Big Relief for Non-Profits: New Merger Rules Slash Tax Burden from 2026
Section 354A marks a new chapter for India’s non-profit sector, making mergers smoother, fairer, and more aligned with their charitable purpose.
April 1, 2026, onwards, registered non-profit organizations (NPOs) will get a major relief under the Income-tax Act with the introduction of Section 354A. This new provision exempts accreted income from tax when one registered NPO merges with another having the same or similar objectives, provided the merger meets prescribed conditions. Why This Matters Until now, mergers between...
April 1, 2026, onwards, registered non-profit organizations (NPOs) will get a major relief under the Income-tax Act with the introduction of Section 354A. This new provision exempts accreted income from tax when one registered NPO merges with another having the same or similar objectives, provided the merger meets prescribed conditions.
Why This Matters
Until now, mergers between NPOs often triggered tax liability under Section 352(4), creating hurdles for organizations that wanted to consolidate resources. In short, Section 352(4) imposes tax on accreted income in most mergers, but it fails to exempt genuine mergers between registered NPOs with similar objectives.
The law did not fully recognize situations where two registered NPOs with aligned missions came together. Earlier, Section 12AC of the Income-tax Act, 1961, had provisions for such situations, but Section 352(4) did not align with it.
Section 354A now closes this gap, ensuring that genuine mergers are not penalized.
Section 354A Proposal
To provide for provisions similar to section 12AC of the Income-tax Act, 1961, it is proposed to insert a new Section 354A in the Income-tax Act
It ensures that Section 352 (tax on accreted income) will not apply when:
- A registered non-profit merges with another registered non-profit having the same or similar objectives, and
- The merger meets the prescribed condition
clearly saying, Section 354A says that if one registered non-profit organization (NPO) merges with another registered NPO that has the same or similar goals, then the usual tax on their accumulated funds (called accreted income) will not apply.
From April 1, 2026, the Income-tax Act will be updated to clarify tax liability on accreted income in mergers involving non-profit organizations. Under the revised Section 352(4) table, a specified person will be liable to pay tax if a registered NPO merges with:
(a) any entity that is not a registered NPO,
(b) another registered NPO with similar objectives but where the merger does not meet prescribed conditions, or
(c) another registered NPO with dissimilar objectives. These changes ensure that only genuine, compliant mergers between aligned non-profits are exempt, while all other mergers will continue to attract tax from the 2026–27 tax year onwards.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
