CBDT Tightens Merger Rules for Charitable Trusts: Five-Year Restriction, Tax Liability Transfer and Mandatory Form 112A Filing Explained
CBDT Notification No. 139/2026 dated 30 October 2026 | Income-tax (Eighth Amendment) Rules, 2026
Merging two charitable trusts or non-profit organisations may appear to be a simple administrative decision. Two organisations working towards similar charitable objectives may decide to consolidate their resources, combine their activities and operate under a single entity to improve efficiency and avoid duplication of administrative expenses.
However, when charitable organisations decide to merge, the Income-tax Department has a legitimate concern: Will the merger genuinely serve charitable purposes, or could it become a mechanism for transferring assets, avoiding tax liabilities or diverting charitable funds?
Addressing these concerns, the Central Board of Direct Taxes (CBDT) has introduced a detailed regulatory framework governing the merger of registered non-profit organisations.
Through Notification No. 139/2026 dated 30 October 2026, published in the Gazette of India, the CBDT has notified the Income-tax (Eighth Amendment) Rules, 2026, inserting a new Rule 189A in the Income-tax Rules, 2026.
The new rule prescribes conditions for the merger of registered non-profit organisations having the same or similar charitable objectives. It also introduces a new compliance requirement through Form No. 112A.
The message is clear: Charitable organisations may merge, but they cannot use a merger to escape their existing tax obligations or dilute their charitable commitments.
Let’s understand the important provisions and their practical implications.
1. Legal Framework: New Rule 189A and Form 112A
The newly inserted Rule 189A has been introduced for the purposes of Sections 352(4), Table Sl. No. 8, and 354A of the Income-tax Act, 2025.
The rule lays down the conditions that must be satisfied when a registered non-profit organisation merges with another registered non-profit organisation having the same or similar objectives.
The notification also introduces Form No. 112A, titled:
“Intimation for Merger of Registered Non-Profit Organisations.”
The rules came into force on 30 October 2026, being the date of publication in the Official Gazette.
2. Registered Trust Cannot Merge with Provisionally Registered Trust
One of the most important conditions introduced by Rule 189A is that:
– A registered non-profit organisation under Section 332 cannot merge with a provisionally registered non-profit organisation under Section 332.
– Similarly, a provisionally registered non-profit organisation cannot merge with a registered non-profit organisation.
Thus, the merger of an organisation holding regular registration with an organisation holding provisional registration is not permitted under the prescribed framework.
This is an important restriction because organisations having different registration statuses cannot simply consolidate their operations through a merger.
Practical implication: Before proceeding with a merger, both organisations must carefully examine their registration status under Section 332.
3. Outstanding Tax Demand Cannot Be Ignored
The notification makes it clear that a merger cannot be used as a mechanism to escape outstanding tax liabilities.
The following position emerges:
Case 1: No appeal pending against the outstanding demand
Where any tax, interest, penalty, fine or other amount has become payable pursuant to an order passed under the Income-tax Act and no appeal is pending before an appellate authority, the merger cannot proceed with such outstanding demand remaining unpaid.
Case 2: Appeal pending against the outstanding demand
Where an appeal is pending against the outstanding demand, the merger may take place. However, the merged organisation will be required to discharge the outstanding demand once the appeal attains finality.
This provision is particularly significant because it ensures that the merger does not extinguish pending tax disputes or liabilities.
For instance, if Trust A merges with Trust B and Trust A has an outstanding tax demand of ₹25 lakh which is under appeal, Trust B will have to pay the demand if the appeal is ultimately decided against Trust A.
The liability follows the organisation into which the other organisation merges.
4. Five-Year Restriction on Changing Charitable Objectives
Perhaps the most significant condition under Rule 189A is the restriction on changing the objectives of the surviving organisation.
The objectives of the merged registered non-profit organisation cannot be amended for a period of five years from the end of the financial year in which the merger takes place.
For example, if the merger takes place during FY 2026-27, the five-year restriction will operate from the end of that financial year, i.e., 31 March 2027, and will continue for the prescribed five-year period.
This restriction is intended to ensure that the merger is undertaken for genuine charitable consolidation and not to facilitate a subsequent change in the character or purpose of the organisation.
Practical implication: Trustees and governing bodies must exercise considerable caution before approving a merger. The surviving organisation will have to remain committed to its existing objectives for the prescribed period.
5. All Assets and Liabilities Will Transfer to the Surviving Organisation
Rule 189A expressly provides that all assets and liabilities of the merging organisation will become the assets and liabilities of the merged organisation from the date of merger.
This covers the transfer of the entire financial and legal responsibility of the merging organisation.
Consequently, the surviving organisation cannot selectively take over only the assets while leaving behind inconvenient liabilities.
The provision ensures continuity and prevents the merger from becoming a device for abandoning existing obligations.
6. No Direct or Indirect Benefit to Related Persons
The merger must not result in any direct or indirect benefit to any related person referred to in Section 337(1), Table Sl. No. 2, of the Income-tax Act, 2025.
This is an important anti-abuse provision.
A merger cannot be structured in a manner that results in charitable assets or funds being diverted for the personal benefit of trustees, founders, managers or other specified related persons.
The authorities will have to examine whether the merger is genuinely intended to promote charitable activities or whether it provides an opportunity for private benefit.
7. Tax Exemptions and Other Obligations Continue After Merger
One of the most important aspects of the new rule is that the merger does not wipe out the tax-related obligations of the merging organisation.
The merged organisation assumes responsibility for fulfilling the obligations of the merging organisation, including the following:
A. Application of current income – Section 341
The merged organisation must ensure that the income of the merging organisation is applied in accordance with Section 341.
B. Application of accumulated income – Section 342
The accumulated income of the merging organisation must also be applied by the merged organisation in accordance with Section 342.
C. Tax on specified income – Section 334
The merged organisation will be liable to pay tax under Section 334 in respect of the specified income of the merging organisation.
D. Compliance with Section 340
The merged organisation must ensure that the conditions prescribed under Section 340 are not violated, including violations attributable to the merging organisation.
E. Investment of funds – Section 350
The funds of the merged organisation must be invested in the modes specified under Section 350.
F. Additional income tax – Section 352
Whenever liability to pay additional income tax arises under Section 352, the merged organisation will be responsible for discharging such liability.
Thus, the merger does not provide a fresh beginning by wiping out past tax obligations. The surviving organisation inherits the responsibility of ensuring continued compliance.
8. Important Clarification Regarding Depreciation
The declaration accompanying Form No. 112A specifically provides that where the merging organisation has already claimed the cost of acquisition of an asset as application of income, the merged organisation shall not claim depreciation on the same asset.
This is an important safeguard against double deduction.
For example, if a charitable trust acquired a building and treated its acquisition cost as application of income, the surviving organisation cannot subsequently claim depreciation on that same acquisition cost.
The provision seeks to prevent the same expenditure from being recognised twice for tax purposes.
9. Contributions Received by the Merging Organisation
The declaration in Form No. 112A also clarifies that contributions made by any person to the merging organisation will be taken into account while calculating the total contributions of the merged organisation for the purposes of Section 355(h)(ii).
This is an important continuity provision and must be considered while computing the relevant contribution-related threshold under the Act.
10. Mandatory Intimation in Form No. 112A Within One Month
The new rules introduce a specific reporting obligation.
The merged registered non-profit organisation must intimate the jurisdictional Principal Commissioner or Commissioner in Form No. 112A within one month from the end of the month in which the merger becomes effective.
The form must be furnished electronically using either:
– Digital Signature Certificate (DSC); or
– Electronic Verification Code (EVC).
This is not merely an intimation containing the names of the two organisations. The form requires comprehensive details of both organisations and supporting documents.
Information required in Form No. 112A
The form is divided into two parts:
Part A – Details of the merging organisation
1. Name of the organisation.
2. Address.
3. PAN.
4. Email ID.
5. Contact number.
6. Date of merger.
Part B – Details of the merged organisation
1. Name of the organisation.
2. Address.
3. PAN.
4. Email ID.
5. Contact number.
6. Other relevant details through separate annexures.
The form also contains a declaration by the merged organisation confirming compliance with the prescribed conditions.
11. Documents to Be Attached with Form No. 112A
The notification specifies five important categories of supporting documents:
Annexure| Particulars
A-1| Copies of trust deeds of both organisations
A-2| Copies of registration certificates of both organisations
A-3| Resolution passed by trustees/governing body/management approving the merger
A-4| Audited books of accounts of both organisations as on the merger date and for the financial year immediately preceding the tax year in which merger takes place
A-5| Reasons for undertaking the merger
The requirement to furnish reasons for the merger is particularly important. The organisations must be able to demonstrate the rationale behind their decision.
Similarly, the requirement for audited books of accounts as on the date of merger ensures transparency regarding the financial position of both organisations at the time of consolidation.
12. Pending Assessments and Tax Proceedings Will Continue
Another significant provision deals with pending assessment, reassessment and other proceedings.
Rule 189A provides two situations:
Situation 1: Proceedings already initiated against the merging organisation
Where assessment, reassessment or any other proceedings have already been initiated or completed against the merging organisation, such proceedings shall be deemed to have been initiated or made against the merged organisation.
Situation 2: Other assessment proceedings
For cases not covered by the above situation, assessments, reassessments and other proceedings relating to the tax year in which the merger takes place, up to the date of merger, and the preceding tax years shall be carried out against the merged organisation in the same manner and to the same extent as they would have been carried out against the merging organisation.
This provision ensures that a merger cannot be used to frustrate ongoing income-tax proceedings.
13. Audit of Both Organisations on the Date of Merger
Rule 189A also mandates that both the merging organisation and the merged organisation must get their books of accounts audited as on the date of merger.
The audit must be conducted by an accountant as defined under Section 515(3)(b) of the Income-tax Act, 2025.
This requirement is significant because the financial position of both entities must be properly established as on the effective date of merger.
It will also help in determining the assets, liabilities, accumulated income and other financial obligations transferred to the surviving organisation.
14. Practical Checklist for Trustees and Charitable Organisations
Before approving or implementing a merger, trustees should ensure compliance with the following requirements:
1. Both organisations must have the same or similar charitable objectives.
2. Both organisations must hold the same registration status under Section 332.
3. Outstanding tax demands not under appeal must be discharged.
4. Demands under appeal must be appropriately provided for and discharged upon finality.
5. The surviving organisation must be prepared to retain its objectives for five years.
6. All assets and liabilities must be properly transferred.
7. The merger must not confer any direct or indirect benefit on related persons.
8. All tax-related obligations of the merging organisation must be honoured.
9. Both organisations must get their books audited as on the merger date.
10. Form No. 112A must be filed electronically within the prescribed time.
11. All supporting documents and resolutions must be properly maintained.
Conclusion: Merger Is Permitted, But Not at the Cost of Charitable Accountability
The CBDT’s Notification No. 139/2026 marks an important development in the regulatory framework governing charitable trusts and registered non-profit organisations.
The objective of a merger may be entirely genuine. Two organisations working towards similar charitable causes may find it beneficial to combine their resources, infrastructure and administrative arrangements.
However, the new provisions ensure that such consolidation does not become a route for escaping tax liabilities, diverting charitable funds or changing the fundamental objectives of the organisation immediately after the merger.
The five-year restriction on changing objectives, transfer of outstanding liabilities, continuation of assessment proceedings, mandatory audit and filing of Form No. 112A collectively establish a more structured compliance framework.
For trustees, the message is simple: A merger is not merely a resolution passed by trustees or a transfer of assets from one trust to another. It is a transaction carrying substantial and continuing income-tax responsibilities.
Charitable organisations contemplating a merger should therefore undertake a detailed legal, financial and tax review before proceeding.
After all, when two charitable organisations become one, their resources may combine, but their responsibilities do not disappear!
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CBDT Notification No. 139/2026, G.S.R. 961(E), dated 30 October 2026, introducing Rule 189A and Form No. 112A under the Income-tax Rules, 2026.
CBDT Notification 139/2026, merger of charitable trusts, merger of NGOs, merger of charitable organisations, Rule 189A Income-tax Rules 2026, Form 112A, Income-tax Act 2025, tax liability on merger of trusts, five-year restriction on charitable trusts, CBDT new rules for charitable trusts.
The copy of the Notification is as under:
