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Frequently Asked Questions

1. When are charitable trusts required to get their accounts audited?

Trusts must meet certain conditions to be eligible for exemptions under sections 11 and 12, including the audit of the books of account under section 12A(1)(b). Similarly, the tenth proviso to section 10(23C) requires institutions approved under that clause to have their accounts audited.

The books of account are required to be audited where the total income of the trust or institution as computed under this Act before exemption under section 11/12 or where the total income of the trust or institution before exemption under section 10(23C) exceeds the maximum amount not chargeable to tax. The current exemption limit is ₹ 2,50,000.

Thus, this requirement does not apply to institutions whose total income [before exemption under section 11/12 or section 10(23C)] is less than or equal to ₹ 2,50,000.

If the total income is only ₹ 1.50 lakh, there is no need for an audit, as the requirement of audit applies to institutions whose total income, before exemption under section 11/12 or section 10(23C), exceeds ₹ 2.50 lakh. The amount of application is not the determining factor in this case.

The objective of the audit of charitable and religious trusts within the framework of the Income-tax Act is to assist the income-tax department in verifying whether the assessee has complied with the provisions of sections 11 to 13 or section 10(23C) of the Act. This audit is aimed to enable the Assessing Officer to satisfy himself about the genuineness of the claim for exemption under section 11 or section 10(23C) and whether the institution has complied with all the requirements prescribed by the Act.

In Para 5.3.6 of CAG Report No. 12 of 2022 on “Performance audit on exemptions to charitable Trusts and Institutions” for the year ended March, 2021, the objectives of audit of charitable trusts under the Income-tax Act, 1961 have been spelt out as under:

“Charitable trusts claiming exemption under section 11(1) are required to file Income Tax Returns in Form ITR-7, supported by Audit Report in Form 10B. The Audit Report prescribed under rule 17B requires the accountant to give his opinion whether to the best of his information, the accounts give a true and fair view. Besides, the Auditor has to provide some prescribed information in the Audit Report. The principal aim of this Audit Report is to enable the Assessing Officer to satisfy himself about the genuineness of the claim for exemption under Section of the Act and also whether the institution has complied with the requirements prescribed by the statute.”

The objectives of the audit of charitable trusts under the Income-tax Act are as under:

  1. Whether the charitable trust has maintained proper books of account in accordance with rule 17AA so as to give a true and fair state of affairs of the trust and explain its transactions.
  2. To assist the income-tax department in verifying whether the assessee has complied with the provisions of sections 11 to 13 or section 10(23C) of the Act as regards the conditions laid down for exemption.
  3. To verify and report whether records of application of income as required by rule 17AA have been kept so as to enable the income-tax department to verify whether the assessee-trust has complied with conditions for tax-exemption of income in the provisions of sections 11 to 13 or section 10(23C) of the Act.
  4. To verify and report whether financial statements give a true and fair view.
  5. To verify, compute and certify taxable income where section 115BBI/section 115BBC is attracted and/or where there is a shortfall in the application of income in India or violation of provisions regarding modes of investment of corpus donations.

Upto the Assessment Year 2022-23, there were two types of audit reports – Form 10B for trusts or institutions registered under section 12AB and Form 10BB for trusts or institutions approved under section 10(23C). From AY 2023-24, the same form shall be used by both categories of institutions based on the conditions specified in rule 16CC and rule 17B.

The CBDT has notified new audit reports in Form 10B and Form 10BB to be furnished by charitable or religious trusts and other institutions from AY 2023-24. The amended rules outline the conditions under which an audit report must be provided in either Form 10B or Form 10BB. These two forms differ in their applicability and purpose.

Form 10B and Form 10BB consist of two parts:

  • Audit Report; and
  • Annexure to Audit Report.

Form 10B is more comprehensive and detailed than Form 10BB. The annexure in Form 10B encompasses 49 clauses, whereas the annexure accompanying Form 10BB comprises 32 clauses that outline the required information to be included in the audit report.

The following institutions approved by the Principal CIT or CIT are required to file an audit report in Form 10B/10BB provided total income before exemption exceeds the maximum amount not chargeable to tax:

  1. Any other fund or institution established for charitable purposes [Section 10(23C)(iv)];
  2. Any trust (including any other legal obligation) or institution wholly for public religious purposes or public religious and charitable purposes [Section 10(23C)(v)];
  3. Any university or other educational institution existing solely for educational purposes (not for purposes of profit) [Section 10(23C)(vi)];
  4. Any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes (not for purposes of profit) [Section 10(23C)(via)].

Entities eligible in the non-approval category in section 10(23C) enjoy tax exemptions on their entire income with minimal conditions. The requirements and conditions for an audit do not apply to such institutions. For such organisations, only compliance under Income-tax law is filing income tax return in Form ITR-7.

The trusts or institutions registered under section 12AB or approved under section 10(23C) that satisfy any of the following conditions must file an audit report in Form 10B:

  1. If the total income of the trust or institution, before exemption under Sections 11 and 12 or section 10(23C)(iv), (v), (vi), (via) of the Act, exceeds ₹ 5 crores during the previous year; or
  2. If such trust or institution has received any foreign contribution during the previous year; or
  3. If such trust or institution has applied any part of its income outside India during the previous year.

The expression “foreign contribution” shall have the same meaning assigned to it in section 2(1)(h) of the Foreign Contribution (Regulation) Act, 2010.

The trusts or institutions registered under section 12AB or approved under section 10(23C) satisfying all the following conditions must file an audit report in Form 10BB:

  1. If the total income of the trust or institution, before exemption under sections 11 and 12 or section 10(23C)(iv), (v), (vi), (via) of the Act, is ₹ 5 crores or less; and
  2. If such trust or institution has not received any foreign contribution during the previous year; and
  3. If such trust or institution has not applied any part of its income outside India during the previous year.

The expression “foreign contribution” shall have the same meaning assigned to it in clause (h) of section 2(1) of the Foreign Contribution (Regulation) Act, 2010.

For organisations registered under section 12AB, the type of Audit Report required depends on certain criteria. Trusts or institutions registered under section 12AB are obliged to submit their audit report in either Form 10B or Form 10BB. The choice of form depends upon whether they meet specific conditions such as having income exceeding ₹ 5 Crores, receiving foreign contributions, or applying income outside India.

Upto the assessment year 2022-23, there were two distinct audit report formats: Form 10B for trusts or institutions registered under section 12AB, and Form 10BB for trusts or institutions approved under section 10(23C).

However, the new Form 10B and Form 10BB are applicable to both categories of institutions. The choice of the appropriate form depends on specific conditions, such as whether the institution’s income exceeds ₹ 5 Crores, whether it has received foreign contributions, or applied its income outside India.

It is important to note that new Forms 10B and 10BB are to be used both for the trusts registered under section 12A and institutions approved under section 10(23C). It is further to be noted that there are certain clauses within these forms which do not apply to entities approved under section 10(23C).

Therefore, the auditors must exercise great care when completing Form 10B/10BB, considering whether the institution is registered under section 12AB or approved under section 10(23C). However, despite recent amendments in the past few years, certain variations still exist in both categories.

These are specific provisions that apply to section 12AB registered trusts. However, there are no equivalent or similar provisions for section 10(23C) institutions in the following cases:

  1. No requirement for registration on modification of objects.
  2. No provision like section 11(1)(c) restricting application of income outside India.
  3. No withdrawal of benefit of exemption or cancellation of approval if the income is not applied for the benefit of the public like section 13(1)(a).
  4. No withdrawal of benefit of exemption or cancellation of approval if the income is applied for the benefit of any particular religious community or caste like section 13(1)(b).
  5. No benefit of Deemed Application of Income by filing Form 9A.
  6. No exemption to capital gains like under section 11(1A).
  7. No provision like Business held under Trust like under section 11(4).

Hence, due to the above, the following are the clauses in Form 10BB that do not need to be filled out for institutions falling under section 10(23C):

  1. Clause 19: Application outside India for which approval as per the proviso to clause (c) of sub-section (1) of section 11 has been obtained.
  2. Clause 23(xii): Application outside India for which approval under the proviso to clause (c) of sub-section (1) of section 11 has not been obtained.
  3. Clause 23(xiii): Application outside India for which approval under the proviso to clause (c) of sub-section (1) of section 11 has been obtained.
  4. Clause 23(xvii): Amount deemed to have been applied during the previous year under clause (2) of Explanation 1 to sub-section (1) of section 11.
  5. Clause 27(B): Income deemed to be applied in any preceding year under clause (2) of Explanation 1 to sub-section (1) of section 11 during any earlier previous year.
  6. Clause 30(c): Whether the auditee, referred to in clause (a) of sub-section (1) of section 13, has applied any part of its income from the property held under a trust for private religious purposes, which does not enure for the benefit of the public.
  7. Clause 30(d): Whether the auditee, referred to in clause (b) of sub-section (1) of section 13, has applied any part of its income for the benefit of any particular religious community or caste.

The following are the clauses in Form 10B that are not required to be completed for section 10(23C) institutions:

  1. Clause 12: Whether the auditee, being a trust or institution referred to in section 11 or 12, has adopted or undertaken modification of the objects which do not conform to the conditions of registration?
  2. Clause 17: Whether the auditee has any business undertaking as referred to in sub-section (4) of section 11.
  3. Clause 29: Income applied outside India which is eligible under clause (c) of sub-section (1) of section 11.
  4. Clause 31(xiv): Application outside India for which approval under proviso to clause (c) of sub-section (1) of section 11 has not been obtained.
  5. Clause 31(xv): Application outside India for which approval under proviso to clause (c) of sub-section (1) of section 11 has been obtained.
  6. Clause 31(xix): Amount deemed to have been applied during the previous year under clause (2) of Explanation 1 to sub-section (1) of section 11.
  7. Clause 33(a): Whether the auditee has any deemed income referred to in sub-section (1B) of section 11 which is chargeable to tax @ 30% under section 115BBI and the amount of such deemed income?
  8. Clause 33(e): Whether the auditee has made any application out of India which is not excluded from total income under clause (c) of sub-section (1) of section 11.
  9. Clause 35(a): Whether the auditee has any income chargeable under section 12(2) and the amount of such income.
  10. Clause 35(d): Income chargeable under sub-section (4) of section 11.
  11. Clause 36: Details of capital asset transferred under sub-section (1A) of section 11.
  12. Clause 37(B): Income deemed to be applied in any preceding year under clause (2) of Explanation 1 to sub-section (1) of section 11 during any earlier previous year.
  13. Clause 43(c): Whether the auditee, referred to in clause (a) of sub-section (1) of section 13, has applied any part of its income from the property held under a trust for private religious purposes, which does not enure for the benefit of the public.
  14. Clause 43(d): Whether the auditee, referred to in clause (b) of sub-section (1) of section 13, has applied any part of its income for the benefit of any particular religious community or caste.

It is clarified that the expression “foreign contribution” shall have the same meaning assigned to it in clause (h) of section 2(1) of the Foreign Contribution (Regulation) Act, 2010. Therefore, foreign contributions will include interest income from investments made out of foreign contributions, income from FC assets, etc.

The fees collected from students or any other receipts against services rendered shall not be treated as foreign contributions.

Explanation 3 to section 2(1)(h) of FCRA, 2010 clarifies that any amount received by any person from any foreign source in India by way of fee (including fees charged by an educational institution in India from foreign student) or any contribution received from an agent of a foreign source towards such fee shall be excluded from the definition of foreign contribution. Therefore, merely because trust received fees charged from foreign students during the relevant previous year, it will not be regarded as having received any foreign contribution.

No, it cannot. Explanation 3 to section 2(1)(h) of FCRA, 2010 clarifies that any amount received by any person from any foreign source in India towards cost in lieu of goods or services rendered by such person in the ordinary course of his business, trade or commerce whether within India or outside India or any contribution received from an agent of a foreign source towards such fee or cost shall be excluded from the definition of foreign contribution.

No, it is not. “Delegate/participation Fees” paid by foreign delegates/participants for participation in a conference/seminar and which are utilised for the purpose of meeting the expenditure of hosting the conference/seminar are not treated as foreign contribution. [FAQ No. 12 of FAQs on FCRA on website https://fcraonline.nic.in]

Yes, any income received from the sale of assets acquired through foreign contributions is considered foreign contributions.

As per Item 2 (details of receipt of foreign contribution) of Form FC-4 notified under FCRA, 2010, receipt of foreign contribution during the year will also include interest accrued on foreign contribution or any other income derived from foreign contribution, for example, sale proceeds from assets created from foreign contribution, or interest thereon during the year. Therefore, in such situations, the trust is required to submit an audit report in Form 10B.

In this scenario, where no foreign contributions have been received during the year, the appropriate form to be used is Form 10BB.

The term “foreign contribution” is defined in section 2(1)(h) of the Foreign Contribution (Regulation) Act, 2010. According to this definition, the interest earned on foreign contributions deposited in any bank or any other income derived from foreign contributions, including interest on such contributions, is considered a foreign contribution. Therefore, in such a scenario, the trust is required to submit an audit report in Form 10B.

Where an NGO’s FCRA registration has been cancelled while it retains foreign assets, any interest earned on these assets is also regarded as a Foreign Contribution, and an audit report must be submitted using Form 10B.
Under section 11(1)(c), if activities are conducted outside India, with or without obtaining approval from the CBDT, the audit report should be submitted in Form 10B. Income applied on activities outside India is not eligible for exemption unless the following conditions are satisfied:
  1. The charitable organisation was created before 1-4-1952, or it is engaged in the promotion of international welfare in which India is interested; and
  2. The CBDT has, by general or special order, granted the exemption for carrying out such activities.
An organisation can apply to the CBDT for permission to work outside India. The applications seeking approval may be submitted to the office of Member (IT), CBDT, Department of Revenue, Ministry of Finance, North Block, New Delhi.

Any income which is not excluded from total income due to its application towards charitable purposes outside India shall be taxable under section 115BBI.

Form 10B should be used in such cases, as it applies when any part of a trust’s or institution’s income is applied outside India during the previous year. This is regardless of whether the auditee is approved under section 10(23C) or registered under section 12AB.

Sending NGO staff for training abroad should not inherently be classified as an application outside India. Since this activity does not constitute a violation of section 11(1)(c), the audit report in such case shall be filed in Form 10BB if other conditions are satisfied.

The requirement to file Form 10B arises only if the total income of the charitable institution, as calculated under the Act without considering the provisions of sections 11 and 12, exceeds ₹ 5 crores. Since the exemption to corpus donations and capital gains is allowed under section 11, the limit of ₹ 5 crores should be computed by adding corpus donations and capital gains to the income.

Agricultural income is not required to be added as under section 11(7) agricultural income is not subject to the conditions of exemptions under sections 11 and 12.

Income subject to application is to be computed on a commercial basis, and the five heads of income are not applicable. Therefore, when calculating rental income, the standard deduction of 30% does not apply. However, actual expenses incurred to collect the rent may be deducted while computing the income subject to application.

The audit has to be carried out by an accountant as defined in the Explanation to section 288(2). For the purposes of audit, the Explanation to section 288(2) provides that a Chartered Accountant holding a valid certificate of practice can undertake the audit provided he/she is not disqualified under clauses (a) & (b) to Explanation to section 288(2).

No, specified persons cannot be appointed as auditors of a trust or institution. The Explanation to section 288(2) outlines the disqualifications for persons appointed as auditors, which include the following under clause (b)(ii):

“(ii) In the case of the assessee, being a trust or institution, any person referred to in clauses (a), (b), (c), and (cc) of sub-section (3) of section 13.”

Further, section 13(3) includes the following specified persons:

  1. The author of the trust or the founder of the institution;
  2. Any person who has made a substantial contribution to the trust or institution (contributions exceeding ₹ 50,000 up to the end of the relevant previous year);
  3. Where such author, founder, or person is a HUF, any member of the family;
  4. Any trustee of the trust or manager of the institution;
  5. Any relative of the author, founder, contributor, member, trustee, or manager as mentioned above;
  6. Any concern in which any of the above-mentioned persons have a substantial interest.

The limit of 60 tax audits in Chapter IX of the Council General Guidelines 2008 applies to tax audits under section 44AB only. The Council has not laid down any limit with respect to tax audits of trusts and institutions under section 12A or section 10(23C) which an auditor can undertake.

The audit reports in Form 10B and Form 10BB are required to be signed by a Chartered Accountant. However, no stipulation restricts the tax audit to be exclusively conducted by the statutory auditor appointed under the Companies Act or similar statutes. Therefore, the Income-tax audit can be performed by either the statutory auditor or any other Chartered Accountant in full-time practice. Consequently, the NGO can decide whether they wish to engage the statutory auditor or appoint a different auditor to conduct the Income-tax audit.

However, it is recommended to get the audit in Form 10B and Form 10BB by the same statutory auditor appointed under the Companies Act or similar statutes for the reasons as below:

Unlike for tax audit under section 44AB, there is no provision in section 12A or section 10(23C) similar to the 3rd Proviso under section 44AB, which provides that where a trust is required to get its account audited under any other law, it may obtain a further report from the accountant in Annexure to Form 10B/Form 10BB and need not duplicate the audit of accounts which has already been done under the other law. Nor is there a covering letter type form like Form 3CA which refers to an auditor’s report under other law and contains an affirmation of true and correct by the accountant limited to a further report containing a statement of particulars. Also, both Form 10B and 10BB use the wordings “I/We have examined the balance sheet of”.

Hence, to avoid duplication of audit, it is suggested that the auditor who carries out an audit of accounts of the trust should be asked to issue an audit report in Form 10B/10BB and annexure thereto.

In the pre-amended formats, the auditor’s examination was focused on the Balance Sheet and the Profit and loss Account. However, with the amended format of the audit report, auditors are now required to examine and report on the Balance Sheet, Income and expenditure Account, or Profit and loss Account.

The inclusion of the term “Income & Expenditure A/c” is appropriate in the context of charity accounts. It may be noted that both Forms 10B and 10BB specify that the income and application are required to be reported in the “Income & Expenditure A/c”. In other words, the “Income & Expenditure A/c” should be prepared strictly as per the provisions of section 11, i.e., income should be recognised as per section 11, and all permissible applications including capital expenditure, inter-charity grant, etc. should be reflected on the expenditure side.

Additionally, it is worth noting that the Receipt and Payment account has not been explicitly labelled as one of the financial statements, even though amount of application needs to be computed on payment basis. In the amended audit report format, the auditor is also required to give information on the place of maintaining the books of account.

The audit reports in Form 10B and Form 10BB require the auditor to formulate an opinion based on the information available to him. This opinion pertains to whether the Income and Expenditure Account or Profit and Loss Account gives a true and fair view of the income, application of funds, profit, or loss, subject to any observations or qualifications.

It is of utmost importance to understand the meaning of the term “application” when auditors express their opinions regarding the true and fair view. The core issue at hand lies in assessing the practical feasibility of forming an opinion solely based on the Income and Expenditure Account with respect to the application of funds.

In our opinion, the auditor should provide an opinion on the income and application of the organisation. In other words, the Income and Expenditure Account should reflect income as defined (required to be computed) under section 11 and application as defined (required to be computed) under section 11(1). It may be noted that the word expenditure has not been used under section 11(1) as charitable or religious activities are not supposed to be a charge against the income.

Section 11(1) states that income derived from property held under trust for charitable and religious purposes or receipts from voluntary contributions is exempt to the extent that such income is applied for charitable purposes in India.

Further, the Finance Act, 2022 introduced an Explanation to section 11(7). This Explanation explicitly provides that any sum payable by any trust shall be considered an application of income in the previous year in which such sum is actually paid. Thus, the application of income shall be allowed only on a payment basis. This is irrespective of the previous year in which the liability to pay such sum was incurred by such trust according to the method of accounting regularly employed.

Further, all expenditures, whether revenue or capital, for charitable purposes are considered as an application of income.

Therefore, for the auditor to provide an opinion in Form 10B/10BB, a charitable trust must prepare a balance sheet, income and expenditure account based on the relevant provisions of section 11 or section 10(23C).

Notably, recent amendments also impose constraints on applications from the corpus, loans, and borrowings. Furthermore, the set-off of past deficits against the current year’s income is no longer permissible for computing the 85% application requirement. These amendments affirm the rationale that a charitable or religious organisation can only apply the available income and therefore there is no concept or question of deficit or loss during the year.

When computing the eligible application, the amount should also be reduced by 30% of the corresponding sum applied without compliance with TDS provisions or the full amount if the corresponding payment exceeds ₹10,000 in cash. Considering all these factors, the eligible application amount should be computed, and the auditors to provide an opinion accordingly on the true and fair view of the application.

If the Income and Expenditure Account is prepared on a conventional basis normally used for general purpose reports and not strictly as per the provisions of section 11, the auditor should prepare an additional statement providing the computation as per the relevant provision of the Income-tax Act. Such a statement of computation should be annexed to the financial statements.


The Income-tax Act does not define the meaning of ‘true and fair view’ or ‘true and correct’. However, it is essential to understand the difference between a ‘true and fair view’ and a ‘true and correct view’.

‘True and fair view’ means that Financial Statements should not only be made out correctly, but they should also convey an overall fair view of the state of affairs of the entity and should not give any misleading impression. All relevant information should be disclosed in the Financial Statements in such a manner that the financial position and the working results are shown as they are. There should be neither an overstatement nor an understatement.

This distinction is crucial because claiming a ‘correct’ view implies an absolute absence of errors in the Books of Account or Financial Statements, and the report certified to be correct confirms the factual accuracy of the information. Hence, the auditor should follow the applicable audit standards and procedures that are necessary for forming such an opinion and accordingly provide observations in the main report.

The assessee is responsible for the preparation of the ‘Annexure Statement of particulars’ required to be furnished along with Form No. 10BB/10B that gives true and correct particulars as per the provisions of the Income-tax Act, 1961 read with Rules, Notifications, Circulars, etc. that are to be included in the Statement. The auditor’s responsibility is to express an opinion on these financial statements based on the audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. The auditor shall also be responsible for verifying the statement of particulars required to be furnished/annexed herewith in Form No. 10BB/10B read with Rule 17B/16CC of the Income-tax Rules, 1962.

In the pre-amended audit report format, there was no requirement to make separate certifications on the Annexure forming part of Form 10B, though it was mentioned in the audit report that “the prescribed particulars are annexed hereto”.

The new audit report format requires the auditor to audit the annexure forming part of the report. Now, the auditor is required to audit the annexure and provide a certification that it is true and correct.

Form 10B requires a more extensive and detailed set of information compared to Form 10BB. The annexure in Form 10B encompasses 49 clauses, while the annexure accompanying Form 10BB contains 32 clauses. Form 10B includes the following additional clauses that are not present in Form 10BB:

  1. Registration Details [Clause 9 of Form No. 10B]
  2. Objective [Clauses 11-12 of Form No. 10B]
  3. Advancement of any other object of general public utility [Clauses 15-16 of Form No. 10B]
  4. Business Undertaking [Clause 17 of Form No. 10B]
  5. Business Incidental to Objects [Clause 18 of Form No. 10B]
  6. TDS on receipts [Clause 19 of Form No. 10B]
  7. Whether the provisions of the twenty-second proviso to clause (23C) of section 10 or sub-section (10) of section 13 are applicable [Clause 20 of Form No. 10B]
  8. Other Income [Clause 35 of Form No. 10B]
  9. Capital Asset [Clause 36 of Form No. 10B]
  10. Details of application resulting in payment or credit in excess of 50 lakhs during the previous year to a single person out of Clause 37 [Clause 38 of Form No. 10B]
  11. Section 13(10) and 22nd proviso to section 10(23C) [Clause 39 of Form No. 10B]
  12. Expenditure Incurred for Religious Purposes [Clause 40 of Form No. 10B]
  13. In view of provisions of the nineteenth proviso to clause (23C) of section 10 or sub-section (7) of section 11, please specify whether the trust or institution has claimed deduction under section 10 (other than clause (1), clause (23C) and clause (46) thereof) during the previous year and the amount of such claim [Clause 45 of Form No. 10B]
  14. Whether the auditee has taken or accepted any loan or deposit or any specified sum, exceeding the limit specified in section 269SS during the previous year [Clause 46 of Form No. 10B]
  15. Whether the auditee has received an amount exceeding the limit specified in section 269ST, from a person in a day; or in respect of a single transaction, or in respect of transactions relating to one event or occasion from a person during the previous year [Clause 47 of Form No. 10B]
  16. Whether the auditee has repaid any amount being loan or deposit or any specified advance exceeding the limit specified in section 269T, during the previous year [Clause 48 of Form No. 10B]

The provisions of sections 11 to 13 of the Income-tax Act do not specify the applicability of Form 3CA/3CB or Form 3CD to charitable trusts or institutions. A detailed analysis of the applicability of Tax Audit under Section 44AB to charitable trusts has been provided in a separate chapter in this book.

It is worth noting that the conditions for registration under section 12A(1) do not have the requirement for an audit under section 44AB. Furthermore, there is no provision for penalties in case of non-compliance with the audit requirement stipulated in Form 3CA/3CB or Form 3CD for business activities falling under section 11(4) and 11(4A). Notably, penal provisions like sections 13(1), 13(10), 115BBI, etc., do not cover the failures related to obtaining an audit under Form 3CA/3CB or Form 3CD. Moreover, the specific violations outlined for cancellation under section 12AB(4) also do not mention the failure to undergo an audit in Form 3CA/3CB or Form 3CD.

However, point 9 of Notes to Form 10B provides as follows:

“In serial numbers 17(ii)(c) and 18(ff)(c) upload the Balance Sheet, Profit and Loss Account and Audit Report in Form 3CA or 3CB as applicable (e-filing utility to provide upload facility) for the business undertaking or business incidental to objects.”

Hence, as per point 9 of Form 10B, the auditor has been asked to upload the tax audit report in Form 3CA/3CB, if there is income under section 11(4), i.e., from a business undertaking held by a trust or income under section 11(4A) from a business incidental to objects.

This requirement of filing a tax audit report under section 44AB as provided under the Notes to Form 10B does not seem consistent with the sections of the Income-tax Act applicable to exempt charitable institutions.

Further, the Supreme Court of India in the case Commissioner of Central Excise, Bolpur v. Ratan Melting & Wire Industries (Judgment dated 14 October 2008, Civil Appeal No. 4022 of 1999 [2005] taxmann.com 712 (SC)) held that a circular or clarification represents the understanding of the authorities and any circular which is contrary to the statutory provisions has really no existence in law.

Even for a trust categorised under the GPU category, all business-related activities shall be covered under section 11(4A) and consequently subject to point 9 of the Notes to Form 10B. However, in our view, there is no legal mandate necessitating a Tax Audit in Form 3CA/3CB-3CD.

The audit report in Form 10B/Form 10BB must be furnished at least one month before the due date of furnishing the return of income under Section 139(1). For the Assessment Year 2024-25, the due date for furnishing the audit report and ITR shall be as follows:

Filing of Audit Report in Form 10B/10BB
30th September 2024

Filing of ITR
31st October 2024

If an NGO chooses to submit the Tax Audit Report using Form 3CA-3CB/3CD for their business activities under section 11(4) and section 11(4A), they must adhere to the relevant due dates specified under section 44AB.

Under section 44AB, the due date for filing the tax audit report is one month prior to the deadline for furnishing the income tax return under section 139(1). Consequently, this audit report must be filed by 30th September.

The due date for filing Form 9A and Form 10 is two months before the due date of submission of return of income, i.e., by 31st August. However, the CBDT vide Circular No. 6/2023, dated 24-05-2023, has clarified that the benefit of deemed application or accumulation will not be denied to a trust, even if Form 9A and Form 10 are not filed at least two months before the due date for filing the income tax return under Section 139(1). However, Form 9A and Form 10 must be submitted on or before the due date for filing the return under section 139(1) to avail of this benefit. Therefore, due to this circular, Form 9A and Form 10 for AY 2024-25 can be filed by 31st October 2024.

However, it is important to note that the auditor must consider the deemed application and accumulation amounts when finalising the audit. Therefore, in practice, it is advisable to submit Form 9A and Form 10 before the due date for submitting the audit report.

To furnish the report in Form 10B/10BB, the assessee has to authorise and appoint the Chartered Accountant from his e-filing account. The Chartered Accountant shall file the audit report in Form 10B/10BB from the e-filing utility provided at the portal. The JSON file shall be generated and uploaded to the e-filing portal using his/her digital signature. These forms shall be accompanied by the audited financial statements.

The assessee has to approve these forms from his/her e-filing account. The date of approval of the report by the taxpayer is considered the date of filing of the Audit Report. If the assessee does not accept/approve, the tax audit report will be considered pending as if it has not been filed.

Section 12A(1)(b)(ii) provides as under:

“the accounts of the trust or institution for that year have been audited by an accountant defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and the person in receipt of the income furnishes by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed;”

Hence, as per this provision, it becomes evident that the audit of the accounts must be concluded, and the audit report must be submitted before the specified due date. The date for furnishing the audit report aligns with the deadline outlined in section 44AB, ensuring that it precedes this due date.

It is worth noting that the filing process is considered complete when the taxpayer accepts the form uploaded by the Chartered Accountant and verifies it using a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC) registered on the e-filing portal. Consequently, all the crucial steps, including obtaining, furnishing, and acceptance of the audit report, must be concluded before the specified due date.

The following steps are to be followed for the filing of Form 10B at the e-filing portal:

Step 1: From the link of “E-file Form”, the taxpayer can assign Form 10B to a Chartered Accountant.

Step 2: CA can check the assignment in the “For your action” tab under the work list.

Step 3: CA can either accept or reject the assignment.

Step 4: In case the CA accepts the assignment, he has to upload the JSON along with PDF attachments under the offline mode of filing.

Step 5: Once CA submits the JSON with valid attachments, the taxpayer either has to accept or reject the form uploaded by CA.

It should be ensured that the form is uploaded and accepted before the specified date referred to in section 44AB [one month before the due date for furnishing the return of income under section 139(1)] to avoid any consequences of delayed filing. The filing of the form is completed when the taxpayer accepts the form uploaded by CA and verifies the same with an active DSC or EVC registered on the e-filing portal.

The following are the steps for filing Form 10BB:

Step 1: Assign Form to CA. Form can be assigned in either of two ways:

(a) e-File > Income Tax Forms > File Income Tax Forms > Persons not dependent on any Source of Income > Form 10BB.

(b) Authorised Partners > My Chartered Accountant (CA) > Add CA (if not added) > Assign Form 10BB.

Step 2: CA must accept the assignment and upload the form from Worklist > For your action tab.

Step 3: The assessee must accept the form uploaded by CA from the Worklist > For your action tab.

It should be ensured that the form is uploaded and accepted before the specified date referred to in section 44AB [one month before the due date for furnishing the return of income under section 139(1)] to avoid any consequences of delayed filing. The filing of the form is completed when the taxpayer accepts the form uploaded by CA and verifies the same with an active DSC or EVC registered on the e-filing portal.

Visit https://www.incometax.gov.in and go to Downloads > Income Tax Forms > Form 10B (A.Y. 2023-24 onwards) > Form Utility. Alternatively, the CA can access this path by clicking on the download button under the offline utility option at the time of uploading the form. It should be ensured that you use the latest version of the utility available on the e-filing portal.

The following are the modes of verification for Form 10B/10BB:

(a) For CAs, only the DSC option is available for uploading the form.

(b) For taxpayers (auditee) other than companies, both DSC and EVC options are available to accept the form uploaded by CA.

(c) For Companies, only the DSC option is available to accept the form uploaded by CA.

The following attachments are mandatory to be attached under the “Attachments” panel of the Form 10B/10BB:

(a) Income and Expenditure Account/Profit and Loss Account,

(b) Balance Sheet.

There is also an optional attachment option named “Miscellaneous Attachments,” where any other relevant document may be attached. Please note that the size of each attachment shall not exceed 5MB. All the attachments should be in PDF/ZIP format only, and all the files in the ZIP folder should contain PDF files only.

In the case of joint auditors, the current income tax filing options do not offer specific mechanisms for uploading reports by all the joint auditors.

In such circumstances, it is advisable to provide the assessee client with a duly signed hard copy of the report and then upload a consolidated report by one of the auditors.

Additionally, it is essential to include a disclosure in the consolidated report acknowledging the involvement of joint auditors in the audit process.

The filed form can be viewed under the e-File tab > Income Tax Forms > View Filed Forms under both the CA and the taxpayer’s login.

While the Tax Audit Report filed under section 44AB can be revised under rule 6G(3) for recalculating disallowances under section 40 or section 43B, no similar provision exists in rule 16CC/17B to revise the Audit Report filed under section 12A.

However, the e-filing portal does provide an option to revise the filed Form 10B/10BB. Generally, the audit report should not be revised under normal circumstances. Nonetheless, a Chartered Accountant may be required to revise the audit report in certain situations, such as:

  • Revision of accounts of a company after its adoption in the annual general meeting.
  • Change of law, e.g., retrospective amendment.
  • Change in interpretation, e.g., CBDT Circular, Judgments, etc.

The CBDT, through its Circular No. 02/2024 dated 05-03-2024, has provided clarification on this matter:

7. It has come to the attention of the Board that in a number of cases trusts/institutions have furnished audit report in Form No. 10B, where Form No. 10BB was required to be furnished for the A.Y. 2023-24. Similarly, in a number of cases trusts/institutions have furnished audit report in Form No. 10BB, where Form No. 10B was required to be furnished for the A.Y. 2023-24.

As noted above, non-furnishing of audit report in the prescribed form would result in denial of exemption in such cases as it is one of the conditions which is required to be satisfied for claim of exemption.

8. In view of the above, the Central Board of Direct Taxes, in exercise of its powers under section 119 of the Act, hereby allows those trusts/institutions which have furnished audit report on or before 31st October, 2023 in Form No. 10B where Form No. 10BB was applicable and vice-versa, to furnish the audit report under clause (b) of the tenth proviso to clause (23C) of section 10 and sub-clause (ii) of clause (b) of sub-section (1) of section 12A of the Income-tax Act, 1961, in the applicable Form No. 10B/10BB for the assessment year 2023-24, on or before 31st March, 2024.

Failure to furnish the audit report in the prescribed form will result in the denial of exemption, as satisfying this condition is essential for claiming the benefit.

Chartered Accountants with a full-time Certificate of Practice can register on the UDIN Portal and generate UDIN by registering the certificates attested/certified by them.

UDIN is an 18-digit system-generated unique number for every document certified/attested by practising Chartered Accountants. UDIN has been made mandatory on all Corporate/Non-Corporate Audit, Attest, and Assurance Functions.

While issuing the audit report in Form 10B/10BB, the auditor should generate an appropriate UDIN, and the same is also required to be updated on the e-filing portal.

The Chartered Accountant has to generate and update the UDIN within 60 calendar days from the date of form submission on the income tax e-filing portal.

Yes, separate Unique Document Identification Numbers (UDINs) are necessary for the audit of Financial Statements under the Companies Act and Form 10B/10BB Audit under the Income-tax Act, since these are distinct assignments with distinct purposes.

Section 12A(1)(b) has been amended by the Finance Act, 2020 to provide that the trust or institution should get the accounts audited before the specified date referred to in section 44AB and furnish the audit report by that date.

The specified date under section 44AB is now “one month” prior to the due date for filing the return of income under section 139(1).

Considering recent amendments, the filing of audit reports has become a mandatory requirement, whereas earlier it was considered directory in nature. Accordingly, the audit report must be obtained and submitted one month before the due date for filing the return of income under section 139(1).

It may be noted that failure to file the audit report within the prescribed time will result in denial of exemption for that year. In such cases, the income shall be computed under newly inserted sections 13(10) and 13(11) with effect from Assessment Year 2023-24.

The Finance Act, 2022 inserted section 13(10), section 13(11), and the twenty-second proviso to section 10(23C), with effect from the Assessment Year 2023-24.

These provisions state that if the accounts of a trust or institution are:

  • not audited, or
  • audited but the audit report is not furnished, or
  • audited and the audit report is furnished after the specified date,

then the income chargeable to tax shall be computed after allowing deduction for expenditure (other than capital expenditure) incurred in India for the objects of the trust or institution, subject to the following conditions:

  • (a) Such expenditure is not from the corpus standing to the credit of the trust or institution as on the last day of the financial year immediately preceding the previous year relevant to the assessment year for which the income is being computed.
  • (b) Such expenditure is not from any loan or borrowing.
  • (c) Depreciation is not claimed in respect of an asset, acquisition of which has been claimed as application of income in the same or any other previous year.
  • (d) Such expenditure is not in the form of any contribution or donation to any person.

The provisions of section 40(a)(ia), section 40A(3), and section 40A(3A) shall apply mutatis mutandis, as they apply in computing income under the head “Profits and gains of business or profession”.

Accordingly, disallowances shall be made for cash payments exceeding prescribed limits and for non-deduction or non-payment of TDS on sums payable to residents.

Further, no deduction of any expenditure or allowance or set-off of any loss shall be allowed to the assessee under any other provision of the Act.

If an audit report is not filed within the prescribed time, the assessee may approach the jurisdictional CIT(E) for condonation of delay under section 119(2)(b).

The CBDT has delegated its powers and issued circulars specifying that delay in filing Form 10B and Form 10BB can be condoned if a trust or institution submits an application before the prescribed authority.

  • If the delay is up to 365 days, the CIT(E) is authorised to admit the application.
  • If the delay exceeds 365 days, the PCCIT/CCIT is authorised to admit the application.

Condonation is granted based on the merits of the case, provided the applicant demonstrates that there was a reasonable cause preventing timely filing of the audit report.

The Circulars issued by the CBDT are in the context of audit compliance under section 12A(1)(b).

Since the conditions of audit compliance continue to remain intact, it is our considered opinion that the above Circulars shall continue to apply even after the changes and amendments made in Forms 10B and 10BB.

In our opinion, these Circulars shall remain effective even after the enactment of section 13(10) and section 13(11).

It may also be noted that Circular No. 15/2022, dated 19-07-2022, and Circular No. 16/2022, dated 19-07-2022, were issued after the enactment of section 13(10).

When filing Forms 10B and 10BB, it is essential to adhere to the following instructions:

  • (a) Denomination of Currency: Ensure that all amounts entered in the utility are in Indian Rupees (INR) only.
  • (b) Date Format: Use the standard date format DD-MM-YYYY. For example, dates should be entered as 06-03-1990.
  • (c) Nil Value: Where there is no value to report (i.e., Nil), auditors must enter “0” in the amount fields, as these fields are mandatory and cannot be left blank.

Under Clause 2, the name of the assessee whose accounts are being audited under section 12A/10(23C), as specified in the PAN, should be reported.

In case of any mismatch between the name of the assessee as per PAN and the name as per the order issued by the department in Form No. 10AC/10AD, the same should be clearly reported as an observation in the audit report.

In the case of a name change:

  • If the name change occurs during the financial year, the name as at the end of the financial year should be reported.
  • If the name change occurs after the end of the financial year but before signing the audit report, the name as at the year-end should still be reported.

In both cases, the change in name must be appropriately disclosed as an observation in the audit report.

In our opinion, a charitable or religious institution should consider the date of commencement of activity from the day it starts applying its income towards charitable purposes.

Whether a business has commenced or not is a question of fact. However, what constitutes commencement of business is a mixed question of law and fact and must be determined based on the specific facts of each case.

Where the business consists of a continuous course of activities, it is not necessary that all activities begin simultaneously. As soon as an activity that is essential to the business is started, the business is considered to have commenced.

This principle was upheld in CIT v. Sponge Iron India Ltd. (1993) 67 Taxman 437 (AP) for the purposes of section 28(i) of the Income-tax Act, 1961. In the context of charitable trusts, the same principle may be applied to determine the initiation of activities aligned with the objectives for which the trust is registered.

Clause 13 of Form 10B and Clause 10 of Form 10BB specifically require disclosure regarding the commencement of activities by trusts or institutions that have been granted provisional registration or approval.

The auditor should verify the commencement of activity as declared by the organisation at the time of filing Form 10AB, since a provisionally registered organisation is required to apply for regular registration within 6 months of commencement of activities.

It has been observed that some organisations incorrectly consider the date of issue of the Provisional Registration Certificate as the date of commencement, even when activities had already begun earlier. In such cases, the auditor should include a suitable clarificatory note in the main audit report.

Clause 14 of Form 10B and Clause 11 of Form 10BB require information on whether the auditee has maintained books of account and other documents in the form and manner prescribed under Rule 17AA.

Rule 17AA, inserted vide Notification No. 94/2022 dated 10-08-2022, prescribes the list of books and documents to be maintained by entities registered or approved under section 10(23C) or section 12A.

These clauses also require reporting whether the books of account are maintained at the registered office. If not, the auditor must report:

  • The address of the alternate location;
  • The date of management decision to maintain records at such location;
  • The date of intimation to the Assessing Officer.

As per Rule 17AA, books of account and documents shall be maintained at the registered office. However, they may be kept at any other place in India if the following conditions are satisfied:

  • (a) A resolution is passed by the management.
  • (b) An intimation in writing is given to the jurisdictional Assessing Officer within 7 days.
  • (c) The full address of such place is mentioned in the intimation.
  • (d) The intimation is signed and verified by the authorised person under section 140.

The auditor should obtain a certified list of books of account along with their locations from the management and verify the same.

Where books are maintained at a place other than the registered office, the auditor should obtain:

  • A copy of the resolution passed by the management; and
  • A copy of the intimation submitted to the Assessing Officer.

In such instances, it is advisable that the auditors make appropriate disclosures in the observations/qualifications section of the audit report.

In such situations, it is advisable that the auditors include suitable disclosures in the observations/qualifications section of the audit report.

The address should be the same as that communicated by the assessee to the Income-tax Department as on the date of signing of the audit report.

The auditor should verify the relevant details of the assessee from the available income tax records or from the profile of the assessee on the Income Tax portal.

In case of any discrepancy, the same should be reported as an observation in the audit report.

As per Note 3 to Forms 10B and 10BB, the auditor is required to report the address where books of account are maintained as decided by the management through a resolution.

Such address must also have been intimated in writing to the jurisdictional Assessing Officer within 7 days of passing the resolution, in accordance with the proviso to sub-rule (3) of Rule 17AA.

Clause 14 of Form 10B and Clause 11 of Form 10BB require disclosure as to whether the auditee has kept and maintained books of account and other documents in the form and manner prescribed under Rule 17AA. Rule 17AA specifies the books and documents to be maintained by entities approved under section 10(23C) or registered under section 12AB. The following are required to be maintained by the trust or institution: (a) Books of Account [Rule 17AA(1)(a), (b) & (c)]:
  • Cash Book
  • Ledger
  • Journal
  • Copies of bills (whether machine-numbered or otherwise serially numbered) issued by the assessee, and copies or counterfoils of receipts issued by the assessee
  • Original bills received by the assessee and receipts in respect of payments made

The following additional books, records, and documents are also required to be maintained under Rule 17AA:

  • Any other books necessary to give a true and fair view of the state of affairs of the assessee and to explain the transactions undertaken.
  • Books of account relating to a business undertaking referred to in section 11(4) of the Act.
  • Books of account relating to any other business carried on by the assessee.

(b) Record of all projects and institutions run by the assessee, including their name, address, and objectives. [Rule 17AA(1)(d)(i)]

(c) Record of income of the assessee during the previous year. [Rule 17AA(1)(d)(ii)]

(d) Record of application of income during the previous year. [Rule 17AA(1)(d)(iii)]

(e) Record of application of income of earlier years applied during the current previous year. [Rule 17AA(1)(d)(iv)]

(f) Record of voluntary contributions received with specific direction to form part of the corpus. [Rule 17AA(1)(d)(v)]

(g) Record of contributions received for renovation or repair of notified religious places treated as corpus. [Rule 17AA(1)(d)(vi)]

(h) Record of loans and borrowings. [Rule 17AA(1)(d)(vii)]

(i) Record of properties. [Rule 17AA(1)(d)(viii)]

(j) Record of specified persons. [Rule 17AA(1)(d)(ix)]

(k) Any other documents containing relevant information. [Rule 17AA(1)(d)(x)]

To ensure that the books of account have been maintained at the address specified in Form 10B, the auditor should perform the neces-sary audit procedures. This involves obtaining a certified list of books

of account and their respective addresses and locations, as provided by the management. If any discrepancies arise, or if it is discovered that the books of account are not maintained at the address men-tioned in Form OB, the auditor must appropriately report this fact in his report.

It is important to note that rule 17AA provides that the books of account and other documents may be kept in the following forms:

(a) Written;

(b) Electronic form;

(c) Digital form;

(d) Print-outs of data stored in electronic or digital form; or

(e) Any other form of electromagnetic data storage device.

Considering the flexibility provided by this Rule, if the books of account are maintained in electronic or digital form, the auditor should obtain from the assessee the details of the address of the place where the server is located or the principal place or registered office by whatever name called and mention the same accordingly. If the books of account are stored on the cloud or online, a unique IP address of the same may be reported. The auditor should also specify which books of account have been maintained in the computer system and which records have been maintained in hard copy form.

The maintenance of books of account and documents is a mandatory condition of registration under section 12A(1)(b) and the Tenth proviso to section 10(23C) which provides that if the total income of the trust or institution, without giving effect to an exemption under sections 11/12 or section 10(23C), exceeds the maximum amount which is not chargeable to tax, such trust or institution shall keep and maintain books of account and other documents in such form and manner and at such place, as may be prescribed. The mandatory requirement to maintain books of accounts has been introduced by the Finance Act, 2022 with effect from the assessment year 2023-24.

If the trust or institution has not maintained the books of account, in such case, the income shall be computed under special provisions of section 13(10) and 13(11) or the twenty-second proviso to section 10(23C). In such case, the income chargeable to tax shall be computed after allowing a deduction for expenditure incurred for the objects of the institution as specified in these sections.

Furthermore, the auditor’s role extends to reporting in clause 39 of Form 10B, whether the provisions of section 13(10) or the twenty-second proviso to section 10(23C) are applicable. If affirma. tive, a de Sled computation of the income subject to taxation under section 13(10) is required to be reported.

Yes, the auditor is required to report on the maintenance of specified documents in accordance with rule 17AA, even if the books of account are being maintained. If, during the audit process, it is found that the specified documents, as required by rule 17AA, are not being main-tained despite the books of account being in order, the auditor should report such information in clause 14 of Form 10B. However, if the specified documents are substantially maintained that is most of the specified documents are available then the auditor may consider the requirement has been complied with and simultaneously give audit observation in the main report.

It is important to note that while clause 14 of Form 10B requires the list of both books of account and specified documents, clause 11 of Form 10BB seeks confirmation whether the books of account and other documents have been maintained in accordance with the form, manner, and place prescribed under rule 17AA by the auditee. Therefore, in cases where this specific issue arises, it can be disclosed as an appropriate observation or qualification in the main audit report in Form 10B/Form 10BB.

The auditor should see the categorisation of expenses under various limbs as per the past ITR 7 returns, and the same consistency should be followed unless there is an error in such reporting. Further, the auditor may also have a look at Forms 10A and 10AB filed at the time of registration where it is necessary to disclose the specific limb of charitable purposes. Generally, most of the expenses are reported under the dominant limb of activity. It may also be noted that sometimes expenses such as salary, travel etc., pertaining to the programme are treated as administrative expenses which also results in incorrect reporting.

An entity with a charitable object is eligible for exemption from tax under sections 11 and 12 of the Income-tax Act. The definition of a charitable purpose under the Income-tax Act is provided in section 2(15), which is inclusive rather than exhaustive. The definition outlines seven distinct categories of charitable purposes. As per the definition in section 2(15), the charitable purpose includes the following:

(a) Relief of Poor:

(b) Education.

(c) Yoga.

(d) Medical Relief.

(e) Preservation of environment (including watersheds, forests and wildlife).

Preservation of monuments or places or objects of artistic or historic interest.

g) Advancement of any other object of general public utility.

However, the Income-tax Act does not provide specific definitions for these purposes. For instance, it does not define what constitutes ‘relief of the poor’ or ‘education.’ In such cases, both the taxpayer and the auditor should refer to judicial precedence to define and interpret these terms.

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