Free Invoice Generator – Luzenta

The Indian regulatory framework for charitable and religious organizations offers tax exemptions under various provisions of the Income-tax Act, 1961, to ensure that such entities can fulfill their public welfare missions without undue financial burden. However, this exemption is contingent upon strict compliance with procedural norms. Among these, the audit of accounts and timely submission of audit reports in prescribed formats, namely, Form 10B and Form 10BB, are of paramount importance.

Recently, the Central Board of Direct Taxes (CBDT) has extended the due date for filing audit reports for Assessment Year (AY) 2023–24 to November 10, 2024. This development has brought significant relief to eligible institutions, especially given the recent procedural transitions affecting the selection of audit forms. This article delves into the legal background, framework, regulatory evolution, and practical implications of this extension.

Tax Exemptions for Charitable and Religious Institutions

Charitable and religious trusts in India benefit from income-tax exemptions under sections 10(23C), 12AA, and 12AB of the Income-tax Act. These sections were crafted to promote the role of such organizations in delivering social, educational, and religious services, especially in underserved regions.

To qualify for exemption, a trust must not only be registered under the relevant provision but also demonstrate that its income has been applied exclusively for charitable or religious purposes. These applications must be supported by proper records, internal controls, and an audit conducted by an independent chartered accountant.

Mandatory Audit and Form Requirements

One of the conditions for maintaining the exemption status is the completion of a statutory audit and the submission of an audit report in a prescribed format. This requirement ensures that the trust’s financial transactions are transparent, its income is applied appropriately, and no private benefit is derived by trustees or related parties.

The prescribed audit forms for charitable institutions are Form 10B and Form 10BB. Historically, Form 10B was meant for trusts claiming exemption under sections 11 and 12, while Form 10BB was designated for institutions governed by section 10(23C).

These forms capture critical financial and operational data, including total income, application of funds, capital expenditure, investments, donor-wise contribution details, and disclosures regarding activities outside India. This detailed reporting enables the Income-tax Department to assess the institution’s eligibility for exemption on an annual basis.

Shift in Applicability Criteria from AY 2023–24

Starting from AY 2023–24, and effective from April 1, 2024, the applicability of Form 10B and Form 10BB has undergone a structural change. The choice of audit form is no longer linked solely to the section under which the trust is registered. Instead, it now depends on operational thresholds such as gross receipts, foreign contributions, and application of income beyond the domestic territory.

The revised rules represent a shift towards a more nuanced compliance structure. For instance, a trust registered under section 12AB may now be required to file Form 10BB instead of Form 10B if its financial operations cross certain limits or if foreign funds are involved. Similarly, the audit form may vary if funds are utilized outside India.

This new regime aims to improve audit effectiveness by ensuring that more comprehensive reporting formats are used for institutions handling larger volumes of transactions or international funding. It also attempts to streamline audit practices by focusing on actual financial and operational complexity instead of merely legal registration status.

Challenges Faced by Institutions

The introduction of the new applicability criteria created substantial confusion among charitable institutions and their financial advisors. Many continued to use the older logic for selecting audit forms, resulting in a mismatch between actual operations and the prescribed form submitted.

Several institutions inadvertently submitted Form 10B when they were required to submit Form 10BB, or vice versa. This error is not a minor procedural lapse, as submitting the wrong form can lead to the denial of exemption and classification of the entire income as taxable. This risk has created serious concerns among small and medium-sized institutions, which may not have access to advanced financial expertise or automated accounting systems.

The challenge was particularly acute in rural areas or for trusts operating in vernacular regions where regulatory guidance and audit literacy are still evolving. Delays in completing audits, unawareness about the new norms, and dependency on part-time or overburdened auditors further exacerbated the problem.

CBDT’s Initial Relaxation Through Circular No. 02/2024

In response to the growing number of erroneous filings, the CBDT issued Circular No. 02/2024 on March 5, 2024. The circular recognized that genuine and eligible trusts had submitted audit reports on or before October 31, 2023, but had done so using the incorrect form due to a lack of clarity in the new framework.

To mitigate the impact, the CBDT allowed such institutions to submit the corrected audit report in the prescribed form by March 31, 2024. This relief applied only to those who had already submitted a report before the cutoff date. While this was a welcome move, it only addressed a subset of the affected entities.

Many organizations that had not filed any report by October 31, or had yet to finalize their audits due to ongoing reconciliation, did not benefit from the initial extension. Additionally, those unaware of the error until after the March deadline still faced potential consequences for non-compliance.

Representations Received from Stakeholders

Following the March 2024 deadline, the CBDT received multiple representations from stakeholders across sectors. Industry associations, tax professionals, and trust management boards highlighted ongoing difficulties in adhering to the revised requirements. These included ambiguities in form selection, late awareness of rule changes, and delays caused by dependencies on auditors and contributors.

Another major concern raised was the challenge in revising audit procedures and software to align with the new reporting structure. In some cases, audit software required manual updates to enable the correct data input fields corresponding to Form 10BB or Form 10B. Smaller audit firms and sole practitioners serving charitable institutions found this transition difficult to manage on short notice.

Furthermore, foreign contribution reporting posed challenges for institutions receiving donations under the Foreign Contribution (Regulation) Act (FCRA). These organizations needed to coordinate between FCRA compliance, income tax audit norms, and the revised audit reporting formats—often with limited staff and overlapping timelines.

Further Extension to November 10, 2024

Taking cognizance of these concerns, the CBDT issued another relief measure by further extending the deadline for filing audit reports in Form 10B or Form 10BB to November 10, 2024, for AY 2023–24. This extension applies broadly to all trusts and institutions required to file these forms, regardless of whether they had submitted any audit report earlier.

This decision reflects a sensitive and pragmatic approach by the tax authorities. It allows sufficient time for institutions to reassess their filing obligations, complete audits using the correct format, and engage with professional advisors to ensure compliance. The extension also reduces the administrative burden on the department by preemptively addressing potential litigation or rectification requests from hundreds of charitable organizations.

Importantly, this extension also helps in aligning the compliance schedules of institutions that face additional obligations under GST, FCRA, state laws, and donor agency requirements.

Implications for Compliance Strategy

The extended deadline provides an excellent opportunity for organizations to audit their audit process. This includes a thorough review of their financial documentation, audit trail, donor records, expense vouchers, and capital assets schedule. Institutions should also undertake a comparative analysis of the two audit forms to ensure they are preparing the correct set of disclosures for the applicable format.

Internal training for finance teams, development of audit checklists, and early engagement with statutory auditors are now critical tasks. Institutions must also assess whether they fall under the expanded audit category based on foreign contributions, inter-country transactions, or high-volume fundraising events.

Trusts that previously relied on outsourced accountants or manual record-keeping should consider migrating to digital accounting platforms that facilitate real-time tracking of donations, expenditures, and compliance status.

Additionally, boards of trustees should play an active role in monitoring audit readiness and ensuring that timelines are being adhered to. Regular compliance reviews, quarterly internal audits, and timely documentation of approvals and resolutions can significantly reduce the risk of form mismatch or audit delays.

Evolving Role of Audit in Regulatory Governance

Beyond compliance, the audit process plays a strategic role in enhancing public trust in charitable institutions. Transparent reporting of funds received and how they are spent directly impacts donor confidence and institutional credibility.

With increasing scrutiny from regulators, media, and the public, audits are no longer just about meeting statutory requirements. They are essential for good governance, ethical stewardship of resources, and stakeholder accountability. In this context, the revised audit framework and extended deadline offer a chance for institutions to elevate their internal standards and adopt best practices in financial reporting.

Re-evaluating Applicability: Form 10B vs. Form 10BB

One of the critical first steps that institutions must undertake is to reassess which form is applicable to them based on their financial and operational profile. Unlike the earlier regime, where the form selection was closely tied to the registration section, the updated structure focuses on the nature and scale of receipts, application of income, involvement of foreign funding, and cross-border activities.

Form 10B is now applicable to institutions that fall below a certain financial threshold and do not have significant foreign contribution or international application of funds. On the other hand, Form 10BB is required where the trust meets specific criteria, including receiving foreign donations, applying income outside India, or having receipts above prescribed monetary limits.

Institutions must carefully review their financial statements, receipts, grants, and application reports for the financial year relevant to AY 2023–24. In many cases, seemingly minor transactions—such as transferring funds for a project run abroad or receiving small contributions from international donors—can impact form selection.

Understanding Key Differences Between Form 10B and Form 10BB

Although both audit forms aim to capture financial and compliance information, there are several technical and disclosure-related differences between them. A clear understanding of these distinctions is essential for institutions and their auditors to avoid errors during filing.

Form 10B typically includes basic information such as income details, application of income, utilization of corpus, and compliance with conditions specified under sections 11 and 12. It is relatively concise and intended for organizations with simpler operations.

Form 10BB, however, demands a higher level of disclosure. It includes detailed schedules regarding donations received, expenses incurred abroad, fund transfers to associated entities, foreign contributions under FCRA, and activities that are conducted internationally. It also includes reporting on the segregation of designated funds, endowments, and the treatment of anonymous donations.

Institutions must not only ensure the accuracy of financial data but also reconcile these numbers with the corresponding disclosures made in other regulatory filings, such as FCRA annual returns, GST returns, and state-level charitable registration filings.

Internal Preparations for Audit Reporting

To effectively utilize the extended deadline, institutions should initiate a structured audit preparation process. This begins with internal record reconciliation, where all income and expenses are reviewed, categorized, and matched with supporting documentation.

Key components of this preparation include:

• Finalizing bank reconciliations and ensuring that cash balances are properly recorded

• Verifying donation receipts and donor identification details, particularly for large or foreign contributions

• Preparing fixed asset registers and identifying capital expenditures made during the year

• Reviewing inter-entity transactions, if any, to determine whether any related party disclosures are triggered

• Documenting the application of income outside India, along with purpose and approvals, if applicable

Trustees should work closely with internal finance teams and external consultants to ensure that audit readiness is established well before the deadline. Periodic internal reviews or mock audits can also help identify compliance gaps and errors in record maintenance.

Engagement with Statutory Auditors

The role of statutory auditors becomes even more critical under the revised audit framework. Institutions must provide timely and comprehensive data to auditors to facilitate error-free filing of Form 10B or 10BB.

Auditors, in turn, should review not only the financial statements but also the documentation of exemptions claimed, application of income, treatment of grants, and classification of receipts. They should ensure that all required schedules and annexures are prepared as per the new format, and the filing portal is updated with accurate responses.

It is advisable to schedule audit planning meetings early in the cycle, outline the new compliance requirements, and assign responsibilities for document collation, drafting, and review. Auditors must also stay updated with any clarifications or circulars issued by the tax department that may affect audit reporting requirements.

Addressing Errors from Previous Filing Attempts

One major issue faced by institutions is the rectification of previously filed audit reports submitted in the incorrect format. The extended deadline allows such entities to correct their filings and resubmit audit reports in the applicable form.

Before initiating a revised filing, the following steps should be considered:

• Download the previously filed audit report and review the contents carefully

• Check whether the form submitted aligns with the institution’s operational profile under the revised applicability norms

• If an incorrect form was used, prepare a fresh audit report in the correct format in consultation with the auditor

• Ensure that the revised form addresses all relevant compliance issues and financial disclosures

• File the corrected report through the income-tax portal using updated digital signatures

It is also recommended to maintain a written note or internal resolution documenting the reasons for the correction and the steps taken to remedy the error. This can be helpful in the event of future scrutiny or clarification requests from the tax authorities.

Reporting of Foreign Contributions and Overseas Application

Institutions that receive foreign contributions or apply income outside India are subject to stricter disclosure requirements. These include not only reporting in Form 10BB but also ensuring consistency with returns filed under other applicable laws.

The Foreign Contribution (Regulation) Act, 2010 mandates that entities receiving foreign donations must file annual returns disclosing donor details, purpose, and usage of funds. These disclosures must reconcile with the entries made in Form 10BB.

Additionally, if income has been applied outside India for charitable purposes, institutions must ensure that such application is supported by board resolutions, project reports, and proper authorizations from the prescribed authorities under the Income-tax Act.

It is also crucial to ensure that such application does not violate any other law or create a contradiction between tax compliance and other regulatory filings. Mismatches in foreign transaction reporting can invite penalties or even suspension of exemption status.

Managing Donor Reporting and Fund Segregation

Under the revised audit requirements, institutions are expected to maintain and report detailed records of donor-wise contributions, especially where contributions are project-specific, corpus-based, or tied to a specific activity.

Trusts must maintain:

• Donor-wise ledgers showing receipt, application, and balance

• Separate accounts for corpus donations to ensure they are not inadvertently utilized

• Identification and documentation of grants, sponsorships, and event-based contributions

• Disclosures regarding anonymous donations and their tax treatment

Institutions that maintain a central account for all donations should consider creating sub-ledgers or segregated cost centers to facilitate audit compliance. This becomes even more important for institutions running multiple projects, schools, hospitals, or social welfare programs funded by various sources.

The audit report should clearly mention whether funds have been earmarked, utilized according to the donor’s intent, and whether any unused balance has been carried forward with proper documentation.

Synchronization with Other Annual Filings

To ensure seamless compliance, trusts and institutions must synchronize their audit reports with other filings such as:

• Annual return of income (Form ITR-7) under the Income-tax Act

• FCRA annual return in Form FC-4 for foreign contribution reporting

• Annual financial statements submitted to the charity commissioner, where applicable

• State-specific returns or filings under public trust acts

Consistency in reported figures, purposes, donor details, and foreign transactions is essential to avoid discrepancies. Discrepancies between the audit report and income-tax return may attract notices or scrutiny assessments. Similarly, inconsistent donor information between tax audit and FCRA filings can lead to compliance risks. Institutions should maintain a central compliance calendar with due dates, responsible personnel, and reconciliation checks for all regulatory filings.

Capacity Building and Knowledge Sharing

The updated audit framework requires a new level of financial literacy and regulatory understanding among trustees, finance personnel, and auditors. Capacity building initiatives can play a significant role in ensuring long-term compliance.

These initiatives can include:

• Organizing internal workshops and seminars on audit form changes

• Creating internal user guides or SOPs for audit documentation

• Subscribing to relevant newsletters or circulars for updates from the tax department

• Encouraging board members and executives to participate in regulatory briefings

Involving senior leadership in audit preparation not only improves compliance but also strengthens the overall governance culture of the organization.

Leveraging Technology for Audit Readiness

Charitable institutions, especially those with a wide operational footprint, should explore automation and digitization as a means to streamline compliance. Digital accounting platforms, donor management systems, and audit checklists can help reduce the chances of error and enhance operational efficiency.

Key areas for technological enhancement include:

• Automated generation of financial reports mapped to audit formats

• Integration of donation platforms with accounting software

• Dashboards for tracking fund utilization by project

• Document management systems for storing audit trail, invoices, receipts, and approvals

Technology adoption also improves transparency, allows better donor communication, and reduces dependency on manual reconciliation.

Importance of Audit Trail Documentation

An audit trail is more than just a ledger of transactions. It is a documented narrative of how income was received, processed, approved, and utilized in accordance with the charitable or religious objectives of the institution. Under the revised audit norms, the accuracy and completeness of this audit trail are critical for successfully filing Form 10B or Form 10BB.

Audit trail documentation must cover the following elements:

• Source and purpose of each donation, grant, or contribution

• Official acknowledgment of the donation with PAN or passport details where required

• Approval mechanisms for application of funds including board resolutions

• Payment vouchers, receipts, and invoices for expenses incurred

• Bank statements and fund transfer evidence with reconciliation entries

• Detailed schedules showing earmarked and corpus funds utilization

• Project-wise reporting where funds were allocated for specific objectives

Institutions that rely heavily on manual systems or maintain minimal documentation should take this time to upgrade their processes. Missing documentation, vague approvals, or lack of accountability over funds can raise questions during tax scrutiny and may risk exemption denial.

Standard Operating Procedures and Internal Policy Framework

A well-defined set of standard operating procedures helps maintain consistency in financial transactions and regulatory compliance. Many charitable institutions operate in diverse environments with decentralized field units. In such cases, establishing a robust internal policy framework becomes essential.

Key areas that benefit from documented policies include:

• Income categorization and treatment of anonymous or corpus donations

• Internal approval mechanisms for capital expenditures and project funding

• Conflict-of-interest declarations and related party transaction approvals

• Documentation required for foreign contributions and cross-border activities

• Expense verification checklists for grants, training, and community outreach

These policies not only streamline the internal control environment but also guide auditors in evaluating the completeness and fairness of the audit report. Institutions may consider assigning a compliance officer or designating a committee to periodically review these documents in line with changes in law or operational models.

Governance Structures and Board Oversight

Trustees and board members bear ultimate responsibility for financial oversight in charitable institutions. The extended deadline offers an opportunity to strengthen board engagement in audit-related matters and ensure that the leadership is aligned with compliance goals.

Recommended governance practices include:

• Quarterly board reviews of financial performance and donor fund utilization

• Review of pending regulatory filings, audit observations, and internal audit reports

• Board approval of annual budgets and deviations from application targets

• Active engagement in auditor appointments and review of audit findings

• Maintenance of minutes and resolutions for all major financial decisions

An informed board is better positioned to ensure that the institution’s operations remain in line with the charitable objects, thereby mitigating the risk of exemption being challenged for non-charitable use of funds.

Internal Audit and Risk-Based Review Mechanisms

While statutory audit focuses on compliance with tax requirements, internal audit provides a more granular evaluation of financial risks, operational leakages, and control failures. Institutions, especially those with large or multi-state operations, should consider implementing an internal audit system that complements the external audit process.

A risk-based internal audit approach prioritizes areas of higher financial exposure or compliance risk. These may include:

• Projects involving large donor grants or foreign funding

• Significant asset purchases or construction-related expenditure

• Repetitive small transactions in outreach programs or relief work

• Related party transactions or resource-sharing arrangements

Internal auditors should be equipped with clear terms of reference, access to records, and independence to report findings directly to the board or a subcommittee. Their inputs can provide valuable insights during the preparation of Form 10B or 10BB and help prevent material misstatements.

Non-Compliance Risks and Legal Consequences

The most immediate risk of non-compliance with audit report requirements is the denial of tax exemption for the concerned year. This may lead to the entire income of the institution being taxed at applicable slab rates, along with interest and penalties. In addition, late or incorrect filing may be seen as willful default, especially if repeated over years.

Beyond tax exposure, non-compliance can trigger scrutiny from other regulators such as:

• Ministry of Home Affairs in cases involving FCRA violations

• Registrar of Public Trusts or Charity Commissioner for failure to comply with local trust laws

• Donor agencies that mandate audited and compliant use of funds

• Banks and financial institutions assessing eligibility for funding

Institutions with a history of non-compliance may also find it harder to obtain renewals for registrations under section 12AB or approvals under section 80G. This may restrict their fundraising capabilities, donor reach, and project credibility.

Trends in Tax Department Assessments

Recent tax department scrutiny of charitable institutions has become more data-driven and integrated. With improved data matching from various filings, the department is now able to analyze inconsistencies between the income-tax audit report, ITR-7 return, and FCRA filings with greater precision.

Some trends emerging from assessments include:

• Detailed questioning on foreign contribution usage and whether approvals were obtained for application outside India

• Examination of income applied towards administrative overheads and whether they align with permitted thresholds

• Probing of transactions involving trustees or connected parties and the manner of valuation

• Verification of whether corpus funds or capital grants have been utilized for general purposes

Institutions that anticipate these areas of scrutiny and maintain comprehensive documentation are more likely to avoid litigation or demand notices.

Training, Education, and Capacity Building

One of the most underinvested areas in compliance management is staff education and training. Many charitable institutions operate with lean teams or rely on volunteers who may not have the technical knowledge required for modern-day compliance. Investing in capacity building helps institutionalize good practices and reduce dependency on individual staff or external consultants.

Institutions should consider:

• Conducting annual compliance workshops for finance and program teams

• Developing manuals or handbooks for audit preparation

• Creating video-based SOPs for common reporting processes

• Partnering with experts for training sessions on taxation and financial regulations

Training should also be extended to trustees and field coordinators who manage program budgets or vendor contracts. A well-trained team ensures fewer errors, timely submissions, and reduced risk of audit observations.

Building a Culture of Compliance and Transparency

Beyond technical compliance, charitable institutions must work towards a culture of accountability and ethical management. Transparency in fund use, donor communication, and financial disclosures is the cornerstone of a sustainable not-for-profit ecosystem.

Some steps to promote this culture include:

• Voluntarily disclosing audit reports, financial statements, and program outcomes on websites

• Publishing donor impact reports and how funds have been used

• Ensuring beneficiaries and local communities are aware of projects being run

• Establishing whistleblower policies and ethics frameworks

When compliance is embedded into the values and culture of an organization, audit reporting becomes a natural outcome rather than a forced activity at year-end. This approach also improves long-term reputation and community trust.

Leveraging the Extension to Reassess Systems and Controls

The time available till November 10, 2024, should be seen not just as an extension but as a strategic pause to rebuild and reassess institutional controls. Trusts and institutions can use this time to:

• Evaluate the maturity of their accounting systems and identify automation opportunities

• Transition from manual records to cloud-based accounting and document management

• Build donor databases that link contributions to utilization and reporting

• Create dashboards for real-time financial monitoring

These investments, though initially time-consuming, can reduce year-end rush, improve data quality, and enable faster and more accurate audit reporting.

Institutionalizing Lessons for Future Assessment Years

The transition that began in AY 2023–24 will continue to evolve in future years. Institutions must capture lessons from the current experience and institutionalize them into annual planning and financial governance frameworks.

Suggested long-term steps include:

• Setting internal deadlines at least 90 days ahead of statutory deadlines

• Building audit readiness calendars with monthly targets

• Creating archives of previously filed reports for easy reference and benchmarking

• Regularly updating policy documents in light of changes to income-tax or FCRA rules

These measures ensure that compliance is treated as a continuous process rather than a periodic event. They also empower leadership to make informed decisions with a full understanding of the institution’s financial and regulatory health.

Conclusion

The extension of the due date for filing Form 10B and Form 10BB audit reports to November 10, 2024, reflects a crucial regulatory development that goes far beyond procedural leniency. It signifies a recognition by the Central Board of Direct Taxes of the genuine challenges faced by charitable and religious institutions in adapting to evolving compliance frameworks. At the same time, it serves as a timely reminder of the increasing complexity and expectations surrounding financial accountability in the not-for-profit sector.

Through this series, we have explored the historical context, revised applicability norms, practical filing steps, audit readiness measures, and governance structures that institutions must now prioritize. The reclassification of audit forms based on financial and operational parameters, rather than mere legal registration, signals a shift toward outcome-driven and risk-based compliance practices.

Institutions are now expected to demonstrate a deeper understanding of regulatory expectations, ranging from foreign contribution disclosures to application of income outside India, from corpus fund management to related party transaction documentation. The extended timeline offers a rare window for introspection and proactive alignment with these expectations.

More than just a deadline, November 10, 2024, stands as an opportunity for institutions to assess their internal controls, revisit financial documentation, strengthen board oversight, and institutionalize a culture of compliance. Those that seize this moment to upgrade their systems, educate their teams, and digitize their financial processes will be better equipped not only to meet current audit requirements but also to build long-term credibility and resilience.

In an environment of increasing transparency, data integration, and public scrutiny, the sustainability of a charitable institution now hinges not only on the nobility of its mission but also on the integrity of its financial and operational practices. The CBDT’s extension should therefore be seen not as a reprieve but as a call to action — a chance to turn compliance into capacity, and obligation into opportunity.