Section 115TD of ITA, 1961 : Section 115Td: Tax On Accreted Income

Explanation using Example

Imagine a charitable trust called "Green Earth Foundation," which is registered under section 12AA of the Income-tax Act, 1961, and enjoys certain tax benefits due to its charitable nature. The trust decides to convert into a for-profit company, which is not eligible for registration under section 12AA. This conversion happens on July 1, 2023.

As per Section 115TD of the Income-tax Act, Green Earth Foundation will face a tax on its accreted income as of the specified date, which in this case is July 1, 2023. The accreted income is the difference between the fair market value of the trust's total assets and its liabilities on that date.

The tax rate applied will be the maximum marginal rate, and this tax must be paid in addition to any regular income tax the trust might owe. This tax is treated as the final payment on the accreted income, and no further tax deductions or credits are allowed for the trust or any other person in respect of the income charged under this section or the tax paid on it.

The principal officer of Green Earth Foundation must ensure that the tax on the accreted income is paid within fourteen days from the specified date of conversion, failing which penalties may apply.