Decoding the audit of Charitable trusts or institutions

“Budget 2023 introduces changes to audit rules for charitable trusts and institutions under Income Tax Act, with new forms 10B and 10BB effective from April 1, 2023. Audit requirements now hinge on gross receipts, foreign contributions, and overseas income applications.”

Every charitable trust or institution registered under section 12 or any fund or institution or trust or any university or other educational institution or any hospital or other medical institution registered under clause (23C) of section 10 needs to get its books of accounts audited mandatorily under the Income Tax Act,1961. Rule 16CC and Rule 17B of the Income Tax Rules 1962 as amended by the Income Tax Amendment (3rd Amendment) Rules, 2023 govern the provisions related to the audit of trusts mentioned above.

As per the Notification dated 21.02.2023, CBDT has issued new forms of Audit Report Form 10B and Form 10BB by the Income Tax Amendment (3rd Amendment) Rules,2023 which will come into effect from 01.04.2023.

Let’s briefly discuss the changes in the Rules 16CC and Rule 17B

Rule 16CC prior to the amendment by the Income Tax Amendment (3rd Amendment) Rules, 2023 states that

“Rule 16CC- The report of audit of the accounts of a fund or trust or institution or any university or other educational institution or any hospital or other medical institution which is required to be furnished under the tenth proviso to clause (23C) of section 10 shall be in Form No. 10BB.”

This means that any trust or institution registered under section 10(23C) shall file audit report in the Form 10BB irrespective of gross receipts of such trust or institution.

However, after the amendment by the Income Tax Amendment (3rd Amendment) Rules,2023, Rule 16CC states as under:

“Rule 16CC. The report of audit of the accounts of a fund or institution or trust or any university or other educational institution or any hospital or other medical institution which is required to be furnished under clause (b) of the tenth proviso to clause (23C) of section 10 shall be in—

(a) Form No. 10B where—

(I) the total income of such fund or institution or trust or university or other educational institution or hospital or other medical institution, without giving effect to the provisions of the sub-clauses (iv), (v), (vi) and (via) of the said clause, exceeds rupees five crores during the previous year: or

(II) such fund or institution or trust or university or other educational institution or hospital or other medical institution has received any foreign contribution during the previous year; or

(III) such fund or institution or trust or university or other educational institution or hospital or other medical institution has applied any part of its income outside India during the previous year;

(b) Form No. 10BB in other cases.

Explanation.— For the purposes of sub-clause (II) of clause (a), the expression “foreign contribution” shall have the same meaning assigned to it in clause (h) of sub-section (1) of section 2 of the Foreign Contribution (Regulation) Act, 2010 (42 of 2010).]”

Now, as per the amended Rule 16CC, any trust or institution registered us 10(23C) if its gross receipt exceeds Rs.5 crores or they have received any foreign contribution during the previous year or have applied any part of its income outside India during the previous year shall file its audit report in Form 10B.

And any trust or institution registered us 10(23C) which does not fall into the above stated criteria shall file its audit report in Form 10BB.

So, it is clear that before amendment any trust or institution registered us 10(23C) needs to file its audit report in Form 10BB but now with effect from 01.04.2023, if any of the three conditions mentioned in the sub rule (a) of Rule 16CC are satisfied , then form 10B needs to be filed. Else in other conditions, Form 10BB needs to be filed.

Rule 17B prior to the amendment by the Income Tax Amendment (3rd Amendment) Rules,2023 states that

“Rule 17B. Audit report in the case of charitable or religious trusts, etc.—The report of audit of the accounts of a trust or institution which is required to be furnished under clause (b) of section 12A, shall be in Form No. 10B.

While filing Form No. 10B, an auditor can accept as correct the list of persons covered by section 13(3) by the managing trustees and base his report on the strength of the certificate—Circular No. 143, dated 20-8-1974. See also Circular No. 10/2019, dated 22-5-2019; Circular No. 28/2019, dated 27-9-2019; Circular No. 30/2019, dated 17-12-2019; Circular No. 2/2020, dated 3-1-2020 and Circular No. 3/2020, dated 3-1-2020 [Condonation of delay in filing. Form Nos. 9A & 10].”

However, after the amendment by the Income Tax Amendment (3rd Amendment) Rules,2023, Rule 17B states as under:

“17B. The report of audit of the accounts of a trust or institution which is required to be furnished under sub-clause (ii) of clause (b) of sub-section (1) of section 12A, shall be in—

(a) Form No. 10B where—

(I) the total income of such trust or institution, without giving effect to the provisions of sections 11 and 12 of the Act, exceeds rupees five crores during the previous year; or

(II) such trust or institution has received any foreign contribution during the previous year; or

(III) such trust or institution has applied any part of its income outside India during the previous year;

(b) Form No. 10BB in other cases.

Explanation. — For the purposes of sub-clause (II) of clause (a), the expression foreign contribution shall have the same meaning assigned to it in clause (h) of sub-section (1) of section 2 of the Foreign Contribution (Regulation) Act, 2010 (42 of 2010).]”

Now, as per the amended Rule 17B, any trust or institution registered us 12A if its gross receipt exceeds Rs.5 crores or they have received any foreign contribution during the previous year or have applied any part of its income outside India during the previous year shall file its audit report in Form 10B.

And any trust or institution registered us 12A which does not fall into the above stated criteria shall file its audit report in Form 10BB.

By reading the above analysis, we can state that government has added certain criteria with effect from 01.04.2023 for audit report in Form 10B irrespective of whether the institution is registered us 10(23C) or us 12A of the Income Tax Act, 1961.

Disclaimer: The contents of this topic are solely for the purpose of knowledge and cannot be tantamount to any kind of professional advice.