Audit under Income Tax for Charitable Institutions: What Good Looks Like

Audit under Income Tax for Charitable Institutions: What It Actually Involves

If your charitable trust, society or section 8 company is registered as a non-profit and its total income before exemption is above the basic exemption limit, a chartered accountant must audit its accounts every year and the audit report has to be filed electronically at least one month before the due date of your income tax return. For income up to 31 March 2026 that report is Form 10B or Form 10BB under the Income-tax Act 1961. From tax year 2026-27 the Income-tax Act 2025 applies and there is one common report, Form 112, for every registered non-profit organisation. The Income Tax Department's own guidance says exemptions can be claimed only after this report is furnished within the due date.

A charitable trust or NGO does not lose its tax-exempt status because its mission was flawed. It loses that status because a compliance step was missed: an audit report filed a day late, the wrong form used, income accumulated for a purpose and then not applied in time, or payments to trustees and their relatives that nobody tested against fair value. At PNPC Global, we have audited charitable trusts, religious institutions and section 8 companies across India since 1986. We treat the audit as what it is, the annual test of whether the exemption survives, and not a formality to be rushed before a deadline.

What This Actually Covers

A charitable or religious trust, society or section 8 company registered under section 12A, 12AA or 12AB of the Income-tax Act 1961 (or approved under section 10(23C)) claims exemption on income applied for its objects. The Income-tax Act 2025 calls such a body a registered non-profit organisation, and it applies to income from 1 April 2026 (tax year 2026-27). Income earned in FY 2025-26 is still governed by the 1961 Act and assessed for assessment year 2026-27.

The audit obligation follows the same logic under both Acts. Where the total income, without giving effect to the exemption provisions, exceeds the maximum amount not chargeable to tax, the accounts for that year must be audited by an accountant and a report filed in the prescribed form. Under the 1961 Act this sits in section 12A(1)(b) read with Rule 17B (and the equivalent 10(23C) provisions). Under the 2025 Act it is section 348 and Form 112.

For the full scope, current process and what PNPC includes, see the dedicated Audit under Income Tax for Charitable Institutions service page.

Which Report, and When Is It Due?

For FY 2025-26 (assessment year 2026-27), under the 1961 Act. Form 10B is the detailed report and Form 10BB the shorter one. Under the earlier Rule 17B, Form 10B applied where the trust's total income was above a prescribed ceiling, where it received any foreign contribution, or where it applied any part of its income outside India. Everyone else filed Form 10BB. The choice is made afresh every year, so last year's form is not a safe default.

From tax year 2026-27, under the 2025 Act. One Form 112 replaces Form 10B and Form 10BB. The department's note says the form is compact, and that a "small" registered non-profit fills fewer schedules than a "large" one. Whether you are small depends on three tests: regular income, foreign contribution received, and income applied outside India, each measured against a prescribed ceiling. Small amounts of foreign contribution or of application outside India no longer push a trust into the larger report automatically, as they did under the old rule. Read the current thresholds in the Income-tax Rules 2026 or ask PNPC.

Due date. Both regimes require the audit report one month before the return due date. For the usual audited trust that means 30 September when the ITR is due on 31 October. This is a separate, earlier deadline than the ITR. For assessment year 2026-27, CBDT announced by press release on 28 September 2026 that the ITR due date for persons at serial number 2 of the table below Explanation 2 to section 139(1) moves from 31 October to 21 November 2026, and that the audit report date moves from 30 September to 21 October 2026. (CBDT Circular No. 07/2026 dated 28 September 2026). Check that your trust falls in that serial-number-2 class before you rely on the extension.

What Changes Under the Income-tax Act 2025

The Income Tax Department's Rules 2026 form list gives these replacements for the forms trusts use most:

• Form 10A (provisional registration or approval): now Form 104.
• Form 10AB (application for registration or approval): now Form 105.
• Form 9A (option to treat income as applied): now Form 108, under section 341(7).
• Form 10 (accumulation statement): now Form 109, under section 342(1).
• Form 10B and 10BB (audit report): now Form 112, under section 348.
• Form 10BD (donee statement) and Form 10BE (donation certificate): now Forms 113 and 114.

Taxable regular income is nil where 85% or more of the regular income is applied, or accumulated for charitable or religious purposes, in the tax year. Accumulation is allowed for a stated purpose for a period not exceeding five years, by furnishing a statement on or before the due date for the return. Your audit review should check that a stated accumulation is actually applied within the period, because unapplied accumulated income becomes specified income.

How the Annual Audit Works, Step by Step

• Confirm registration and the regime. Check the validity of the registration or approval and which Act governs the year being audited.
• Decide which report. Test the year's income, foreign contribution and any application outside India before choosing Form 10B or 10BB (or before completing the small or large schedules of Form 112).
• Review the books. Look at receipts and payments, the fixed assets register, the investment register and the donation register, keeping corpus donations, restricted grants and general income separate as they arrive.
• Run the application test. Compute whether at least 85% of regular income was applied or validly accumulated, and check whether a shortfall was handled through the deemed-application option or the accumulation statement.
• Test related-person transactions. List every trustee, founder, relative and connected concern, then test each loan, salary, rent and fee for fair value.
• Classify the donations. Separate corpus donations from ordinary donations and identify any anonymous ones. See our guide on anonymous donations for how that tax works.
• File the report on time, then the return. The CA files the audit report and the trust then files ITR-7, and the two must reconcile.
• Place it before the trustees. Governance and funder requirements are best met when the accounts and the report are approved before the return goes in.

What to Have Ready

The department's own note on the report lists the documents it expects:

• The trust deed, memorandum or bye-laws, with any modification deeds.
• The registration and approval documents.
• The audited financial statements for the year.
• The donee statement, deemed-application and accumulation forms already filed (Forms 113, 108 and 109 under the new numbering).
• The FCRA return or statement, if foreign contribution was received.
• Annual Information Statement and TDS returns.

Common Mistakes and How to Avoid Them

Treating the ITR date as the deadline. The report is due a month earlier. When dates are extended, as they were for assessment year 2026-27, check separately what happened to the audit report date, because that is the one that trips trusts up.

Carrying last year's form forward. Under the 1961 Act, one foreign remittance or one payment outside India could change the form. Under the 2025 Act the small-versus-large test decides the schedules. Re-test it every year.

Losing track of an accumulation. Income set aside for a purpose has to be applied for that purpose within the period. Keep a register of every accumulation with its expiry year.

Filing the accumulation or deemed-application election late. These forms are filed separately from the audit report and have their own timelines. Check them each year and do not assume they share the audit report deadline.

Ignoring related-person payments. An interest-free loan to a trustee, or rent paid to a trustee's building, can attract tax and penalty. Test every such transaction at fair value before year-end.

Commingling funds. Corpus, restricted grants and general income should be separate from day one. Reconstructing them at audit time weakens the application test.

Is This Relevant to Your Business?

• Your trust, society or section 8 company is registered as a non-profit and wants to claim exemption for the year.
• Your institution is approved under section 10(23C), which carries a parallel audit obligation (Form 10B/10BB under Rule 16CC for FY 2025-26).
• Your total income before exemption exceeds the basic exemption limit, even if your final taxable income after exemption is nil.
• You received foreign contribution or applied income outside India during the year. That affects the form or schedules, and FCRA has its own accounts and return requirements that the Ministry of Home Affairs administers. Our FCRA guide covers that side.

When It Isn't the Right Fit

• Your organisation has no registration as a non-profit. You cannot claim the exemption, so this audit route is not yet relevant; see our guide on 12A and 80G registration.
• Your total income before exemption is below the basic exemption limit. The audit is not triggered, though funder requirements often justify a voluntary audit.
• You are a private or family trust for named beneficiaries. It is taxed under different provisions of the Act and not through this framework.
• Your concern is a business tax audit of a trading activity. That is a separate report from a different family of forms, and it can apply alongside this one.

Quick Answers

Who is required to get a charitable trust audited under the Income Tax Act?

Any registered non-profit organisation whose total income before claiming exemption exceeds the maximum amount not chargeable to tax, in any year, must get its accounts audited by an accountant and file the report. It is triggered by income before exemption, not by the tax finally payable, and institutions with the section 10(23C) approval have a parallel obligation under the 1961 Act.

What is the difference between Form 10B and Form 10BB, and how do I know which one applies to us?

Both are audit reports for FY 2025-26 and earlier years under the 1961 Act. Form 10B is the detailed report for trusts above the prescribed income ceiling, or which received any foreign contribution or applied income outside India in the year, and Form 10BB is the report for every other trust. From tax year 2026-27 Form 112 replaces both, with a small and a large set of schedules.

What is the deadline for filing the trust audit report, and is it different from the ITR deadline?

Yes. The report is due at least one month before the ITR due date. For most audited trusts that means 30 September, and for assessment year 2026-27 CBDT announced an extension of that date to 21 October 2026 for the affected class of filers (CBDT Circular No. 07/2026 dated 28 September 2026). Filing the ITR on time does not cure a late audit report.

Where PNPC Fits In

Speak directly with a PNPC Chartered Accountant who understands what a charitable trust audit is actually protecting. We have conducted these audits since 1986, and we would rather find a preventable gap before the deadline than after it.

PNPC Global has advised Chennai, Bangalore and Hyderabad businesses since 1986. Explore the full Income Tax practice for related services, or go straight to the Audit under Income Tax for Charitable Institutions page for specifics. Our overview of trust tax advisory covers the wider planning around it.

Rates, thresholds and filing dates are set by the relevant authority and revised periodically. Treat anything numeric here as "ask PNPC for the current figure," not as a quoted fact.