The tax department today came out with draft rules for valuation of assets of charitable institutions for the taxation purpose after they convert into non-charitable entities.

The draft norms, on which the Central Board of Direct Taxes (CBDT) has sought comments by October 31, prescribe different methods for computing the aggregate fair market value (FMV) of total assets of trusts and charitable institutions.

The Finance Act 2016 added a new chapter in the Income Tax Act specifying provisions relating to levy of additional income tax where charitable institutions exempt under the Act cease to exist as charitable organisations or convert into non-charitable entities.

As per the newly inserted Section 115TD, the accreted income would be the amount by which the aggregate FMV of total assets will exceed the total liability of the institution.

The draft rules lay down method for ascertaining FMV of listed and unlisted security, bullion, jewellery, artistic work and immovable property.

Finance Minister Arun Jaitley in his Budget speech had said that where a trust or institution registered U/S 12AA of the I-T Act ceases to be charitable organisation, the amount of net asset as on date of such conversion which represents the income accreted to the trust over a period of time shall be charged to additional income-tax at the maximum marginal rate.

Similarly, if on dissolution a charitable trust or institution does not transfer all its assets within one year of dissolution to another charitable organisation, the amount of accreted income to the extent not transferred shall be subject to this levy of additional income-tax, Jaitley had said.