Section 343Charitable Trusts & NPOswas IT Rules 2026 (Rule 186, Forms 110/111) in IT Act 1961

Deemed Accumulated Income — When Accumulation Goes Wrong

Section 343 specifies situations where income previously accumulated under Form 10 is retrospectively treated as income of an earlier year — triggering tax plus interest. This happens when accumulated funds are applied for purposes other than stated in Form 10, or remain unapplied after the 5-year period.

Who this applies to

Registered NPOs that filed Form 10 for accumulation but did not use the funds as specified, or used them for a different purpose.

Key Points

Accumulated income applied for a different purpose than stated in Form 10 becomes taxable in the year of mis-application
Accumulated income not spent within the 5-year period is taxable in Year 6 at MMR
The tax is charged as if the income was received in the year when the Form 10 accumulation was made
Interest under Section 423 also applies from the original year of accumulation
Genuine changes in project scope can be declared to the Assessing Officer with proper justification

Worked Example

Accumulated Income Used for Wrong Purpose

Scenario

In TY 2026-27, a trust accumulated ₹20 lakh via Form 10 for 'building a computer lab.' In TY 2028-29, the trust spends this ₹20 lakh on salaries instead.

Calculation

TY 2026-27: Accumulated ₹20L for computer lab → Exempt at that time

TY 2028-29: ₹20L spent on salaries (wrong purpose)

Deemed income for TY 2026-27:          ₹20,00,000
Tax at MMR (30%):                      ₹ 6,00,000
Interest u/s 423 (approx. 2 years):    ₹ 1,44,000
Total dues:                            ₹ 7,44,000

Result

The ₹20 lakh is retroactively taxed in TY 2026-27 with interest. The trust should either maintain purpose discipline or formally amend the Form 10 with AO approval before changing the application.

Related Sections

Section 342Accumulation of Income — Beyond the 15%

Section 341Application of Income — The 85% Charitable Spending Rule

Section 349Filing Income Tax Return for Charitable Organisations

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Section references are based on the Income Tax Act 2025 (Tax Year 2026-27). Examples are illustrative — verify with a Chartered Accountant before filing.