CBDT tightens merger rules for charity trusts, imposes five-year curbs on changing objectives

Under the rules, the organisation that survives the merger cannot change its objectives for five years from the end of the financial year in which the merger takes place. The merger must not result in any direct or indirect benefit to specified related persons.

The Central Board of Direct Taxes (CBDT) has made it mandatory for organisations merging with another registered non-profit to inform the I-T Department within a prescribed deadline, get their accounts audited and disclose the reasons for the merger. The new rules, notified on October 30, also prevent organisations with regular registration from merging with those holding provisional registration, and vice versa.

Under the rules, the organisation that survives the merger cannot change its objectives for five years from the end of the financial year in which the merger takes place. The merger must not result in any direct or indirect benefit to specified related persons.

The tax department has made it clear that a merger will not absolve the absorbed organisation of its financial or legal responsibilities. All its assets, liabilities and tax obligations will pass to the surviving organisation. This includes pending tax demands, assessments and other proceedings. If a tax demand is being challenged in an appeal, the surviving organisation will be liable to pay it if the appeal is dismissed.

Organisations will have to file a new Form 112A with the jurisdictional income tax authority within one month after the end of the month in which the merger takes effect. The filing must be made online using a digital signature or an electronic verification code.

Both organisations must get their accounts audited as on the date of the merger.