TaxSaral

Section 343 · was Section 11(3) in the 1961 Act

Deemed Accumulated Income — When Accumulation Goes Wrong

Section 343 specifies situations where income previously accumulated under Form No. 109 (earlier 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 No. 109, or remain unapplied after the 5-year period.

Who it applies to: Registered NPOs that filed Form No. 109 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 No. 109 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 No. 109 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

In TY 2026-27, a trust accumulated ₹20 lakh via Form No. 109 for 'building a computer lab.' In TY 2028-29, the trust spends this ₹20 lakh on salaries instead.

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 No. 109 with AO approval before changing the application.

Related sections

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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.