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Audit of Charitable Trust or NGO Under Section 12A (1) (b)


A certified chartered accountant should review the organisation’s books assuming the complete pay of a foundation trust or NGO surpasses the sum that excludes the tax, as indicated by Section 12A(1)(b) of the Income Tax Act 1961. The income tax department should get the audit report and the trust’s or the NGO’s income tax return.

The primary goal of an audit of a charitable trust is to persuade the assessing officer of the legitimacy of the privilege/exemption claim under Section 11. It ensures that the trust has met the standards of law or regulation. The accountant must ensure that the ‘balance sheet’ and ‘profit and loss’ show an accurate and fair picture. He shall assess all aspects of the institution’s compliance with the Act, including preserving books of accounts, data, and returns from members and other related documents.

Why is an Audit of Charitable Trust or NGO Required?

Audit of a Charitable Trust or NGO pertains to specific criteria outlined in the Income Tax Act. According to Section 12A (1)(b) of the Income Tax Act, these are the criteria given below:

  1. Audit Threshold: An audit is mandated if the total income of the charitable organisation for the relevant year exceeds the maximum amount not subject to income tax.
  1. Audit Exemption: If the organisation’s total income, before considering the provisions of the Act, does not surpass this maximum exempt amount, an audit is not required.
  1. Inclusion of Corpus Contributions: Contributions or grants directed towards the organisation’s corpus must be added to calculate the ceiling limit of the non-taxable amount under Section 12A (1) (b).
  1. Exclusion of Certain Income Exemptions: Income exemptions under Section 10, such as dividends, should not combine to exceed the non-taxable maximum amount.
  1. Unforeseen Situations: In some instances, even if the ‘total income’ crosses the maximum limit due to specific incidents like unforeseen misapplications of investments under Section 11(2) (b), the audited reports can be submitted with corrected returns.
  1. Deductions for Donations: Donations collected by organisations exempt under sections 11, 12, Clause (23), Clause (23AA), or Clause (23C) of Section 10 qualify for deduction under Section 80G. This deduction needs approval by the Commissioner of Income Tax or Director-General (exemptions) under Section 80G(5)(vi).
  1. Accountant’s Role in Audit of Charitable Trust or NGO: The primary duty of the accountant is to conduct the audit of a Charitable Trust as per Section 12A. However, no obligation exists for the accountant to validate compliance under other laws.
  1. Additional Requirements: Other essential requirements exist besides the conditions in Section 12A (1)(b). Section 12A (1)(a) deals with registration requirements, necessitating trust registration applications in Form No.10A, as per Rule 17A.

What do you mean by audit report under Forms 10B and 10BB?

While directing an audit of a charitable trust or NGO, the examiner should review and consider reports that address fundamental specifics framed in the predetermined annexure forms, such as Form 10B and 10BB. These reports give important information for evaluating a trust’s monetary activities and consistency with significant guidelines.

Form 10B Audit Report

Form 10B pertains to the audit report that is required to be submitted by charitable or religious trusts, ensuring that they meet the conditions and criteria for tax exemptions under Section 11 of the Income Tax Act. The auditor needs to consider the following information and documents for this report during the audit of a charitable trust or NGO:

  1. Income and Expenditure Statements: Review the income statements and all expenditure accounts to assess financial activities.
  2. Balance Sheet: Examine the trust’s balance sheet to understand its financial position.
  3. Payment and Receipt Reports: Analyse all reports related to payments and receipts to verify financial transactions.
  4. Minutes of Trust Governing Committee Meetings: Scrutinise the minutes of meetings held by the trust’s governing committee to understand the decisions and actions taken.
  5. Proof of Paid Income Tax: Verify documents indicating the payment of income tax.
  6. Income Tax Statements: Examine income tax calculations and statements for each year.
  7. Business Reports and Profits/Loss Proof: Review business reports and assess proofs of profits and losses.
  8. Trust Deed/Byelaws/Memorandum of Articles: Examine multiple copies of legal documents defining the trust’s structure.

Form 10BB Audit Report

Form 10BB is relevant to the approval of the trustee’s remuneration in the case of charitable or religious trusts. The auditor needs to consider these specifics for this form when doing the audit of a charitable trust or NGO:

  1. Particulars of Remuneration: Assess details of remuneration paid to the trustees.
  1. Charitable or Religious Purpose: Verify if the remuneration is consistent with the trust’s charitable or religious activities objectives.

What are the Verifications of the Audit of Charitable Trusts Or NGOS?

In auditing a charitable trust or NGO, verification is a critical status where evaluators affirm the presence, proprietorship, valuation, and subtleties of assets and liabilities in the budget reports. It guarantees the exactness and dependability of the monetary position introduced. Here are the key verifications conducted during the audit of a charitable trust:

  1. Verification of Income: Income under Sections 11 and 12: Verify the income earned by the trust and classify it into different categories:
  • Income with Specific Direction: Voluntary contributions intended to become part of the trust’s corpus with a specific direction.
  • Income without Specific Direction: Voluntary contributions not explicitly directed to become part of the corpus.
  • Profits from Incidental Business Activities: Gains and earnings from business activities conducted to fulfil the trust’s objectives.
  • Receipts and Capital Gains: Regular receipts and capital gains generated.
  1. Expenditure Verification: Confirm the amount utilised during the year by analysing figures from the income and expense accounts, balance sheets, receipts, and returns accounts.
  2. Donations to Other Trusts: Examine donations made to other trusts per the provisions of section 11(3)(d) of the Income Tax Act.
  3. Services Provided: Verify the services provided to the specified individuals or beneficiaries, as section 12(2) requires.
  4. Anonymous Donations: Examine anonymous donations under the prescribed particulars set by the Government. Ensure proper documentation and management representation.

What Recent Updates are Given Based on the Audits of Charitable Institutions?

Audit Report: The Audit Tax Report requires filing a Tax Audit under section 12A of a trust or institution.

Time Limit: The Tax Audit Report shall be filed within one month preceding the due date of filing of return under section 139(4A), read with section 139(1).

Organisations should get the accounts audited by the accountant as defined in the description below subsection (2) of section 288 before the due date referred to in section 44AB(i.e., one month before the due date for filing of return under subsection (1) of section139).

Furthermore, an amendment of section 92F will present a due date for filing a tax audit report, which is expected to be accomplished under section 92E.

Because of the effect of Corona, the due date for recording the return of income in tax audit cases is postponed to 31st October. Consequently, the Assessment Review Report will be given decidedly by 30th September.


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G.Durghasree B.A.B.L (Hons)

G Durghasree B.A.B.L (Hons) is a registered trademark attorney with extensive experience as an Advocate for a period of 8 years. She possesses expertise in trademark law, including trademark filing and trademark hearings. Additionally, she is skilled in contract drafting and reviewing, providing legal advice and opinions, particularly in the areas of Company Law, Insolvency and Bankruptcy Code (IBC), and Goods and Service Tax Law (GST). Her experience encompasses both litigation and non-litigation aspects of these laws.