Finance Bill 2026 clarifies the taxability of accreted income in NPO mergers
The Finance Bill, 2026 proposes to insert a new Section 354A in the
Income Tax Act, 2025. It provides that tax on accreted income under
Section 352 will not apply when a registered NPO merges with another
registered NPO having the same or similar objects, subject to
prescribed conditions. This aligns the provision with Section 12AC of the
Income Tax Act, 1961 and reduces litigation risk in genuine NPO mergers.
At the same time, a clarification has been made in the table under
Section 352 (Sl. No. 8), applicable from tax year 2026–27, to remove
earlier confusion about when accreted tax applies.
Now, accreted tax will apply if a registered NPO merges with:
a) an entity that is not a registered NPO, or
b) a registered NPO with similar objects but prescribed conditions
are not met, or
c) a registered NPO with different objects.