CBDT: Sets merger rules for non-profit organisations

The Central Board of Direct Taxes (CBDT) has prescribed conditions for mergers between registered non-profit organisations, including a five-year restriction on changing the receiving organisation’s objects and the transfer of tax obligations to it. Notification No. 139/2026, G.S.R. 961(E), published in the Gazette of India on 30 October 2026, brings the Income-tax (Eighth Amendment) Rules, 2026 into force from that date.

The notification inserts Rule 189A into the Income-tax Rules, 2026. It covers mergers between registered non-profit organisations with the same or similar objects – their stated purposes – for the purposes of sections 352(4), Table serial number 8, and 354A of the Income-tax Act, 2025.

The CBDT’s rule addresses registration status, outstanding demands, assets, liabilities and tax proceedings. It also introduces Form No. 112A for reporting a merger to the income-tax authority responsible for the organisation.

The notification distinguishes between the “merging” organisation, which merges into another entity, and the “merged” organisation, which receives it. The receiving organisation assumes obligations as well as assets under the prescribed conditions.

Registration status and continuity of purpose

Under Rule 189A, an organisation registered under section 332 cannot merge with one provisionally registered under that section. The CBDT states the restriction in both directions: a provisionally registered organisation also cannot merge with a registered organisation.

The same-or-similar-objects requirement therefore operates alongside a separate restriction on combining different registration categories. Similar purposes alone do not satisfy the conditions set out in the notification.

The receiving organisation’s objects cannot be amended within five years from the end of the financial year in which the merger takes place, the rule states. The starting point for that period is the financial year’s end, rather than the merger date.

The CBDT also requires that the merger produce no direct or indirect benefit for a related person of either organisation, as referred to in section 337(1), Table serial number 2. This condition covers both the organisation being absorbed and the receiving organisation.

Outstanding demands and proceedings follow the merger

The notification distinguishes between outstanding demands that are under appeal and those that are not. The merging organisation must have no unpaid tax, interest, penalty, fine or other sum arising from an order under the Act where that demand is not before an appellate authority.

Where an appeal is pending, Rule 189A places responsibility for paying the outstanding demand on the receiving organisation once the appeal attains finality. The rule thus provides for disputed demands rather than treating every pending appeal as a bar to merger.

All assets and liabilities of the merging organisation become those of the receiving organisation from the merger date, according to the CBDT notification.

The rule separately preserves tax proceedings. An assessment, reassessment or other proceeding already made or initiated against the merging organisation is treated as having been made or initiated against the receiving organisation. Assessment and reassessment refer to the determination, or fresh examination, of tax liability.

For cases outside that provision, the notification allows proceedings against the receiving organisation concerning earlier tax years and the portion of the merger year up to the merger date. Those proceedings can be conducted in the same manner and to the same extent as they could have been against the merging organisation.

Income-use and investment obligations continue

Rule 189A transfers all obligations of the merging organisation to the receiving organisation, including specified duties concerning the use of income and payment of tax.

The CBDT requires the receiving organisation to give effect to the application of the merging organisation’s income under section 341 and its accumulated income under section 342. Here, application concerns the use of income, while accumulated income refers to income retained for later use under the applicable provisions.

The receiving organisation is also liable for tax under section 334 on the merging organisation’s specified income. It must ensure that the conditions in section 340 are not violated, invest funds through the modes specified in section 350 and pay additional income-tax under section 352 whenever that liability arises, the notification states.

The declaration in Form No. 112A includes a further undertaking concerning depreciation, the deduction associated with an asset’s cost over time. The receiving organisation must not claim depreciation where the merging organisation has already claimed the acquisition cost as application of income.

These requirements make the transfer broader than a change in ownership of assets: the CBDT’s rule expressly carries forward obligations concerning how funds are used, invested and taxed.

Electronic intimation and merger-date audits

The receiving organisation must submit Form No. 112A to the jurisdictional Principal Commissioner or Commissioner – the income-tax authority responsible for it – within one month from the end of the month in which the merger takes effect, according to Rule 189A.

The notification requires electronic submission using either a digital signature or an electronic verification code. It defines the latter as a code generated to verify the person furnishing the form under standards specified by the Director General of Income-tax (Systems).

Form No. 112A seeks identifying and contact information for both organisations, their Permanent Account Numbers and the merger date. Its declaration records that the merger was decided through a resolution passed by the trustees, governing body or management.

The form’s annexures require copies of both organisations’ trust deeds and registration documents, the merger resolution, audited accounts and the reasons for the merger, the CBDT notification states.

Separately, Rule 189A requires both organisations to have their books of account audited as on the merger date by an accountant falling within the definition in section 515(3)(b). The audit requirement applies to the receiving organisation as well as the organisation merging into it.