CBDT Prescribes New Tax and Reporting Requirements for NPO Mergers in India

India’s Central Board of Direct Taxes (CBDT) has introduced specific conditions governing mergers between registered non-profit organisations (NPOs) through the Income Tax (Eighth Amendment) Rules 2026. Notified on 30 October 2026, the amendment inserts Rule 189A into India’s new income tax rules and introduces Form No. 112A for reporting such mergers to the Income Tax Department.

This new framework is applicable to mergers between registered NPOs having the same or similar objects. It prescribes conditions concerning the following:

1. Registration eligibility
2. Outstanding tax liabilities
3. Transfer of assets and obligations
4. Related-party benefits
5. Continuity of tax assessments and other proceedings

Under the amended rules, the surviving organisation assumes the relevant tax and compliance obligations of the merging organisation. Both entities must also have their books of accounts audited as of the merger date.

Eligibility conditions for mergers between registered NPOs

Under the Income Tax Rules 2026, Rule 189A permits mergers between registered NPOs that have the same or similar objects, subject to prescribed conditions. However, the latest amendment restricts mergers based on the registration status of the organisations.

A registered NPO under Section 332 of the Income Tax Act 2025 cannot merge with a provisionally registered NPO under the same section, and vice versa. Accordingly, both organisations must hold compatible registration statuses to qualify for a merger under the amended provisions.

Key tax and compliance conditions for NPO mergers in India

Rule 189A introduces several requirements governing the tax treatment, financial consolidation and continuing compliance obligations of merging NPOs.

Settlement of outstanding tax demands

The merging NPO must not have outstanding tax, interest, penalties, fines or other amounts payable under an order issued pursuant to the Income Tax Act 2025 unless the demand remains under appeal before an appellate authority.

If an appeal against an outstanding demand remains pending, the surviving NPO must discharge the liability once the appeal attains finality.

This requirement ensures that a merger does not extinguish existing tax liabilities. Organisations should review outstanding demands, assessment orders and pending appeals as part of their pre-merger tax due diligence.

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Five-year restriction on changes to organisational objects

The surviving NPO cannot amend its objects for 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 begins on 31 March 2027.

Organisations should therefore assess whether the surviving NPO’s existing charitable objects align with their proposed activities and long-term institutional objectives before completing the merger.

Transfer of assets, liabilities and tax obligations

From the effective date of the merger, all assets and liabilities of the merging NPO must become those of the surviving NPO. The surviving organisation must also assume the merging entity’s applicable statutory and tax obligations, including the following:

• Application of income: Fulfil the income-application requirements applicable to the merging organisation under Section 341.
• Application of accumulated income: Continue meeting the requirements governing accumulated income under Section 342.
• Tax on specified income: Assume liability for tax under Section 334 on the merging organisation’s specified income.
• Compliance with statutory conditions: Ensure that the merger does not result in a violation of the conditions prescribed under Section 340.
• Investment of funds: Maintain investments in accordance with the permitted modes under Section 350.
• Additional Income Tax: Discharge any additional income tax liability arising under Section 352.

Before completing the transaction, organisations should examine the merging NPO’s financial position, accumulated income, investment portfolio and outstanding statutory obligations to identify liabilities that will transfer to the surviving entity.

Restrictions on benefits to related persons

NPO merger must not provide any direct or indirect benefit to a related person of either organisation, as referred to under Section 337(1) of the Income Tax Act 2025.

To protect charitable assets against private benefit, both organisations should examine the proposed merger structure, asset transfers and related-party transactions and identify arrangements that could result in impermissible benefits.

Continuity of tax assessments and other proceedings

Rule 189A of the Income Tax Rules 2026 ensures that income tax proceedings initiated against the merging NPO remain in force after the transaction.

Any assessment, reassessment or other proceeding already completed or initiated against the merging organisation will be deemed to have been completed or initiated against the surviving organisation.

For proceedings not covered by this provision, the tax authorities must undertake assessments, reassessments and other proceedings against the surviving NPO in the same manner and to the same extent as they would have against the merging organisation. This applies to the tax year in which the merger takes place, up to the merger date, and to preceding tax years.

Consequently, the merger does not eliminate the merging NPO’s historical tax exposure or discontinue ongoing proceedings.

Mandatory audit of books of accounts

Rule 189A requires both the merging and surviving NPOs to have their books of accounts audited as on the merger date. An accountant, as defined under Section 515(3)(b) of the Income Tax Act 2025 must conduct the audit.

Form No. 112A also requires audited books of accounts for both organisations for the financial year immediately preceding the tax year in which the merger takes place.

Form No. 112A: Reporting requirement for NPO mergers in India

The CBDT has introduced Form No. 112A in Appendix III of the Income Tax Rules 2026 to establish a formal reporting mechanism for mergers between registered NPOs.

The surviving organisation must notify its jurisdictional Principal Commissioner or Commissioner by furnishing Form No. 112A within one month from the end of the month in which the NPO merger takes effect.

For example, if the merger takes effect on 15 November 2026, the surviving NPO must submit the form by 31 December 2026.

Information required in Form No. 112A

Form No. 112A contains two sections covering the details of the merging and surviving organisations:

1. Part A – Merging NPO: Full name, address, PAN, email address, contact number and merger date.
2. Part B – Surviving NPO: Full name, address, PAN, email address, contact number and other supporting details.

The surviving organisation must declare that its trustees, governing body or management approved the merger through a resolution. It should also include undertakings covering the continuation of income-application requirements, treatment of accumulated income, tax on specified income, permitted investments and additional income tax liabilities.

Undertakings and additional compliance requirements

Form No. 112A also requires the surviving NPO to provide specific undertakings concerning the following matters:

1. Depreciation: The surviving NPO cannot claim depreciation on an asset if the merging NPO has already claimed its acquisition cost as an application of income.
2. Contributions: Contributions made by any person to the merging NPO must be included when calculating the surviving NPO’s total contributions.

The surviving organisation must submit the following supporting documents with the form:

Supporting Documents Required Under Form No. 112A for NPO Mergers in India
Annexure	Supporting document
A-1	Copies of the trust deeds of both NPOs
A-2	Copies of the registration certificates granted to both NPOs
A-3	Copy of the resolution passed by the trustees, governing body or management approving the merger
A-4	Audited books of accounts of both NPOs as on the merger date and for the financial year immediately preceding the tax year in which the merger takes place
A-5	Reasons for undertaking the merger

Effective date and applicability of the amended rules

The latest amendment took effect on 30 October 2026 upon their publication in the Official Gazette. It establishes the regulatory framework for NPO mergers by inserting Rule 189A into the Income Tax Rules 2026 and introducing Form No. 112A in Appendix III.

The notification, however, does not expressly specify whether the amended provisions apply retrospectively or prescribe a separate transitional mechanism for mergers completed before 30 October.

Compliance considerations for NPOs planning a merger in India

The amended framework requires NPOs to assess the tax, financial and regulatory implications of consolidation before completing a merger. Organisations should prioritise the following steps:

1. Verify registration eligibility: Confirm that both organisations have compatible registration statuses and satisfy the requirement of having the same or similar objects.
2. Conduct tax due diligence: Review outstanding tax demands, pending appeals, assessments, reassessments and other proceedings involving the merging organisation.
3. Review accumulated income and statutory obligations: Identify unfulfilled income-application requirements, accumulated income commitments, specified income and potential additional tax liabilities.
4. Assess assets, liabilities and investments: Prepare a comprehensive inventory to facilitate the transfer of assets and liabilities and verify compliance with prescribed investment requirements.
5. Evaluate related-party transactions: Examine the merger structure and proposed asset transfers to prevent direct or indirect benefits to related persons of either organisation.
6. Account for the five-year restriction: Determine whether the surviving organisation’s existing objects support its intended activities, considering the restriction on subsequent amendments.
7. Complete financial audits and documentation: Arrange for both organisations’ books of accounts to be audited as on the merger date and compile the supporting documents prescribed under Form No. 112A.
8. Meet the reporting deadline: Establish an internal filing process to ensure that the surviving NPO submits Form No. 112A within the prescribed timeframe.

Conclusion

The Income Tax (Eighth Amendment) Rules 2026 establish a structured tax and compliance framework for mergers between registered NPOs in India. Rule 189A addresses registration eligibility, the continuity of tax obligations, the protection of charitable assets, financial accountability and post-merger reporting.

NPOs considering consolidation should evaluate registration status, outstanding tax liabilities, accumulated income, financial records and pending proceedings before proceeding with a merger. The surviving organisation must also account for the transfer of statutory obligations, and comply with the prescribed audit requirements.