The Central Board of Direct Taxes (CBDT) has introduced new rules governing the merger of registered non-profit organisations. Under the Income-tax (Eighth Amendment) Rules, 2026, two registered non-profits with the same or similar objectives can merge only if they meet specified conditions, including clearing outstanding tax dues, transferring all assets and liabilities, and maintaining their existing objectives for at least five years.
The new rules also make it mandatory for the merged organisation to inform the Income Tax Department about the merger through a new Form No. 112A within a prescribed timeline.
The CBDT notified the Income-tax (Eighth Amendment) Rules, 2026, through Notification No. G.S.R. 961(E) dated October 30, 2026. The rules came into effect from the date of their publication in the Official Gazette.
The notification inserts a new Rule 189A into the Income-tax Rules, 2026. It lays down 12 conditions that registered non-profit organisations must follow when merging with another organisation having the same or similar objectives.
What are the conditions for the merger of non-profit organisations?
One of the important conditions is that a fully registered non-profit organisation cannot merge with a provisionally registered organisation. Similarly, a provisionally registered organisation cannot merge with one that has regular registration under Section 332 of the Income-tax Act, 2025.
The rules also make it clear that the organisation being merged should not have any outstanding tax demand arising from an order under the Income-tax Act, unless the demand is under appeal.
If an appeal is pending against the tax demand, the merged organisation will have to pay the outstanding amount once the appeal reaches finality.
In other words, a merger cannot be used as a way to avoid existing tax liabilities.
Five-year restriction on changing objectives
The new rules also seek to ensure that the merger does not result in a change in the original purpose of the non-profit organisation.
According to Rule 189A, the objectives of the merged organisation cannot be amended for five years from the end of the financial year in which the merger takes place.
For example, if two organisations merge during the financial year 2026-27, the merged organisation cannot change its objectives until the end of the five-year restriction period.
The notification also requires all assets and liabilities of the organisation being merged to become part of the merged organisation from the effective date of the merger.
Another important condition is that the merger should not result in any direct or indirect benefit to related persons of either organisation.
Merged organisation will inherit tax and compliance obligations
The new rules make the merged organisation responsible for the tax and other compliance obligations of the organisation being merged.
This includes ensuring that the income of the merging organisation is applied in accordance with Section 341 of the Act. Its accumulated income must also be dealt with under Section 342.
The merged organisation will also be responsible for paying tax on specified income under Section 334, wherever applicable.
Further, it must ensure that the conditions under Section 340 are not violated and that its funds are invested only through the permitted modes specified under Section 350.
The notification also provides that any additional income-tax liability arising under Section 352 will have to be paid by the merged organisation.
This means the merger will not wipe out the existing tax and compliance responsibilities of the organisation being merged.
Form 112A filing mandatory within one month
Another important change is the introduction of Form No. 112A to report the merger to the Income Tax Department.
The merged organisation will have to inform the jurisdictional Principal Commissioner or Commissioner of Income Tax about the merger within one month from the end of the month in which the merger takes effect.
The form must be filed electronically. It can be submitted either using a digital signature or an electronic verification code.
For example, if a merger takes effect on November 15, 2026, the organisation will have to submit Form 112A by December 31, 2026.
The notification also clarifies that the form will be included in Appendix III of the Income-tax Rules, 2026, after Form No. 112.
What happens to pending tax assessments after a merger?
The rules also address the treatment of tax assessments and other proceedings involving the organisation being merged.
Any assessment, reassessment or other proceedings already completed or initiated against the merging organisation will be treated as proceedings against the merged organisation.
The same principle will apply to tax proceedings relating to the financial year in which the merger takes place, up to the date of the merger, as well as earlier tax years.
This ensures that the merger does not bring existing tax proceedings to an end.
Audit of accounts compulsory on the merger date
The CBDT has also made it mandatory for both organisations to get their books of accounts audited as on the date of the merger.
This requirement will apply to both the organisation being merged and the organisation into which it merges.
The audit will have to be conducted by an accountant as defined under Section 515(3)(b) of the Income-tax Act, 2025.
What does the new CBDT notification mean for non-profits?
The new rules provide a clear framework for mergers between registered non-profit organisations with similar objectives.
While such mergers are permitted, organisations will have to ensure that their registration status, tax dues, assets, liabilities and compliance obligations are properly addressed before completing the process.
The five-year restriction on changing objectives and the mandatory Form 112A filing also mean that organisations will need to plan their mergers carefully.
The broader objective is to ensure that a merger does not become a route to avoid tax liabilities, divert charitable funds or change the purpose for which the organisations were established.
Disclaimer:
This article is based on CBDT Notification No. G.S.R. 961(E), dated October 30, 2026. Readers should refer to the official notification and the Income-tax Rules, 2026 for complete details and applicable conditions.
