Specified Violations and Tax on Accreted Income: Income Tax Act 2025 Guide for Trusts and NPOs

Under the Income Tax Act 2025, a registered trust, society or other non-profit organisation can lose its registration for a specified violation (section 351). When registration ends, or in a few other exit situations, a one-time tax on accreted income is charged at the maximum marginal rate on the organisation's net assets (section 352). Lesser lapses, such as not keeping books, not getting accounts audited or not filing the return, do not cancel registration but make the organisation's regular income taxable (section 353). The rules apply as amended by the Finance Act 2026, from 1 April 2026.

This guide explains each of the three sections, who is affected, how accreted income is computed, the payment dates and interest, and what a trust should check before it changes its objects, merges or winds up. It is general information, not advice on any particular case. For how registration is obtained in the first place, see our guide to registration of trusts and non-profit organisations, and for how income is taxed while registered, see taxation of a registered non-profit organisation.

What are the three consequences in sections 351, 352 and 353?

Section	Trigger	Consequence
351 Specified violation	One of seven listed misuses, for example income applied outside the objects or false information in the registration application	Registration cancelled from that tax year and all later years, after a hearing
352 Tax on accreted income	Registration cancelled or withdrawn, objects changed, missed re-registration, conversion, merger or dissolution (nine cases)	Additional tax at the maximum marginal rate on net assets, payable within 14 days of the due date in the Table
353 Other violations	No books of account, no audit, no return, or commercial activity by a general public utility organisation	Regular income, less limited expenditure, taxed under section 334; registration is not cancelled

What is a "registered non-profit organisation" and who is a "specified person"?

A registered non-profit organisation is any person holding a valid registration under a "specified provision" that has not been cancelled (section 355(g)). A specified provision means section 332 of the 2025 Act or the older registration and approval provisions of the 1961 Act (sections 12A, 12AA, 12AB and 10(23C)) listed in section 355(m).

A specified person, who is the one liable for tax on accreted income, is any person that has been registered under a specified provision at any time since its incorporation or creation (section 355(l)). This is wider than a currently registered organisation. A trust whose registration was cancelled last year is still a specified person.

What counts as a specified violation under section 351?

Section 351(1) lists seven specified violations by a registered non-profit organisation:

1. Any income is applied other than for its objects (clause (a)).
2. It carries out a commercial activity in contravention of section 345 (clause (b)). Section 345 allows commercial activity only if it is incidental to attaining the objects and separate books of account are kept for it.
3. Any part of its total income is applied for private religious purposes that do not benefit the public (clause (c)).
4. An organisation created or established after the commencement of the Act for a charitable purpose applies any part of its income for the benefit of a particular religious community or caste, other than Scheduled Castes, Scheduled Tribes, backward classes, women and children (clause (d)).
5. An activity is not genuine, or is not carried out in line with the conditions of registration (clause (e)).
6. It has not complied with the requirements of any other law referred to in section 332(7)(a), and the order, direction or decree holding non-compliance was not disputed or has become final (clause (f)).
7. The registration application under section 332(1) contained false or incorrect information (clause (g)).

"Commercial activity" is defined in section 355(e) as any activity in the nature of trade, commerce or business, or rendering a service connected with trade, commerce or business, for a cess, fee or other consideration, whatever the use or retention of the income.

The Finance Act 2026 made two small changes to clauses (b) and (c): the reference to section 346 was dropped from clause (b), and clause (c) now reads "enure for the benefit of the public" in place of an earlier misspelt word. Section 346 organisations (advancing any other object of general public utility) are dealt with under section 353(1)(d) instead.

How does the Commissioner cancel registration under section 351?

Under section 351(2), the Principal Commissioner or Commissioner acts when (a) he has noticed one or more specified violations in a tax year, (b) he receives a reference from the Assessing Officer under section 270(13), or (c) the organisation is selected under the Board's risk management strategy. He then calls for documents or makes inquiry, and passes a written order either cancelling registration (after a reasonable opportunity of being heard) or not cancelling it. A copy goes to the Assessing Officer and the organisation.

The order must be passed before the end of six months, counted from the end of the quarter in which the first notice is issued (section 351(3)). Under section 270(13) the Assessing Officer cannot complete the assessment of the organisation without first giving effect to the Commissioner's order.

An order under section 351(2)(ii) can be appealed to the Appellate Tribunal (section 362(1)(b)(i)) within two months from the end of the month in which the order is communicated (section 362(3)).

When is tax on accreted income payable under section 352?

Every specified person is liable to additional income tax on accreted income at the maximum marginal rate, on top of its normal tax, in the nine cases listed in the Table in section 352(4). The "maximum marginal rate" is the rate, including surcharge, for the highest slab for an individual, AOP or BOI, as set by the Finance Act of the relevant year (section 2(70)). The tax is payable by the specified person and also by its principal officer or trustee, within 14 days from the due date in column D.

Sl.	Case	Specified date (column C)	Due date (column D); payment within 14 days after it
1	Registration cancelled or withdrawn and an appeal is filed	Date of the cancellation order	Date of receipt of the appellate order confirming cancellation
2	Registration cancelled or withdrawn, no appeal filed	Date of the cancellation order	Date the period for appeal under section 362 expires
3	Objects adopted or modified in a tax year do not conform to the conditions of registration, and no fresh registration applied for in that year	Date of adoption or modification	End of that tax year
4	Same modification; fresh registration applied for, rejected, and appeal filed	Date of adoption or modification	Date of receipt of the appellate order confirming cancellation
5	Same modification; fresh registration applied for, rejected, no appeal	Date of adoption or modification	Date the appeal period under section 362 expires
6	Failure to apply for registration within the time given in the listed provisions (including section 332(3), Table Sl. No. 3, 4, 5 or 7)	Last date for making the application	End of that tax year
7	Conversion into a form not eligible for registration	Date of conversion	End of that tax year
8	Merger with a non-registered entity, or with a registered organisation that has the same or similar objects but the merger fails the prescribed conditions, or with one that has different objects	Date of merger	Date of merger
9	Dissolution without transferring all assets to another registered non-profit within twelve months from the end of the month of dissolution	Date of dissolution	Date the twelve-month period expires

Sl. No. 8 was substituted by the Finance Act 2026 from 1 April 2026. Earlier it covered only a merger with an entity other than a registered non-profit with the same or similar objects; the new text spells out the three merger sub-cases.

How is accreted income calculated?

Section 352(2) gives the formula A = B − C, where A is accreted income, B is the aggregate fair market value of total assets on the specified date (column C of the Table), and C is the total liability on that date. Section 352(3) then reduces the result by the amount attributable to specified assets and the liabilities related to them. A specified asset (section 355(k)) is, broadly, an asset directly acquired out of income of the kind in Schedule II (Table: Sl. No. 1), an asset acquired before registration became effective in the circumstances described there, or an asset transferred to another specified person within twelve months of dissolution in a Sl. No. 9 case.

Rule 189 of the Income Tax Rules 2026 prescribes the valuation method:

• Assets: the fair market value of all balance sheet assets, reduced by tax paid and by any amount shown as an asset that does not represent real value, such as unamortised deferred expenditure (rule 189(1)).
• Quoted shares and securities: average of the lowest and highest quoted price on the specified date, or on the last earlier trading day (rule 189(2)(I)(a)).
• Unquoted equity shares: a net-asset formula, (A + B − L) x PV / PE (rule 189(2)(I)(b)). Other unquoted securities need a valuation report from a merchant banker or accountant.
• Immovable property: the higher of the open-market price per a registered valuer's report and the stamp duty value on the specified date (rule 189(2)(II)).
• A business undertaking: its net assets, using the same net-asset formula (rule 189(2)(III)).
• Other assets: open-market price per a valuation report from a registered valuer, or from a member of the listed valuer bodies where no registered valuer exists (rule 189(2)(IV)).
• Liabilities: book value on the specified date, excluding capital fund or corpus, reserves and surpluses, contingent liabilities, provisions for liabilities that are not ascertained, and excess provision for tax (rule 189(3)).

The balance sheet used must be the one drawn up on the specified date and audited by an accountant (rule 189(4)(b)).

Worked example 1: trust whose registration is cancelled, no appeal

Assumptions (illustrative only): Hari Seva Trust is cancelled by an order dated 15 June 2026 under section 351(2)(ii)(A), communicated the same day, and does not appeal (Sl. No. 2). Assume a maximum marginal rate of 35% purely for illustration; the actual rate is set by the Finance Act of the year. All values are on the specified date, 15 June 2026.

Step	Item	Amount (Rs)
1	Quoted shares: (lowest 1,18,00,000 + highest 1,22,00,000) / 2	1,20,00,000
2	Building: registered valuer 2,30,00,000; stamp duty value 2,50,00,000; take the higher	2,50,00,000
3	Other assets (bank balance, equipment at valuer's price), after removing non-value items	45,00,000
4	B = 1,20,00,000 + 2,50,00,000 + 45,00,000	4,15,00,000
5	C: loans and creditors (corpus and reserves excluded)	35,00,000
6	A = B − C = 4,15,00,000 − 35,00,000	3,80,00,000
7	Less: plot treated as a specified asset, net of related liabilities (section 352(3))	50,00,000
8	Accreted income = 3,80,00,000 − 50,00,000	3,30,00,000
9	Tax at 35% (assumed) = 3,30,00,000 x 35%	1,15,50,000

When it is due: the appeal window under section 362(3) is two months from the end of the month of communication. The order was communicated in June 2026, so the month ends 30 June and the window ends 31 August 2026. That is the column D date for Sl. No. 2, and payment is due within 14 days, that is by 14 September 2026.

If paid late: section 352(6) charges simple interest of 1% of tax for each month or part of a month, starting the day after the last payment date. If the trust pays on 10 November 2026, the period from 15 September runs 15 Sep to 14 Oct (month 1) and 15 Oct to 10 Nov (part of month 2), so P = 2. Interest = 1% x 1,15,50,000 x 2 = Rs 2,31,000. The trustee and principal officer are jointly liable and are treated as assessees in default (section 352(7)(a)).

Worked example 2: tax under section 353 when the return is not filed

Assumptions (illustrative): Sunrise Education Society is a registered non-profit whose total income, before applying this Part, exceeds the limit that triggers the return requirement under section 349. It does not file its return for tax year 2026-27, so section 353(1)(c) applies. Its regular income is Rs 80,00,000. It spent Rs 55,00,000 on its objects in India during the year. Of that amount, Rs 5,00,000 came from the corpus as at the end of the previous year (fails section 353(3)(c)) and Rs 3,00,000 was a donation to another organisation (fails (f)).

Step	Item	Amount (Rs)
1	Regular income	80,00,000
2	Expenditure on objects in India, revenue in nature	55,00,000
3	Less: paid out of corpus (disallowed)	(5,00,000)
4	Less: donation to another person (disallowed)	(3,00,000)
5	Expenditure allowed under section 353(3)	47,00,000
6	Taxable regular income = 80,00,000 − 47,00,000	33,00,000

The Rs 33,00,000 is taxed under section 334(1)(b) at the rate applicable to it. Any specified income is taxed at 30% under section 334(1)(a), and under section 353(2) any specified income and residual income not already covered is also chargeable under section 334. No other set-off, deduction or allowance is available (section 353(4)). Registration stays in place.

What are the "other violations" in section 353?

Section 353(1) applies when a registered non-profit, in any tax year:

• fails to maintain books of account under section 347;
• fails to get its books audited under section 348;
• fails to furnish its return of income under section 349; or
• while advancing any other object of general public utility, carries out commercial activity in contravention of section 346.

Sections 347, 348 and 349 each apply where total income, without giving effect to this Part, exceeds the maximum amount not chargeable to tax. In each case the consequence is the same: regular income for that year, reduced only by allowed expenditure, becomes taxable.

Expenditure is allowed only if it meets all of these conditions (section 353(3)):

Condition	Requirement
(a), (b)	Incurred in India, for the objects of the organisation; capital expenditure is excluded
(c)	Not made from the corpus standing to the credit of the organisation at the end of the preceding tax year
(d)	Not out of any loan or borrowing
(e)	No depreciation claim on an asset whose acquisition was already claimed as application of income, in that or any other tax year
(f)	Not in the form of a contribution or donation to any person
(g)	Not a payment in breach of section 36(4), (5), (6) and (7)
(h)	The payment is allowable under section 35(b)(i)

Real-life scenarios

Ravi's temple trust. Ravi, the managing trustee of a public charitable trust, uses part of the year's surplus to fund a private family puja that does not benefit the public. That falls under section 351(1)(c). If the Commissioner is satisfied after a hearing, registration is cancelled for that tax year and all later years, and the trust becomes a Sl. No. 1 or 2 case under section 352, so net assets are taxed at the maximum marginal rate.

Meena's society changes its objects. Meena's society, registered for rural health camps, amends its objects to include running a paid coaching business. The new objects do not conform to the conditions of registration. If it does not apply for fresh registration in that tax year, Sl. No. 3 applies and the tax is due 14 days after the end of the tax year. If it applies and the application is rejected with no appeal, Sl. No. 5 applies. Applying for fresh registration before the year ends changes the due date, but does not remove the liability if the application fails.

A trust wound up in a hurry. A small education trust decides to dissolve on 20 March 2027 and gives its remaining assets to a registered non-profit with similar objects, but only completes the transfer in May 2028. The twelve months from the end of March 2027 expired on 31 March 2028, so Sl. No. 9 applies. The recipient of the assets is also treated as an assessee in default, but its liability is limited to the value of the assets it received (section 352(7)(b) and (8)).

Timing of the order. If the Commissioner first issues a notice on 12 August 2026, the quarter in which it is issued ends on 30 September 2026 (assuming calendar quarters) and the order must be passed by 31 March 2027.

Common mistakes

• Treating accreted income as a penalty only for cancelled trusts. It is also triggered by changed objects, missed re-registration, conversion, merger and dissolution.
• Forgetting the 14-day extension and the interest clock. Tax is due within 14 days of the column D date, and interest runs at 1% for each month or part of a month after that.
• Valuing from the book value. Assets are taken at fair market value under rule 189, and immovable property at the higher of valuer's price and stamp duty value.
• Ignoring the trustee's personal exposure. The principal officer or trustee is liable together with the organisation (section 352(4) and (7)).
• Assuming a lapse under section 353 is harmless because registration survives. Regular income is taxed with only the narrow expenditure relief in section 353(3), and corpus-funded or loan-funded spending does not qualify.
• Claiming credit for the tax paid. Tax on accreted income is a final payment; no credit or deduction is allowed for it under any other provision (section 352(5)).

Quick reference: time limits and rates

Item	Rule	Reference
Order on specified violation	Within six months from the end of the quarter of the first notice	Section 351(3)
Appeal to Tribunal	Within two months from the end of the month of communication	Section 362(3)
Tax on accreted income	Maximum marginal rate; paid within 14 days of the column D date	Section 352(1), (4)
Interest on late payment	1% of tax per month or part of a month	Section 352(6)
Transfer of assets on dissolution	Within twelve months from the end of the month of dissolution	Section 352(4), Sl. No. 9
Specified income	30%	Section 334(1)(a)
Valuation method	Fair market value on specified date	Rule 189

How should a CA firm track this for trust and NPO clients?

Most of the exposure here comes from dates: the end of a tax year after an object change, the twelve months after dissolution, the appeal window, and the 14-day payment window. A CA firm that handles several trusts needs one place that shows which client has a pending notice, which has changed objects and which has a Tribunal period running. Finexo's practice management software lets you track client-wise deadlines and tasks and set reminders. It does not compute accreted income or file the payment for you.

Where this is in the Act

• Section 351: specified violation, cancellation of registration, six-month order limit
• Section 352: tax on accreted income, formula, Table of nine cases, final payment, interest, assessee in default
• Section 353: other violations and permitted expenditure
• Section 355: definitions of commercial activity, specified asset, specified person, specified provision
• Section 334: tax on income of a registered non-profit organisation
• Sections 345 and 346: limits on commercial activity; sections 347, 348, 349: books, audit and return
• Section 270(13): reference from the Assessing Officer; section 362: appeals to the Appellate Tribunal
• Section 2(70): maximum marginal rate
• Rule 189 (Income Tax Rules 2026): valuation of assets and liabilities for accreted income