gets merged into any entity which is not eligible under section 12AA
    3. If the organization, in case of dissolution, fails to transfer its assets to exempt entities under section 12AA & section 10(23C) (iv), (v), (vi) & (via).
  • Further under the following circumstances the entity will be deemed to have been converted into a non exempt entity:
    1. If the registration of the organization under section 12AA is cancelled
    2. If the objects of the organization are amended in violation of the conditions of the registration and a fresh application under section 12AA is not made
    3. If the objects of the organization are amended in violation of the conditions of the registration and a fresh application under section 12AA is made and rejected
  • The income of the organization for that year and the accreted income shall be subjected to tax at the maximum marginal rate. Once the tax is charged under this section, no other provision of tax shall apply.
  • The ‘accreted income’ shall be the fair market value of the assets minus liabilities on the specified date. The method of valuation of fair market value may be prescribed through appropriate rules.
  • The tax shall be payable within 14 days of:
    1. Receipt of cancellation order
    2. End of the previous year in which object clause were modified
    3. Receipt of cancellation order against any fresh application for 12AA registration
    4. Date of merger
    5. At the end of 12 months from the month in which dissolution has taken place
  • In case of delay in payment of tax interest @ 1% per month shall be charged.
  • In case of non- payment of taxes the provisions of collection and recovery shall apply accordingly. – The total recovery of taxes, interest or penalties should not exceed the value of the assets.

What can be the implication(s) of this amendments in the voluntary sector?

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8 thoughts on “Amendments in the Finance Bill 2016

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  5. Dear Rangegowda ji,
    If a trust has not been registered under 12AA, the nature of the income needs to be examined to determine the ITR form to be filled. If the income has been derived from property held under trust for charitable purposes, then the trust needs to file its ITR in form ITR-7 irrespective of whether the trust is holding 12AA exemption or not. However, if the income of the trust is commercial in nature and is indulged in business activities, then the ITR-5 would have to be filed mentioning the association details as ‘Trust’.
    In both the cases, the slab rates would be the same as an individual i.e. nil tax upto Rs 250,000, 10% for the amount exceeding Rs. 2,50,000 but not exceeding 5,00,000 etc.
    We hope that your query is resolved.

  6. If Trust is not registered under 12AA what ITR form to be filled for Income tax. What is the Income tax Slab rates for Trust is applicable.

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