Section 352: tax on accreted income

Introduction

Section 352 imposes tax on accreted income in specified events involving a registered non-profit organisation, including loss of registration or other statutory triggers.

The calculation compares asset value and liabilities under the section’s rules; payment timing and recovery consequences are separate steps.

Key takeaways

When accreted income tax applies

Sub-section (1): every specified person is liable, in addition to the regular income-tax on total income, to pay additional income-tax on accreted income at the maximum marginal rate, in the cases set out in the Table in sub-section (4). Those trigger events include cancellation of registration, non-conforming objects, failure to seek fresh or renewed registration in time, conversion to an ineligible form, certain mergers, and failure to transfer assets to another registered non-profit organisation within twelve months from the end of the month in which dissolution takes place. For a merger, the amended Table includes merger with a non-registered entity, merger with a registered non-profit whose objects are not the same or similar, and merger with one having the same or similar objects where prescribed merger conditions are not met. Section 354A excludes a merger with a registered non-profit having the same or similar objects when those prescribed conditions are met.

How accreted income is computed

Sub-section (2) gives the formula: Accreted income = aggregate fair market value of the specified person's total assets, as on the specified date, minus the total liability of the specified person as on that date - both computed using the prescribed valuation method.

Sub-section (3): this accreted income is then reduced by the amount attributable to specified assets, and any liabilities related to those assets.

When the tax must be paid

Subsection (4) requires payment within fourteen days from the date in column D. The specified date in column C serves the asset-and-liability valuation; it is not automatically the payment trigger. Read both dates from the same applicable row.

For example, row 3 values assets on the adoption or modification date but uses the end of that tax year in column D. Row 6 uses the last registration-application date for valuation and the end of that tax year as the column D date. Row 7 similarly distinguishes the conversion date from the tax-year-end payment trigger.

For merger, both dates are the merger date. For dissolution row 9, valuation uses the dissolution date; column D uses expiry of twelve months from the end of the dissolution month. Cancellation and rejected-registration cases have their own appeal-related dates in the table.

Final payment, interest, and recovery

Sub-section (5): payment of the tax on accreted income is treated as the final payment of tax on that income - no further credit or deduction can be claimed by the specified person, or anyone else, for the amount so paid, under any other provision of the Act.

Sub-section (6): if the tax on accreted income is not paid in full within the allowed time, simple interest is payable, computed as 1% of the tax on accreted income for every month (or part of a month) from the day after the last date the tax was payable, until the date it is actually paid.

Sub-section (7): all provisions of the Act for collection and recovery of income-tax apply, and the following are deemed assessees in default: the specified person and its principal officer or trustee; and, where the tax is payable because of a failure to transfer assets on dissolution, the person to whom an asset forming part of the accreted-income computation was transferred.

Sub-section (8): the liability of that asset-transferee is limited to the extent the asset received by them is capable of meeting the liability.

Step-by-step flow for tax on accreted income under Section 352

1. 1

   Is the person a specified person, and does a case in the Table in Section 352(4) apply?

   A specified person is one registered under any specified provision at any time (Section 355(l)). The Table covers cancellation of registration, non-conforming change of objects, failure to apply for registration in time, conversion into an ineligible form, certain mergers, and failure to transfer assets within twelve months of dissolution.

   • No: Section 352 does not apply.
   • Yes: Go to the next step.
2. 2

   Compute accreted income on the specified date

   Under Section 352(2), A = B − C: B is the aggregate fair market value of total assets and C is the total liability, both on the date in column C of the Table and valued by the prescribed method. Then reduce it by the accreted income attributable to specified assets and related liabilities (Section 352(3)).

3. 3

   Work out the tax and the payment date

   Additional income-tax is charged at the maximum marginal rate (Section 352(1)); this section does not state the rate. The specified person and its principal officer or trustee must pay within fourteen days from the due date in column D of the Table (Section 352(4)).

4. 4

   Was the tax paid in full within that time?

   • Yes: No interest under Section 352(6).
   • No: Simple interest I = 1% of (T × P), where T is the tax on accreted income and P is the number of months (part of a month counted) from the day after the last date for payment to the date of payment.
5. 5

   Finality and recovery

   The tax paid is a final payment; no credit or deduction is allowed for it to anyone (Section 352(5)). For recovery, the specified person, its principal officer or trustee, and, in the dissolution case (Table Sl. No. 9), a person who received the assets, are deemed assessees in default; the last one only to the extent the asset received can meet the liability (Sections 352(7) and (8)).

Practical checklist

Glossary

Specified date

The column C date used for valuing the assets and liabilities in the accreted-income computation.

Payment trigger date

The date stated in column D, from which subsection (4) gives fourteen days to pay.

Maximum marginal rate

The rate category applied by section 352(1); the section does not state one universal numerical rate for every computation.

Frequently asked questions