Budget 2026: Know the Complete Taxation and Compliance Changes of Trusts and NGOs [Read Finance Bill 2026]

Budget 2026-27 brings key direct tax changes that matter for charitable trusts, societies, Section 8 companies and other non-profit bodies. These changes sit alongside the shift to the Income-tax Act, 2025 from 1 April 2026.

1) The Income-tax Act, 2025 starts from 1 April 2026

The Finance Minister stated that the Income-tax Act, 2025 will come into effect from 1 April 2026. This matters because many trust and NGO provisions now sit inside the 2025 law structure. Budget 2026 uses the Finance Bill, 2026 to amend parts of that 2025 law before the start date.

2) Return filing due date changes for trusts

• Budget 2026 proposes staggered due dates for Income Tax Return filing.
• Individuals using ITR-1 and ITR-2 keep the 31 July due date.
• Non-audit business cases and trusts get time up to 31 August.

What this means for trusts and NGOs

This change gives extra time for accounts finalisation and audit coordination. This change does not remove the duty to file within the due date. This change does not remove the duty to keep audit reports and supporting schedules ready. Budget repeat this 31 August due date point.

3) Revised return window moves up to 31 March with a fee

Budget 2026 proposes more time to revise returns. The revised return deadline shifts from 31 December to 31 March. This revision option requires payment of a nominal fee.

impact for NGOs

• This change helps when audit adjustments or donor reporting corrections arise after filing.
• This change does not reduce scrutiny risk from weak documentation.
• This change does not protect incorrect exemption claims.

4) Core tax change for NGOs: merger rules and “accreted income” tax

Budget 2026 makes a targeted change to the rules that govern mergers of registered non-profit organisations (registered NPOs).

🔍 What changed after the Budget speech? The answer is in the notifications | Click Here

The Finance Bill amends section 352(4) of the Income-tax Act, 2025 on “tax on accreted income”. The amendment replaces the merger trigger entry in the table under section 352(4).

4.1 When accreted income tax will apply on merger

Under the amended table entry, tax on accreted income becomes payable where the specified person merges with any of the following.

• A merger with an entity that is not a registered NPO triggers the tax.
• A merger with a registered NPO that has same or similar objects triggers the tax when prescribed conditions are not met.
• A merger with a registered NPO that does not have same or similar objects triggers the tax.
• The trigger date is the date of merger.

4.2 New section 354A creates a safe route for certain mergers

• The Finance Bill inserts a new section 354A in the Income-tax Act, 2025.
• Section 354A states that section 352 will not apply when a registered NPO merges with another registered NPO with same or similar objects.
• Section 354A requires the merger to meet conditions that rules will prescribe.

What NGO boards must do for merger planning

A board resolution must map objects of both entities with clear alignment. The merger deed must preserve charitable purpose and asset lock. The post-merger plan must set out how funds and programmes continue under the merged entity. The compliance file must track each condition that rules prescribe once notified.

5) Registration process cross-reference change under section 332

The Finance Bill amends section 332 of the Income-tax Act, 2025 on registration applications. The amendment changes the reference in section 332(1)(f) to “Schedule VII [Table: S. Nos. 17 to 19]”. The change takes effect from 1 April 2026.

This means

• The registration application workflow will follow the updated Schedule VII references.
• Trusts and NGOs must check the notified forms and rules that sit under the Schedule tables.
• A registration team must update its internal checklist to match the new references.

6) TDS and certificate process changes that affect NGOs

Budget 2026 announces a rule-based automated process for lower or nil deduction certificates for small taxpayers. This change reduces dependence on manual officer-led processing.

How NGOs benefit

• Many NGOs face TDS on interest, rent, fees, and contract receipts.
• A lower or nil certificate reduces cash flow blockage when exemption position is strong.
• A finance team must maintain clean return filing and tax payment history for smooth access to such certificate flow.

Budget 2026 also proposes that depositories can accept Form 15G or Form 15H and pass it to relevant companies. This helps entities that hold securities across many companies.

7) Compliance checklist for trusts and NGOs for FY 2026-27

Governance and documentation

• A trust deed or memorandum must match real activity and real spend.
• Minutes must record key approvals for grants, related party transactions, and asset sales.
• A donation register must capture donor identity, mode, purpose, and restrictions.

Tax filing readiness

• Books must separate corpus receipts, restricted grants, and revenue receipts.
• Expense ledgers must tag programme, admin, and fundraising heads.
• Audit evidence must support each major expense head with invoices and approvals.

Merger readiness for registered NPOs

Objects mapping must be part of merger due diligence. A conditions tracker must sit in the merger file once rules notify the conditions under section 354A.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates