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Advanced Direct Tax Laws and Practice · Computation of Total Income, Tax Liability and Filing of Return of Companies

Tax on Accreted Income under Section 352 of Income-tax Act 2025

Updated 11 October 2026 · Fact-checked

Tax on accreted income is an additional tax under section 352 on a specified person, such as a registered trust or institution, when it loses or exits its exempt status. Accreted income is fair market value of assets minus liabilities, reduced for specified assets. It is taxed at the maximum marginal rate.

Understand Tax on Accreted Income

Trusts and institutions with registration enjoy tax benefits because their wealth is meant for charitable or religious purposes. If such a body stops being registered, changes its objects, converts into an ineligible form, merges wrongly or dissolves without passing on its assets, the wealth built up under exemption could leave the sector untaxed. Section 352 closes this gap.

The section charges additional income-tax on accreted income on the specified person. This is on top of the tax on its total income. The rate is the maximum marginal rate. It applies only in the cases listed in the Table in sub-section (4).

Accreted income is a net-worth figure, not a profit figure. You take the aggregate fair market value of total assets on the specified date, subtract total liability on that date, both computed by the prescribed method of valuation, and then reduce the result by the accreted income attributable to specified assets and the liabilities related to them.

The Table has nine cases. They cover cancellation or withdrawal of registration, modification of objects that do not conform to the conditions of registration, failure to apply for registration or approval within time, conversion into an ineligible form, merger, and failure to transfer assets on dissolution. Each case has a specified date and a due date. The tax is payable within fourteen days from the due date.

The tax is a final payment. No credit and no deduction can be claimed for it elsewhere. Delay attracts simple interest, and the principal officer or trustee shares the liability.

Key rules to remember

Accreted income
A = B – C
B = aggregate fair market value of total assets on the specified date; C = total liability on that date; both by the prescribed valuation method.
Reduction for specified assets
Taxable accreted income = A – accreted income attributable to specified assets and related liabilities
Sub-section (3) allows this reduction after computing A.
Additional tax
Tax = Accreted income (after reduction) × maximum marginal rate
Charged in addition to tax on total income.
Payment time
Due within 14 days from the due date in column D of the Table
The specified person and its principal officer or trustee are liable to pay.
Interest on delay
I = 1% of (T × P)
T = tax on accreted income; P = months from the day after the last payment date to the date of payment. Part of a month counts as a month as the text says including part thereof. Simple interest.
Dissolution transfer period
Transfer all assets to another registered non-profit organisation within 12 months from the end of the month of dissolution
Failure is Sl. No. 9; the date of dissolution is the specified date and the end of the 12 months is the due date.

How to solve Tax on Accreted Income questions

Use this order for any case-based question on section 352.

  1. 1Identify whether the entity is a specified person holding registration under a specified provision.
  2. 2Match the facts to one of the nine cases in the Table: cancellation, modified objects, missed application, conversion, merger or dissolution.
  3. 3Note the specified date (column C) and the due date (column D) for that case, including whether an appeal or fresh application was made.
  4. 4Compute accreted income: fair market value of total assets minus total liability on the specified date.
  5. 5Reduce it by accreted income attributable to specified assets and their related liabilities.
  6. 6Apply the maximum marginal rate and state that the tax is additional to tax on total income and is a final payment.
  7. 7Fix the payment date: 14 days from the due date, then compute interest at 1% per month or part of a month if there is delay.
  8. 8State who is liable: the specified person, principal officer or trustee, and for Sl. No. 9 also the transferee of assets, limited to the assets received.

Quickest way: Case, date, net worth, rate

When to use it: Use when the question gives facts and numbers and asks for tax and due date.

  1. Write the case number from the Table next to the facts.
  2. Write the due date from column D, then add 14 days.
  3. Compute A = B – C, then subtract the specified-asset portion.
  4. Multiply by the maximum marginal rate given in the question.
  5. Add interest only if payment is late: 1% × tax × months or part months.

Common mistakes in Tax on Accreted Income

  • Treating accreted income as profit or surplus of the year

    Students link income to the income statement.

    Fix: It is assets at fair market value minus liabilities on the specified date, not a yearly profit.

  • Forgetting the reduction for specified assets and related liabilities

    Students stop after A = B – C.

    Fix: Always apply sub-section (3) before applying the rate.

  • Taking the payment date as the specified date

    Students ignore column D.

    Fix: Use the due date in column D and then allow 14 days from it.

  • Claiming credit or deduction for the tax paid

    Students assume it is like normal tax.

    Fix: Sub-section (5) makes it a final payment with no credit or deduction elsewhere.

  • Counting interest on completed months only

    Students treat P as full months.

    Fix: P counts months including part of a month, so part months count as full.

  • Ignoring the transferee on dissolution

    Students think only the trust is liable.

    Fix: For Sl. No. 9 the person who received assets is also an assessee in default, limited to the extent of assets received.

Worked examples

Example 1

A registered trust's registration was cancelled by an order dated 10 August 2026. It did not appeal. On that date its assets had a fair market value of ₹5,00,00,000 and liabilities were ₹1,00,00,000. Assets attributable to specified assets net of related liabilities give accreted income of ₹50,00,000. Assume the maximum marginal rate is 30%. Compute the tax on accreted income, ignoring any surcharge and cess.

Show the solution
  1. Case: cancellation of registration with no appeal, which is Sl. No. 2.
  2. Accreted income A = ₹5,00,00,000 – ₹1,00,00,000 = ₹4,00,00,000.
  3. Reduce by accreted income attributable to specified assets and related liabilities: ₹4,00,00,000 – ₹50,00,000 = ₹3,50,00,000.
  4. Tax = 30% × ₹3,50,00,000 = ₹1,05,00,000.
  5. Due date in column D is when the period for filing an appeal under section 362 expires; payment is within 14 days from that date.

Answer: Tax on accreted income is ₹1,05,00,000, payable within 14 days from the date on which the appeal period expires. It is a final payment.

Example 2

In the previous problem, the trust pays the tax of ₹1,05,00,000 two months and ten days after the last date on which it was payable. Compute the interest.

Show the solution
  1. Interest I = 1% of (T × P).
  2. P counts months including part of a month. Two months and ten days is 3 months.
  3. T × P = ₹1,05,00,000 × 3 = ₹3,15,00,000.
  4. I = 1% × ₹3,15,00,000 = ₹3,15,000.

Answer: Interest is ₹3,15,000. It is simple interest, and the trustee is also liable.

Exam tips

  • Learn the nine cases as groups: cancellation, modified objects, missed application, conversion, merger, dissolution.
  • Quote the formula A = B – C and the sub-section (3) reduction in every numerical answer.
  • Write the final-payment rule in sub-section (5); examiners look for it.
  • For merger, note that Sl. No. 8 was substituted with effect from 1 April 2026 and now covers three merger situations.
  • In case-based questions, always name who is liable: specified person, principal officer or trustee.

Practice questions from Computation of Total Income, Tax Liability and Filing of Return of Companies

Tax on Accreted Income: frequently asked questions

Who is a specified person under section 352?

It is a person holding registration under a specified provision, such as a registered trust or institution. The Table applies when such registration is lost or the person exits in the ways listed.

At what rate is tax on accreted income charged?

It is charged at the maximum marginal rate. It is additional to the income-tax on the total income of the specified person.

When must the tax be paid?

Within fourteen days from the due date in column D of the Table. The due date depends on the case, such as appeal expiry, end of the tax year or date of merger.

What happens on dissolution of a trust?

If it fails to transfer all assets to another registered non-profit organisation within twelve months from the end of the month of dissolution, tax applies. The transferee of assets is also treated as an assessee in default, limited to the assets received.