Accumulated income
[Section-342 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 342(1) of Income Tax Act 2025
342(1) A registered non-profit organisation may accumulate or set apart any part of its regular income during any tax year by furnishing a statement to the Assessing Officer in such form and manner, as prescribed, on or before the due date specified in section 263(1) for furnishing the return of income for such tax year stating therein the purpose and period, not exceeding five years, for which the income is being accumulated or set apart.
Section 342(2) of Income Tax Act 2025
342(2) The amount credited or paid by a registered non-profit organisation to any other registered non-profit organisation out of its income accumulated or set apart, shall not be treated as application of income.
Section 342(3) of Income Tax Act 2025
342(3) The period during which the income is not be applied for the purpose for which it is so accumulated or set apart pursuant to an order or injunction of any court, shall be excluded from said period of five years.
Section 342(4) of Income Tax Act 2025
342(4) The income accumulated or set apart under sub-section (1) shall be invested or deposited in any of the modes permitted under section 350, or applied for the purposes as stated in the prescribed form referred to in sub-section (1).
Section 342(5) of Income Tax Act 2025
342(5) The registered non-profit organisation may, for the change of purpose for which income has been accumulated or set apart, make an application to the Assessing Officer, in such form and manner, as prescribed.
Section 342(6) of Income Tax Act 2025
342(6) The Assessing Officer may, on an application under sub-section (5) and subject to sub-section (2), allow the registered non-profit organisation to apply its income for such other charitable or religious purposes in India which are in conformity with its objects.
Section 342(7) of Income Tax Act 2025
342(7) Where a registered non-profit organisation is dissolved, the Assessing Officer may, on an application made by such registered non-profit organisation in such form and manner, as prescribed, allow application of such income to be made to any other registered non-profit organisation for the year in which it is dissolved.
FAQs on Section 342 of Income Tax Act 2025
What is meant by ‘accumulated income’ under Section 342(1) of the Income Tax Act, 2025?
Accumulated income refers to the portion of regular income that a registered non-profit organisation chooses to set apart during a tax year for future application toward specific purposes. This must be declared by furnishing a prescribed statement to the Assessing Officer by the due date for filing the return of income under Section 263(1), stating the purpose and the period (not exceeding five years) for which the income is set apart.
Can a non-profit accumulate income indefinitely?
No, the period for which income may be accumulated or set apart cannot exceed five years from the end of the tax year in which it is so accumulated, unless extended due to a court order as provided under Section 342(3).
Is there a specific way the accumulated income must be declared?
Yes, the non-profit must submit a prescribed statement to the Assessing Officer by the due date under Section 263(1), specifying the purpose and duration for which the income is being set apart.
Can the accumulated income be transferred to another registered non-profit organisation?
Yes, it can be transferred, but under Section 342(2), such transfer is not considered as application of income for charitable or religious purposes.
What happens if a court order delays the application of accumulated income?
Section 342(3) states that if a court order or injunction delays the application of income, the duration of such delay is excluded from the five-year limit.
Where should the accumulated income be invested?
Under Section 342(4), the income must be invested or deposited in modes specified in Section 350 or be applied for the purposes stated in the prescribed form mentioned in Section 342(1).
Can the purpose of accumulation be changed after submission?
Yes, the non-profit may apply to the Assessing Officer in the prescribed form and manner under Section 342(5) to change the purpose.
What conditions must be met for changing the purpose of accumulated income?
As per Section 342(6), the Assessing Officer may allow the change if the new purpose is another charitable or religious purpose in India and is in conformity with the organisation’s objects, subject to the condition in Section 342(2).
What happens to accumulated income if the non-profit organisation is dissolved?
Under Section 342(7), upon dissolution, the non-profit can apply to the Assessing Officer to allow the accumulated income to be applied to another registered non-profit organisation during the year of dissolution.
Is the transfer of accumulated income upon dissolution treated as application of income?
Section 342(7) allows the Assessing Officer to permit such application to another registered non-profit in the year of dissolution; however, per Section 342(2), this transfer is not deemed as application unless specifically permitted under the context of dissolution.
What are the consequences of not applying the accumulated income within the allowed period?
While not explicitly stated in Section 342, failure to apply the accumulated income within the allowed five-year period (excluding delays due to court orders) may lead to such income being treated as taxable, unless it meets the application or investment requirements.
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