Decoding Form 10B & 10BB for Charitable & Educational Institutions

Decoding Form 10B & 10BB for Charitable & Educational Institutions

Notification No.7/2023, issued by the Central Board of Direct Taxes (CBDT) on 21st February 2023, brings significant changes to the audit reporting requirements for charitable trusts, religious trusts, and other similar institutions. This notification introduces two distinct audit report forms, namely Form 10B and Form 10BB, which are to be used by these organizations to fulfill their reporting obligations. Understanding the applicability of these forms to your organization is crucial to ensure compliance with the latest tax regulations.

To determine which form, Form 10B or Form 10BB, is applicable to an organization, it is essential to carefully review institution’s activities and objectives. If an organization is primarily engaged in charitable activities aimed at social welfare, education, healthcare, or poverty alleviation, then Form 10B is likely the appropriate choice. Conversely, if your institution is involved in religious, cultural, or other non-charitable pursuits eligible for tax benefits, then Form 10BB should be used.

Amended IT Rule 16CC outlines the specific conditions under which organizations must use either Form No. 10B or Form No. 10BB for their audit reports under the provisions of the tenth proviso to clause (23C) of section 10 of the Income Tax Act. The choice of the form depends on factors such as the organization’s total income, receipt of foreign contributions, and application of income outside India during the previous year.

Form of Audit Report in Form No. 10B and Form No. 10BB:

The audit report of the accounts of the following types of organizations shall be in either Form No. 10B or Form No. 10BB:

(a) Form no. 10B:

Form 10B is one of the newly introduced audit report forms specified in Notification No.7/2023 dated 21st February, 2023. This form is primarily designed for charitable trusts and institutions that primarily engage in charitable activities and seek tax exemptions based on their philanthropic work. Organizations eligible for Form 10B typically include those involved in providing education, medical relief, poverty alleviation, or similar charitable activities. This form requires detailed information about the organization’s financial statements, activities, and compliance with the relevant provisions of the Income Tax Act, 1961.

This form should be used when any of the following conditions are met:

1. The total income of the fund, institution, trust, university, educational institution, hospital, or medical institution exceeds rupees five Crores during the previous year (excluding specific sub-clauses of clause 23C).

2. The organization has received any foreign contribution during the previous year. the expression “foreign contribution” should have the same meaning as assigned to it in clause (h) of sub-section (1) of section 2 of the Foreign Contribution (Regulation) Act, 2010 (42 of 2010). This means that organizations receiving foreign contributions must use Form No. 10B for their audit report.

3. The organization has applied any part of its income outside India during the previous year.

(b) Form no. 10BB:

Form 10BB is the second audit report form introduced in Notification No.7/2023 dated 21st February, 2023. This form is intended for institutions that may not necessarily be charitable trusts but are involved in religious or other activities that make them eligible for tax exemptions under specific sections of the Income Tax Act, 1961. Form 10BB focuses on gathering information related to the religious, cultural, or other non-charitable activities carried out by the institution. Organizations that primarily operate places of worship, cultural centers, or conduct religious ceremonies may find Form 10BB applicable. This form should be used in all other cases not covered by the conditions specified for Form No. 10B.

Differentiation in Form No. 10B and Form No. 10BB

Form 10B and Form 10BB are two distinct forms used for different purposes under the Income Tax Act 1961. Here are the key differences between Form 10B and Form 10BB:

Aspect	Form 10B	Form 10BB
Regulatory Basis	Form 10B is filed based on Rule 17B, which falls under Section 12AB of the Income Tax Act. Section 12AB deals with the registration of charitable institutions and religious trusts.	Form 10BB is filed based on Rule 16CC, which is associated with Section 10 of the Income Tax Act. Section 10 deals with income not included in the total income.
Applicability	Form 10B is primarily used by charitable institutions and religious trusts. These organizations are typically engaged in charitable activities and may include entities such as trusts running educational institutions, hospitals, and organizations involved in religious and social welfare activities.	Form 10BB is primarily used by educational institutions formed for educational purposes and hospitals or other medical institutions with non-profit-making objectives. This form is typically used by universities, colleges, schools, and medical institutions.
Audit Report	Form 10B serves as an audit report for charitable institutions and religious trusts, helping them maintain their tax-exempt status and comply with the conditions of Section 12AB.	Form 10BB serves as an audit report for educational institutions and medical institutions, ensuring that they meet the criteria set forth in Section 10(23C) of the Income Tax Act. This section provides exemptions for certain educational and medical institutions.

In summary, while Form 10B is associated with charitable institutions and religious trusts operating under Section 12AB, Form 10BB is associated with educational institutions and medical institutions operating under Section 10(23C).Here Audit report under section 10(23C) of the Income-tax Act, 1961, in the case of any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of section 10(23C) provide exemptions for income received by these entities, subject to approval by a prescribed authority.

 These forms serve as audit reports for their respective categories of organizations, helping them maintain tax exemptions and comply with the relevant provisions of the Income Tax Act. Understanding the distinction between these forms is crucial for organizations to ensure accurate compliance with tax regulations.

All about Form No. 10B

Form 10B is an important audit report under the Income Tax Act, specifically designed for charitable and religious trusts, institutions, and organizations and is a critical document for to maintain their tax-exempt status and demonstrate compliance with the Income Tax Act. Proper and timely filing, along with adherence to the prescribed guidelines, is essential to avoid adverse consequences and ensure the continuity of their charitable activities. It plays a crucial role in ensuring compliance with tax regulations and maintaining transparency in financial reporting.

Applicability of Form 10B:

Form 10B is applicable to the following entities:

1. Charitable trusts registered under Section 12AB of the Income Tax Act.

2.Religious trusts and institutions.

3. Other organizations, institutions, or funds that fall under the purview of Section 12A and are eligible for tax exemptions.

4. The report is to be given by a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949).Where any of the matters stated in this report is answered in the negative, or with a qualification, the report shall state the reasons for the same.

Statement of Particulars in Form 10B:

Form 10B requires detailed information about the financial operations and compliance of the organization. Some of the key contents include:

1. Basic Details; ( 1to 6 ) PAN. Name, A.Y, P.Y, Registered address & Other Addresses.

2. Legal : (7 &8 ) Type of the auditee Trust /Society/ Company/ Others . Whether the auditee is established under an instrument? Yor N

3. Registration (9) Details of registration/provisional registration or approval/ provisional approval or notification of the auditee under the Income-tax Act (details of all the registration/provisional registration/approval/provisional approval/notification which are valid during the previous year should be provided, however where the auditee has got the registration/approval after provisional registration/approval the details of provisional registration/approval need not be provided)

4. Management: (10) Details about the Author/ Society Members/Trustees / Shareholing exceeding 5%/Directors etc.

5. Objects: (11 & 12) Objects- 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?

6. Commencement of Activities: (13 ) 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? Y or N

7. Details of Place where books of account and other documents have been maintained (14) Whether the books of account and other documents have been kept and maintained in the form and manner and at such place as prescribed under rule 17AA by the auditee. Y or N

8. Advancement of General Public Utility; (15 & 16 ) Where, in any of the projects/institutions run by auditee, one of the charitable purposes is advancement of any other object of general public utility then-

9. Business Undertaking (17 ) Whether the auditee has any business undertaking as referred to in sub-section (4) of section 11 Y or N

10. Business Incidental to Objects ( 18) Whether the auditee has any income being profits and gains from any business as referred in seventh proviso to Clause (23C) of section 10 or sub-section (4A) of section 11, as the case may be

11. TDS on receipts (19) Details of the receipts of the auditee on which tax has been deducted at source referred to in section 194C or 194J or 194H or 194Q :

12. Whether the provisions of twenty second proviso to clause (23C) of section 10 or sub-section (10) of section 13 are applicable.(20)

13. Voluntary contributions: (21 to 27) Whether auditee has filed Form No. 10BD for the previous year/ Total Sum of donations reported in Form No. 10BD furnished by the auditee for the previous year/ Donations which could not be reported in Form No 10BD due to non-availability of identification of donor as required under Form No. 10BD/ Donations received in kind/ Anonymous Donations referred to in section 115BBC/ Any other voluntary contribution not part of Form No. 10BD/ Total donation not reported in Form No. 10BD/ Total voluntary contributions received by the auditee during the previous year [22+23(viii)]/ Total foreign contribution out of the total voluntary contributions stated in 24

14. Income to be applied: (28, 29 & 30 ) Income other than voluntary contributions derived from property held under trust referred to in section 11 or income of fund or institution or trust or any university or other educational institution or any hospital or other medical institution (other than the contribution reported in serial number 24).

15. Application of Income (31) Clauses I to XXI Application of Income (excluding application not eligible and reported under serial number 37)

16. Taxable Income (32)

17. Section 115BBI (33 & 34) Income taxable under section 115BBI

18. Other Income (35 )

19. Capital Assets ( 36) Details of capital asset transferred under sub-section (1A) of section 11

20. Application of income out of different sources(37) Application of income out of the following sources during the previous year

21. Details of application resulting in payment or credit in excess of Rs. 50 lakh during previous year to a single person out of 37( 38)

22. 13(10) and 22nd proviso to section 10(23C) (39) Whether provisions of twenty second proviso to clause (23C) of section 10 or sub-section (10) of section 13 are applicable?

23. Expenditure Incurred for Religious Purposes (40) In case auditee is approved under second proviso to sub-section (5) of section 80G, please provide the following details

24. Person referred to in 13(3) (41 & 42) Details of specified person as referred to in sub-section (3) of section 13.

25. Specified Violations (43& 44 ) Whether the auditee has incurred any specified violation as referred to in Explanation 2 to the fifteenth proviso to clause (23C) of section 10 or Explanation to sub-section (4) of section 12AB and the amount of such violation

26. In view of provisions of nineteenth proviso to clause (23C) of section 10 or sub-section (7) of section 11, 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?(45).

27. 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?(46) .

28. 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? (47)

29. 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?(48)

30. Whether the auditee is required to deduct or collect tax as per the provisions of Chapter XVII-B or Chapter XVII-BB?(49)

Consequences of Non-Compliance with Form 10B Provisions:

Failure to file Form 10B as required can lead to serious consequences, including:

1. Loss of Tax Exemption: The charitable or religious organization may lose its tax exemption status.

2. Tax Liability: The organization may become liable to pay income tax on its earnings.

3. Penalties: Penalties and interest may be levied for non-compliance.

Dealing with Delay in Filing of Form 10B:

In cases of delay in filing Form 10B, the following steps can be taken:

1. Condonation of Delay: The Chief Commissioner of Income Tax has the authority to condone a delay of up to 365 days if there are valid reasons for the delay.

2. Beyond 365 Days: In cases where the delay exceeds 365 days, the Chief Commissioner can condone the delay for a maximum of three years. However, strong reasons must be provided.

3. Valid Reasons: Valid reasons for delay may include unforeseen circumstances, genuine difficulties, or other justifiable causes.

Remedial Measures related to Form 10B:

To avoid the consequences of non-compliance and delayed filing, organizations can take the following remedial measures:

1. Timely Compliance: Ensure that Form 10B is prepared and filed well in advance of the due date.

2. Professional Guidance: Seek the assistance of qualified chartered accountants or professionals with expertise in tax matters.

3. Maintain Records: Maintain accurate financial records and documents to facilitate the audit process.

4. Stay Informed: Keep abreast of changes in tax laws and regulations to ensure compliance with the latest requirements.

All about FORM No. 10BB

While Section 10(23) covers various exemptions, Section 10(23C) is more pertinent to entities that typically use Form 10BB to report their financial information. Form 10BB is used by entities registered under Section 10(23C) to claim deductions under specific provisions of the Income Tax Act.

The time limit for submitting Form 10BB, which is used as an audit report for certain educational institutions and medical institutions under the Income Tax Act, is generally aligned with the deadline for filing the Income Tax Return (ITR) for the relevant assessment year. However, there are provisions for the condonation of delay in filing Form 10BB under specific circumstances.

Key points related to the time limit and condonation of delay in Filing of Form 10BB

Here are the key points related to the time limit and condonation of delay:

1. Legal Requirement: The Taxation Law Amendment Act (2006) stipulates that organizations seeking exemption under section 10(23C) are required to fill and submit Form 10BB.

2. Audit Requirement: To avail of the exemption under section 10(23C), organizations must get their accounts audited by a certified Chartered Accountant. The audit report, which includes the details obtained from Form 10BB, is a mandatory component of the compliance process.

3. Filing with ITR: Form 10BB should ideally be filed prior to submitting the Income Tax Return (ITR) for the relevant assessment year. The deadline for filing the ITR varies each year but Form 10 BB is usually to be filed by 30^th September following the end of the assessment year.

4. Compliance with Tax Regulations: Properly filling out and submitting Form 10BB is essential for organizations to demonstrate compliance with the relevant tax regulations and to maintain their eligibility for the tax exemption provided under section 10(23C).

5. Relaxation for Delay: The government provides relaxation or condonation for the delay in filing Form 10BB for up to 365 days from the original due date if there is a reasonable cause for such delay. In other words, if an organization misses the initial deadline but has a valid reason for the delay within 365 days, they can still file Form 10BB and seek condonation for the delay.

6. Chief Commissioner’s Authority: In cases where the delay in filing Form 10BB exceeds 365 days, the Chief Commissioner of Income Tax has the authority to condone the delay. The Chief Commissioner can condone the delay for a maximum period of up to 3 years from the original due date.

7. Valid Reason for Delay: To seek condonation of the delay in filing Form 10BB, the applicant must present a valid reason for the delay in their application to the respective tax authorities. The authorities will evaluate the merits of the case and decide whether to admit the condonation of delay based on the reason provided.

8. Failure to adhere to Comply: Failure to adhere to these requirements can result in the loss of tax benefits and exemption eligibility. Therefore, organizations seeking tax exemptions under section 10(23C) must ensure timely and accurate submission of Form 10BB along with the necessary audit report to meet their legal obligations and continue to enjoy tax benefits. It is of utmost importance for eligible trusts to file the required audit report accurately and within the stipulated time frame. Failure to do so can have severe repercussions, including the loss of tax-exempt status under the relevant sections of the Indian tax code. Losing tax-exempt status can subject the trust’s income to taxation, potentially leading to significant financial consequences.

Statement of Particulars in Form 10BB:

Form 10BB is a comprehensive document used as an audit report by educational institutions, medical institutions, and other organizations registered under Section 10(23C) of the Income Tax Act, 1961. It comprises three distinct parts, each serving a specific purpose in providing financial information and ensuring compliance with tax regulations. Form 10BB is divided into three distinct parts—Part A for general information, Part B for income application, and Part C for other financial information. These parts collectively provide a comprehensive overview of the organization’s financial activities and ensure compliance with tax regulations under Section 10(23C) of the Income Tax Act, 1961. Here’s an overview of the different parts of Form 10BB:

1. Basic Details; (1to 6 ) PAN. Name, A.Y, P.Y, Registered address & Other Addresses.

2. Legal : (7 &8 ) Type of the auditee Trust /Society/ Company/ Others . Whether the auditee is established under an instrument? Y or N

3. Management: (9) Details about the Author/ Society Members/Trustees / Shareholding exceeding 5%/Directors etc.

4. Registration (10) Details of registration/provisional registration or approval/ provisional approval or notification of the auditee under the Income-tax Act (details of all the registration/provisional registration/approval/provisional approval/notification which are valid during the previous year should be provided, however where the auditee has got the registration/approval after provisional registration/approval the details of provisional registration/approval need not be provided)

5. Details of Place where books of account and other documents have been maintained (11) Whether the books of account and other documents have been kept and maintained in the form and manner and at such place as prescribed under rule 17AA by the auditee. Y or N

6. Voluntary contributions: (12 to 22) Whether auditee has filed Form No. 10BD for the previous year/ Total Sum of donations reported in Form No. 10BD furnished by the auditee for the previous year/ Donations which could not be reported in Form No 10BD due to non-availability of identification of donor as required under Form No. 10BD/ Donations received in kind/ Anonymous Donations referred to in section 115BBC/ Any other voluntary contribution not part of Form No. 10BD/ Total donation not reported in Form No. 10BD/ Total voluntary contributions received by the auditee during the previous year [22+23(viii)]/ Total foreign contribution out of the total voluntary contributions stated in 24

7. Application of Income (23) Clauses I to XXI Application of Income (excluding application not eligible and reported under serial number 37)

8. Taxable Income (24)

9. Section 115BBI (25) Income taxable under section 115BBI

10. Other Income (26 )

11. Application of income out of different sources (27) Application of income out of the following sources during the previous year

12. Person referred to in 13(3) (28 to 31) Details of specified person as referred to in sub-section (3) of section 13.

13. Whether the auditee is required to deduct or collect tax as per the provisions of Chapter XVII-B or Chapter XVII-BB?(49)

14. Further Schedules to fill as may be applicable

Challenges in Compliance with Provisions of Form 10B & 10BB:

 The challenges and issues faced by charitable trusts in complying with the new audit requirements, specifically Forms 10B and 10BB, are indeed significant and deserve careful consideration. These challenges can have a substantial impact on the ability of charitable organizations to continue their important philanthropic work. Let’s further explore these problems and the proposed solution

1. Complexity of Forms: The complexity and extensive requirements of Forms 10B and 10BB pose a significant challenge for charitable trusts. Extracting and compiling the necessary financial data from past and present records can be a daunting task.

2. Limited Resources: Many charitable trusts operate with the help of volunteers and non-professionally qualified administrative staff. Meeting the detailed requirements of these forms may require expertise in tax law that these organizations lack.

3. Short Notice and Transition: The introduction of these new forms relatively late in the financial year, along with the availability of the utility to fill them shortly before the deadline, has added to the challenges. The transition from the old, simpler Form 10B to the new comprehensive forms within a short timeframe is demanding for trusts.

Applicability of Rule 17B

Amended IT Rule 17B outlines the specific conditions under which trusts or institutions must use either Form No. 10B or Form No. 10BB for their audit reports under the provisions of sub-clause (ii) of clause (b) of sub-section (1) of section 12A of the Income Tax Act. The choice of the form depends on factors such as the total income of the trust or institution, receipt of foreign contributions, and application of income outside India during the previous year.

Amended IT Rule 17B provides specific guidelines regarding the form of the audit report that must be furnished by trusts or institutions under sub-clause (ii) of clause (b) of sub-section (1) of section 12A of the Income Tax Act, 1961. This rule outlines the conditions under which either Form No. 10B or Form No. 10BB should be used for this purpose. Here is a breakdown of the key provisions of this rule: 

Applicability of Rule 17AA tightening accounting of Institutions

Notification No. 94/2022, dated 10-08-2022, introduced important changes regarding the maintenance of books of accounts and other documents by trusts, institutions, and various entities registered under Section 12A and Section 10(23C) of the Income Tax Act. These changes aim to enhance transparency and compliance in the financial reporting of such organizations. It also specifies the place of maintenance and the period for which these records should be preserved to ensure compliance with the Income Tax Act. Organizations falling under Section 12A should carefully adhere to these provisions to meet their statutory obligations. This rule was introduced by the Finance Act, 2022, and it became effective from the assessment year 2023-24. Rule 17AA comprises four subsections, each addressing different aspects related to maintaining books of accounts and related documents. Here is a breakdown of the key provisions of Rule 17AA:

i. Books of Accounts and Other Documents required to be Maintained (17AA (1) (a) (b) (c) & (d)):

• This subsection outlines the specific books of accounts and other documents that must be maintained by trusts and institutions registered under Section 12A. These include:
  • Books of accounts including a cash book, journal, ledger, and other necessary books.
  • Copies of bills and invoices.
  • Documents related to receipts and payments.
  • Records of assets and liabilities.
• The rule also requires the maintenance of documents and records in the form and manner specified.

ii. Form of Keeping Books of Accounts & Other Documents (17AA(2)): This subsection specifies the form and manner in which the books of accounts and other documents should be maintained. The specific format and procedures for record-keeping are detailed in this section.

iii. Place of Maintaining Books of Accounts and Other Documents (17AA(3)): Rule 17AA (3) addresses the location where the books of accounts and other documents should be maintained. It provides clarity on where these records should be physically kept for compliance purposes.

iv. Period for Which Books of Accounts & Other Documents should be Kept (17AA (4)): The final subsection, 17AA (4), specifies the duration for which books of accounts and other documents must be preserved. It outlines the retention period for these records to ensure compliance with tax regulations.

Conclusion: Understanding and adhering to the requirements of Form 10B and Form 10BB is essential for charitable and educational institutions to maintain their tax-exempt status and comply with the Income Tax Act. These forms serve as critical audit reports, helping these organizations demonstrate their compliance with tax regulations and the proper utilization of funds. While the complexity and challenges are undeniable, timely and accurate compliance is crucial to continue their vital work and fulfill their missions.

Are you gearing up for your IT certification exams? Elevate your preparation with Certbolt, your trusted companion for the latest exam questions and verified answers.