Section 352 — Trust Accreted Income Exit Tax | ITA 2025

Section 352 — - TAX ON ACCRETED INCOME

Section 352 is the substantive equivalent of 1961 s. 115TD -- the EXIT TAX provision targeting charitable trust accumulated wealth. Where a registered trust ceases to qualify for exemption (cancellation under s. 351 / dissolution / merger / etc.), the ACCRETED INCOME (= FMV of net assets - corpus + specified additions / reductions) is TAXED AT MAXIMUM MARGINAL RATE (currently 30%+ effective). The provision is one of the LARGEST in Chapter XVII (~12K bytes) covering: (a) trigger events; (b) accreted-income computation methodology with multiple additions / reductions; (c) tax rate application; (d) consequence of non-payment (interest / penalty / lien on assets); (e) protection mechanisms in compliance scenarios. Critical for trust closure planning -- can trigger 30%+ tax on lifetime accumulated assets.

Statutory text — Income-tax Act, 2025

Marginal note -- Tax on accreted income

(1) Every specified person shall, in addition to the income-tax chargeable in respect of his total income, be liable to pay additional income-tax on accreted income at the maximum marginal rate in any of the cases specified in column B(i) and (ii) of the Table in sub-section (4).

(2) The accreted income referred to in sub-section (1) shall be computed using the following formula:— A = B – C where,— A = Accreted income; B = Aggregate fair market value of the total assets of the specified person, as on the date specified, in column C of the Table in sub-section (4), computed in accordance with such method of valuation, as may be prescribed; C = Total liability of such specified person, as on the date specified in column C of the said Table, computed in accordance with such method of valuation, as may be prescribed.

(3) The accreted income, computed as per the provisions of sub-section (2) shall be reduced by such amount of accreted income as is attributable to specified assets, and liabilities, if any, related to such assets.

(4) The specified person and the principal officer or trustee of such specified per- son shall be liable to pay the tax on accreted income to the credit of the Central Government within fourteen days from the due date specified in column D of the Table below:

TABLE Sl. Case Specified date Due date for the No. payment of tax on accreted income

A B C D

(i) (ii)

1. The registration The specified per- The date of the or- Date of receipt of granted to the son has preferred der cancelling the the order in any ap- specified person an appeal against registration. peal, confirming under any speci- the order of can- the cancellation fied provision has cellation. of the registration, been cancelled or by the specified withdrawn. person.

2. The registration The specified per- The date of the or- The date on which granted to the son has not pre- der cancelling the the period for fil- specified person ferred an appeal registration. ing appeal under under any speci- against such order section 362 against fied provision has of cancellation. the order cancel- been cancelled or ling the registra- withdrawn. tion expires. 3. (a) The speci- The specified per- The date of adop- The end of such fied person son has not ap- tion or modifica- tax year. has adopted plied for fresh reg- tion of any object. or undertak- istration under any en modifi- specified provision cation of its in such tax year. objects dur- ing any tax year; and

(b) such modi- fied objects do not con- form to the conditions of registra- tion. 4. (a) The speci- The specified per- The date of adop- The date of receipt fied person son has applied for tion or modifica- of the order in has adopted fresh registration tion of any object. any appeal, con- or undertak- under any speci- firming the can- en modifi- fied provision in cellation of the cation of itssuch tax year and registration by the objects dur- where such appli- specified person. ing any tax cation has been re- year; and jected and appeal

(b) such modi- has been preferred fied objects against such order of rejection. Sl. Case Specified date Due date for the No. payment of tax on accreted income

A B C D

(i) (ii) do not con- form to the conditions of registra- tion. 5. (a) The speci- The specified per- The date of adop- The date on which fied person son has applied for tion or modifica- the period for fil- has adopted fresh registration tion of any object. ing appeal under or undertak- under any speci- section 362 against en modifi- fied provision in the order cancel- cation of its the said tax year ling the registra- objects dur- and where such tion expires. ing any tax application has year; and been rejected and

(b) such modi- no appeal has been fied objects preferred against do not con- such order of re- form to the jection. conditions of registra- tion.

6. The specified per- The period spec- The last date for The end of such son fails to make ified in the re- making an appli- tax year. an application as spective clause cation for regis- per the provisions or sub-clauses or tration. of— Table, as the case

(a) sub-clause may be, expires

(i) or (ii) or in the tax year

(iii) of the in which the said first proviso application is to to section 10 be made. (23C) of the Income-tax Act, 1961 (43 of 1961); or

(b) sub-clause

(i) or (ii) or

(iii) of sec- tion 12A(1) (ac) of the Sl. Case Specified date Due date for the No. payment of tax on accreted income

A B C D

(i) (ii) Income-tax Act, 1961 (43 of 1961); or

(c) as specified in section 332(3) (Ta- ble: Sl. No. 3, 4, 5 or 7).

7. Where a specified The date of such The end of such person converts conversion. tax year. itself into a form which is not eligi- ble for grant of reg- istration during any tax year. [8. 68 The specified per- The date of merger. The date of merger.] son has merged with any other—

(a) entity oth- er than a registered non-profit organisa- tion; or

(b) r e g i s t e r e d non-profit organisation having

68. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its substitution, Sl. No. 8 read as under : “8. The specified person has merged with The date of The date of any other entity other than a registered merger. merger.” non-profit organisation having the same or similar objects and the said merger does not fulfil such conditions, as may be prescribed. Sl. Case Specified date Due date for the No. payment of tax on accreted income

A B C D

(i) (ii) objects same or similar to it but the said merg- er does not fulfil such conditions, as may be prescribed; or

(c) r e g i s t e r e d non-profit organisation that does not have same or similar ob- jects.

9. The specified The date of disso- The date on which person has failed lution. such period of to transfer upon twelve months ex- dissolution, all pires. its assets to any other registered non-profit organ- isation within twelve months from the end of the month in which the dissolution takes place.

(5) The payment of tax on the accreted income by the specified person under this section shall be deemed as the final payment of tax in respect of the said income and no further credit therefor shall be claimed by, or any deduction be allowed to, the specified person or any other person in respect of the amount of tax so paid under any other provision of this Act.

(6) Where the specified person, or the principal officer or trustee of such specified person, fails to pay the whole or any part of the tax on the accreted income within the time allowed under sub-section (4), such specified person, principal officer or trustee shall be liable to pay simple interest, computed as per the following formula:— I = 1% of (T × P) where,— I = interest; T = tax on accreted income; and P = number of months beginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid including part thereof.

(7) All the provisions of this Act shall apply for the collection and recovery of income-tax in respect of the amount of tax payable by the specified person, principal officer or trustee and the following persons shall be deemed to be assessee in default:—

(a) the specified person and principal officer or the trustee of such specified person;

(b) the person to whom any asset forming part of the computation of accret- ed income under sub-section (2) has been transferred, where the tax on accreted income is payable under the cases specified in sub-section (4) (Table: Sl. No. 9).

(8) Subject to the provisions of sub-section (7), the liability of the person referred to in clause (b) of the said sub-section shall be limited to the extent to which the asset received by him is capable of meeting the liability. Other violations.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 352	INCOME-TAX ACT, 1961 -- s. 115TD
Trust exit tax framework	1961 s. 115TD [FA 2016]
Trigger events (cancellation / dissolution / merger / etc.)	1961 s. 115TD(1)
Accreted income = FMV - corpus methodology	1961 s. 115TD(2)
Specified additions / reductions	1961 s. 115TD(3)/(4)
Tax at MMR (30%+)	1961 s. 115TD(1)
Time-limit for payment	1961 s. 115TD(5)
Lien on trust assets	1961 s. 115TD(7)

STATUTORY ARCHITECTURE

TRIGGER EVENTS: (I) REGISTRATION CANCELLATION: PCIT cancels under s. 351 (specified violations / non-genuineness); (II) MERGER with non-charitable entity: trust merges into commercial / non-trust entity; (III) DISSOLUTION without transfer to other registered charitable: assets distributed to non-charitable persons; (IV) NON-COMPLIANCE: trust converts to commercial / loses exemption status. ACCRETED INCOME COMPUTATION: Accreted Income = FAIR MARKET VALUE OF TOTAL ASSETS on trigger date MINUS LIABILITIES PLUS specified additions: (a) Income / gains arising during 12 months preceding trigger; (b) Donations / contributions converted to corpus during 12 months; (c) Other prescribed additions per Rules; MINUS specified reductions: (a) Corpus donations included; (b) Voluntary contributions converted to corpus before regime existed; (c) Income already taxed (avoid double-counting); (d) Other prescribed reductions. TAX RATE: MAXIMUM MARGINAL RATE (MMR) -- currently 30% + applicable surcharge (typically 12% / 25%) + 4% cess. Effective ~36-43%. PAYMENT: tax payable WITHIN 14 DAYS of trigger event; interest / penalty for delay.

FA 2016 RATIONALE / FA 2022 EXPANSION

FA 2016 introduced this provision to PREVENT TRUST WEALTH ACCUMULATION ESCAPE. Pre-2016, trusts could de-register / convert / dissolve without paying tax on accumulated wealth (lifetime accumulation often substantial; 80G donor money plus non-taxed income for decades). FA 2022 expanded: (a) Trigger events broadened (specified violations under s. 351); (b) Computation methodology refined (corpus vs non-corpus additions clarified); (c) Stricter timing / lien provisions. POLICY INTENT: tax-paying-on-exit ensures trust wealth ultimately serves charitable purposes or returns to public revenue; prevents tax-arbitrage through trust-conversion.

PROTECTION SCENARIOS

Section 352 does NOT apply to: (a) Mergers with OTHER registered charitable entities (genuine charity-to-charity transfers); (b) Transfers to other s. 332-registered trusts; (c) Statutory dissolutions to government / specified entities; (d) Force-majeure terminations with proper trustee distribution to qualifying recipients. Practitioner: trust closure planning must structure as CHARITY-TO-CHARITY TRANSFER to avoid s. 352 trigger.

COMPUTATION EXAMPLE

Trust XYZ: Total assets INR 50 crore (FMV); liabilities INR 5 crore; corpus INR 2 crore (received over years); 12-month income INR 6 crore (already absorbed). Accreted Income = 50 - 5 = 45 crore (Net Asset Value); add 12-month income 6 crore = 51 crore; reduce corpus 2 crore = 49 crore. Tax: 49 cr × 30% = INR 14.7 cr; + surcharge 12% = INR 16.46 cr; + 4% cess = INR 17.12 cr. Effective ~35% on accreted income. Substantial.

PLANNING NOTES

(i) CLOSURE PLANNING -- if trust to be closed, structure as transfer to qualifying registered trust to avoid s. 352. (ii) MERGER ARCHITECTURE -- charity-to-charity merger document carefully; PCIT approval. (iii) PRE-CANCELLATION REMEDIATION -- if specified violations, remedy and seek PCIT review BEFORE cancellation; cancellation triggers s. 352. (iv) APPELLATE PRESERVATION -- s. 352 demand may be challenged at ITAT; appellate route within 60 days. (v) ASSET-LIEN DEFENSE -- statutory lien on trust assets till payment; release procedure available.

CROSS-REFERENCES

Section 332 -- Trust registration.
Section 351 -- Specified violations triggering cancellation.
Section 353 -- Other violations.
Section 355 -- Definitions.
Section 11 -- Trust income exemption.
Section 263(4A) -- Trust return-filing.

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