Quote from GLOBAL CA on March 25, 2025, 6:55 am

FAQ : When is an audit required for charitable trusts?

Charitable trusts must specific conditions to qualify for exemptions under Sections 11 and 12, including the mandatory audit of accounts under Section 12A(1)(b). Similarly, institutions approved under Section 10(23C) must have their accounts audited as per its tenth proviso.

An audit is required if the total income of the trust or institution, before claiming exemptions under Section 11, 12, or 10(23C), exceeds the basic exemption limit of ₹2,50,000. However, if the total income remains at or below this threshold, an audit is not mandatory.

 

FAQ : Is an audit necessary if a trust’s total income is ₹1.50 lakh, but its total application is ₹5.00 lakh?

No, an audit is not required in this case. The audit requirement applies only when the total income, before claiming exemptions under Section 11, 12, or 10(23C), exceeds ₹2,50,000. The amount spent or applied during the year does not determine the necessity of an audit.

 

FAQ: Which institutions under Section 10(23C) must submit an audit report in Form 10B/10BB?

Institutions approved by the Principal CIT or CIT under Section 10(23C) are required to file an audit report in Form 10B/10BB if they fall into any of the following categories:

(a) Funds or institutions established for charitable purposes as per Section 10(23C)(iv).
(b) Trusts or institutions dedicated entirely to public religious or charitable purposes under Section 10(23C)(v).
(c) Universities or educational institutions operating solely for educational purposes and not for profit under Section 10(23C)(vi).
(d) Hospitals or similar institutions providing medical care, rehabilitation, or treatment for individuals suffering from illnesses or mental disabilities, operating exclusively for philanthropic purposes and not for profit under Section 10(23C)(via).

FAQ : Do non-approved institutions under Section 10(23C) need to file an audit report in Form 10B/10BB?

Institutions that fall under the non-approval category of Section 10(23C) are eligible for tax exemption on their entire income with minimal compliance requirements. These entities are not subject to the audit report filing requirement. Their only obligation under the Income Tax Act is to submit their income tax return using Form ITR-7.

 

FAQ : Do organizations registered under Section 12AB and those approved under Section 10(23C) now follow the same audit report format?

Previously, two distinct audit report formats were used: Form 10B for institutions registered under Section 12AB and Form 10BB for those approved under Section 10(23C).

However, the revised Forms 10B and 10BB now apply to both categories. The selection of the appropriate form depends on specific conditions, such as whether the institution's total income exceeds ₹5 crores, whether it has received foreign contributions, or if it has utilized funds outside India.

It is crucial to note that while both Section 12A-registered trusts and Section 10(23C)-approved institutions must use these updated forms, certain clauses in these forms do not apply to institutions under Section 10(23C). Therefore, auditors must carefully assess whether the entity is registered under Section 12AB or approved under Section 10(23C) before completing Form 10B/10BB. Despite recent amendments, some key differences remain between these two categories.

Key Provisions Exclusive to Section 12AB Registered Trusts (Not Applicable to Section 10(23C) Institutions):

1. Modification of Objects: Section 10(23C) institutions do not require re-registration upon modification of their objectives.
2. Application of Income Outside India: Unlike Section 11(1)(c), there are no restrictions on applying income outside India.
3. Public Benefit Requirement: Section 10(23C) institutions do not face exemption withdrawal or approval cancellation if income is not utilized for public benefit, unlike Section 13(1)(a).
4. Restrictions on Religious Community or Caste: Section 10(23C) institutions do not lose exemption if income benefits a specific religious community or caste, unlike Section 13(1)(b).
5. Deemed Application of Income: There is no provision for deemed application of income through Form 9A.
6. Capital Gains Exemption: Section 10(23C) institutions do not enjoy capital gains exemption under Section 11(1A).
7. Business Held Under Trust: Unlike Section 11(4), there is no provision for business income being held under trust.

These differences highlight that while the audit report formats have been aligned, variations in compliance requirements still exist between Section 12AB-registered trusts and Section 10(23C)-approved institutions.

FAQ : What is the definition of "Foreign Contribution" for determining the applicability of Form 10B/10BB submission?

The term "foreign contribution" holds the same meaning as defined under clause (h) of Section 2(1) of the Foreign Contribution (Regulation) Act, 2010 (FCRA, 2010). This includes not only direct foreign contributions but also any income derived from such contributions, such as interest income from investments made using foreign funds and income generated from assets acquired using foreign contributions.

 

FAQ : If a trust-operated educational institution collects ₹4 crores in total income before availing exemptions under Sections 11, 12, or 10(23C), but does not utilize any of it outside India, should fees collected from foreign students be considered a "foreign contribution" for determining the audit report format?

No, fees collected from foreign students or any payments received for services rendered do not qualify as foreign contributions.

As per Explanation 3 to Section 2(1)(h) of FCRA, 2010, any amount received from a foreign source as fees charged by an educational institution in India or as contributions from a foreign source’s agent specifically toward such fees is excluded from the definition of "foreign contribution."

Therefore, even if the trust collects fees from foreign students during the relevant financial year, this will not be classified as receiving a foreign contribution for audit reporting purposes.

FAQ : Does a trust receive "foreign contributions" when it obtains funds from foreign sources in exchange for goods or services provided as part of its regular business activities?

No, it does not.

As per Explanation 3 to Section 2(1)(h) of FCRA, 2010, any payment received from a foreign source in exchange for goods or services rendered as part of regular business, trade, or commercial activities—whether conducted within India or internationally—does not qualify as a foreign contribution. Additionally, any amount received from a foreign source’s agent to cover such fees or costs is also excluded from the definition of foreign contributions.

 

FAQ : Is the fee paid by foreign delegates or participants for attending conferences, seminars, etc., classified as a foreign contribution?

No, it is not.

As clarified in FAQ No. 12 of the FAQs on FCRA (available at https://fcraonline.nic.in), fees paid by foreign delegates or participants to attend conferences or seminars are not considered foreign contributions. These amounts are specifically intended to cover the event's expenses and are therefore excluded from the scope of foreign contributions under FCRA, 2010.

FAQ : If a trust registered under FCRA has not received any foreign contributions during the current financial year but has earned income from the sale of assets acquired using foreign contributions, does this income qualify as a foreign contribution? Which audit report form should be used?

Yes, income generated from the sale of assets originally acquired using foreign contributions is considered a foreign contribution.

As per Item 2 of Form FC-4 under FCRA, 2010, foreign contributions for the year include not only direct receipts but also interest earned on foreign contributions and any income derived from assets created using foreign funds—such as proceeds from their sale.

In such cases, the trust must submit an audit report in Form 10B to comply with the reporting requirements.

FAQ : If an NGO’s FCRA registration has been revoked or its renewal denied, but it continues to earn interest on foreign assets, which form should be used for the audit report?

Even after an NGO's FCRA registration has been cancelled, any interest earned on its foreign assets remains classified as a foreign contribution under FCRA, 2010.

Thus, the NGO must file an audit report using Form 10B.

FAQ : If an NGO sends its staff abroad for training, should it file Form 10B or Form 10BB?

Sending NGO employees abroad for training purposes does not automatically classify as an application of income outside India under Section 11(1)(c).

If all other conditions for Form 10BB are met, the NGO should file Form 10BB instead of Form 10B.

FAQ : What qualifies as "application of income outside India" for filing an audit report in Form 10B?

According to Section 11(1)(c) of the Income Tax Act, income spent on activities outside India does not qualify for exemption unless the following conditions are met:

(a) The charitable organization was established before April 1, 1952, or is engaged in the promotion of international welfare in which India has an interest.

(b) The CBDT (Central Board of Direct Taxes) has granted approval through a general or special order for such activities.

Organizations seeking approval for carrying out charitable activities abroad must submit their applications to Member (IT), CBDT, Department of Revenue, Ministry of Finance, North Block, New Delhi.

If the above conditions are not fulfilled, income spent on activities outside India will be taxable under Section 115BBI.

FAQ : If an NGO sends its staff abroad for training, should it file Form 10B or Form 10BB?

Sending NGO employees abroad for training purposes does not automatically classify as an application of income outside India under Section 11(1)(c).

If all other conditions for Form 10BB are met, the NGO should file Form 10BB instead of Form 10B.

FAQ : Are corpus donations and capital gains included in calculating the ₹5 crore threshold for filing Form 10B?

Yes.

The obligation to file Form 10B arises when the total income of a charitable institution—calculated without considering exemptions under Sections 11 and 12—exceeds ₹5 crore.

Since corpus donations and capital gains receive exemptions under Section 11, these amounts must be included when determining whether the ₹5 crore threshold has been exceeded.

 

FAQ: Should agricultural income, exempt under Section 10(1), be included when calculating the ₹5 crore threshold for filing Form 10B?

No.

As per Section 11(7) of the Income Tax Act, agricultural income is not subject to the conditions of exemption under Sections 11 and 12.

Therefore, agricultural income does not need to be added when calculating the ₹5 crore limit for determining the applicability of Form 10B.

FAQ : Who is eligible to audit the accounts of a trust or institution?

The audit must be conducted by an accountant as defined under the Explanation to Section 288(2) of the Income Tax Act.

According to this provision, a Chartered Accountant (CA) holding a valid Certificate of Practice is eligible to undertake the audit. However, the CA must not be disqualified under clauses (a) and (b) of the Explanation to Section 288(2).

FAQ : Is there a limit on the number of audit assignments a Chartered Accountant can undertake for trusts and institutions under Section 12A or Section 10(23C)?

No, there is no such limit.

The Council Guidelines of 2008 under Chapter IX specify a limit of 60 tax audits under Section 44AB of the Income Tax Act. However, this limit applies only to tax audits under Section 44AB and does not apply to audits of trusts and institutions under Section 12A or Section 10(23C).

Therefore, a Chartered Accountant can undertake multiple audits of trusts and institutions without any upper limit.

FAQ : Can an auditor comment on the application of funds solely based on the Income and Expenditure Account in Form 10B and Form 10BB?

The audit reports in Form 10B and Form 10BB require the auditor to express an opinion on 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, considering any observations or qualifications.

Understanding the Concept of "Application" of Income:

• The term “Application” in this context is not the same as "Expenditure."
• Section 11(1) of the Income Tax Act states that income derived from property held under trust for charitable and religious purposes or receipts from voluntary contributions is exempt if applied for charitable purposes in India.
• The Finance Act, 2022 introduced an Explanation to Section 11(7), which states that application of income is recognized only on a payment basis, meaning expenses are considered "applied" only in the year they are actually paid, not when they are incurred.
• Both revenue and capital expenditures for charitable purposes are considered as an application of income.

Challenges in Determining Application Solely from the Income & Expenditure Account:

• The Income and Expenditure Account is traditionally prepared using accrual accounting, whereas the Income Tax Act requires application to be determined on a payment basis.
• Application from corpus, loans, and borrowings is now restricted.
• Past deficits cannot be set off against the current year's income when computing the 85% application requirement.
• Payments without TDS compliance are reduced by 30%, and payments exceeding ₹10,000 in cash are disallowed from the eligible application calculation.

Auditor’s Role and Recommended Approach:

To provide an opinion in Form 10B/10BB, a charitable trust must prepare its:

1. Balance Sheet
2. Income and Expenditure Account
3. Statement of Application of Income (computed as per Section 11 or 10(23C)).

If the Income and Expenditure Account is not strictly prepared as per Section 11, the auditor should prepare an additional statement reconciling the computation of income and application as per the Income Tax Act. This additional statement should be annexed to the financial statements to ensure compliance.

This approach ensures that the auditor’s opinion on application is based on actual compliance with the Income Tax provisions rather than conventional accounting methods.

FAQ : Key Differences in the Amended Audit Report Format Compared to the Pre-Amended Version ?

In the pre-amended format, the auditor's examination was primarily focused on the Balance Sheet and Profit & Loss Account. However, under the amended format, auditors are now required to certify the Balance Sheet, Income & Expenditure Account, or Profit & Loss Account.

Notable Changes:

1. Inclusion of "Income & Expenditure Account"
   • This is significant in the context of charitable institutions, ensuring income and application are reported in accordance with Section 11.
   • The Income & Expenditure Account must be prepared strictly as per the provisions of Section 11, meaning:
     • Income should be recognized as per Section 11.
     • All permissible applications, including capital expenditure and inter-charity grants, should be shown on the expenditure side.

2. Receipt & Payment Account Not Explicitly Included
   • Although a major portion of income and expenditure is on a cash basis, the Receipt & Payment Account is not explicitly labeled as one of the financial statements in the audit report.
3. New Requirement to Report the Place of Bookkeeping
   • The auditor is now required to provide details about where the books of accounts are maintained.

FAQ : Key Changes in Auditor's Responsibility for Annexure in Form 10B/10BB ?

• Previously, in the pre-amended format, there was no separate requirement for certification of the Annexure to Form 10B/10BB.
• The audit report only mentioned that “the prescribed particulars are annexed hereto.”

Changes in the Amended Format:

• The auditor must now audit the annexure separately and certify that the information provided is true and correct.
• This increases accountability and ensures that financial and compliance details in the annexure are verified.

FAQ : Key Differences Between Form 10B and Form 10BB ?

• Form 10B requires more detailed reporting compared to Form 10BB.

Form 10B (Not in Form 10BB FAQ):

1. Registration Details (Clause 9)
2. Objectives of the Trust (Clauses 11-12)
3. Advancement of General Public Utility (Clauses 15-16)
4. Business Undertaking (Clause 17)
5. Business Incidental to Objectives (Clause 18)
6. TDS on Receipts (Clause 19)
7. Applicability of Section 10(23C) and Section 13(10) (Clause 20)
8. Other Income (Clause 35)
9. Capital Asset Transactions (Clause 36)
10. High-Value Payments (>₹50 Lakhs to a Single Person) (Clause 38)
11. Religious Expenditure (Clause 40)
12. Claiming Exemptions Under Other Sections of 10 (Clause 45)
13. Loans & Deposits Above Limits of Section 269SS (Clause 46)
14. Receipts Above Limits of Section 269ST (Clause 47)
15. Repayment of Loans & Deposits Above Limits of Section 269T (Clause 48)

Summary of Key Differences Between Form 10B & 10BB

Aspect	Form 10B	Form 10BB
Applicability	Charitable institutions above ₹5 crore income	Charitable institutions below ₹5 crore income
Annexure Clauses	49 clauses	32 clauses
Level of Detail	More extensive, includes business undertakings, high-value transactions, and loan compliance	Less detailed
TDS Reporting	Mandatory	Not required
High-Value Transactions (>₹50L) Reporting	Mandatory	Not required
Business Undertakings & Incidental Business	Included	Not included
Religious Expenditure Reporting	Included	Not included

These changes emphasize greater compliance, financial transparency, and stricter audit accountability under the new format.

 

 

 

FAQ : Are GPU Category Trusts Engaged in Business Activities Required to Undergo a Tax Audit in Form 3CA/3CB-3CD for Their Business Income?

Understanding the Applicability of Section 11(4A):

• Trusts categorized under the General Public Utility (GPU) category conducting business-like activities fall under Section 11(4A) of the Income Tax Act.
• Point 9 of the Notes to Form 10B states that if a trust has business income, it must upload the Balance Sheet, Profit & Loss Account, and Audit Report in Form 3CA or 3CB.

Lack of Legal Mandate for Tax Audit in Form 3CA/3CB-3CD:

• There is no explicit statutory provision under the Income Tax Act requiring a tax audit under Form 3CA/3CB-3CD for trusts falling under Section 11(4A).
• Point 9 of Form 10B does not hold the same authority as the law itself, meaning it cannot override the provisions of the Income Tax Act.

Conclusion:

• GPU category trusts with business activities fall under Section 11(4A) and are subject to reporting requirements in Form 10B.
• However, there is no legal compulsion to undergo a tax audit in Form 3CA/3CB-3CD, despite what is mentioned in Form 10B's notes.
• Professional judgment should be exercised before deciding on the audit requirement.

 

FAQ : What is the Deadline for Submitting the Audit Report in Form 3CA/3CB-3CD for Business Income Under Section 11(4) or Section 11(4A) for FY 2022-23?

If an NGO opts to file a Tax Audit Report using Form 3CA/3CB-3CD for its business activities under Section 11(4) or Section 11(4A), it must comply with the due dates prescribed under Section 44AB of the Income Tax Act.

• As per Section 44AB, the tax audit report must be submitted one month before the deadline for filing the income tax return under Section 139(1).
• For FY 2022-23, the original deadline for the tax audit report was 30th September 2023.
• However, since the ITR filing deadline for audited NGOs was extended to 30th November 2023, the corresponding tax audit report deadline was extended to 31st October 2023.

FAQ : What are the Deadlines for Filing Form 9A and Form 10? Is It Mandatory to Submit These Forms Before Filing Form 10B/10BB?

• The due date for Form 9A and Form 10 for AY 2023-24 was originally 31st August 2023.
• Vide Circular No. 16/2023 (dated 18-09-2023), the deadline was extended by one month, allowing submission until 30th September 2023.
• However, the CBDT 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 ITR deadline under Section 139(1).
• Nevertheless, Form 9A and Form 10 must be submitted before the final ITR due date (30th November 2023) to claim this benefit.

Should Form 9A and Form 10 Be Filed Before the Audit in Form 10B/10BB?

• While there is no mandatory requirement to submit Form 9A and Form 10 before filing the audit report, auditors must consider the deemed application and accumulation amounts while finalizing the audit.
• Practical Recommendation: To avoid discrepancies, it is advisable to submit Form 9A and Form 10 before the audit report in Form 10B/10BB is finalized.

FAQ : Where to Upload the Balance Sheet, Income & Expenditure or Profit & Loss Statement, and Tax Audit Report in the New Form 10B/10BB?

In the new Form 10B/10BB, certain attachments are mandatory under the "Attachments" panel, while others are optional:

Mandatory Attachments:

1. Income & Expenditure Account / Profit & Loss Account
2. Balance Sheet

Optional Attachment:

• A "Miscellaneous Attachments" option is available for attaching any other relevant documents.

File Format and Size Restrictions:

• Each attachment must be in PDF or ZIP format.
• If a ZIP file is used, it should only contain PDFs inside.
• Maximum file size per attachment: 5MB.