Form 10B and 10BB: Audit Report Requirements for Charitable and Educational Institutions Under the Income Tax Act, 1961

Introduction

The taxation framework for charitable and educational institutions in India has undergone significant transformation with the introduction of new audit reporting requirements. The Central Board of Direct Taxes (CBDT) through Notification No. 7/2023 dated February 21, 2023, introduced revised Form 10B and 10BB, marking a paradigm shift in compliance obligations for non-profit organizations seeking tax exemptions [1]. This legislative development represents the government’s commitment to enhancing transparency and accountability in the charitable sector while maintaining the delicate balance between regulatory oversight and operational autonomy.

The Income Tax Act, 1961, under various provisions including Section 10(23C) and Section 12A, provides tax exemptions to charitable trusts, educational institutions, hospitals, and religious organizations engaged in activities for the public good. However, these exemptions come with stringent compliance requirements, including mandatory audit obligations that ensure proper utilization of funds and adherence to the organization’s stated objectives. The new audit report forms represent a evolution in this compliance framework, introducing detailed disclosure requirements that aim to prevent misuse of tax-exempt status while facilitating legitimate charitable activities [2].

The notification of these new forms has created ripples across the non-profit sector, requiring organizations to reassess their compliance strategies and internal controls. The transition from older reporting formats to these detailed forms reflects the increasing sophistication of tax administration and the need for greater accountability in the charitable sector. Organizations must now navigate through complex reporting requirements while ensuring their charitable activities remain unhindered by regulatory compliance burdens.

Legislative Framework and Regulatory Background

Historical Development of Audit Requirements

The audit requirements for charitable institutions have evolved significantly since the inception of the Income Tax Act, 1961. Initially, the provisions under Section 12A(1)(b) mandated audit only when the total income of a charitable trust or institution exceeded the maximum amount not chargeable to income tax. This threshold-based approach provided relief to smaller organizations while ensuring larger entities maintained proper financial records and accountability mechanisms [3].

The Foreign Contribution (Regulation) Act, 2010, further complicated the compliance landscape by introducing additional reporting requirements for organizations receiving foreign contributions. This dual regulatory framework created challenges for organizations operating across both domestic and international funding streams, necessitating coordination between different regulatory authorities and compliance systems.

Budget 2023 introduced fundamental changes to the audit framework through amendments to Rule 16CC of the Income Tax Rules, 1962. These changes expanded the scope of mandatory audit beyond the traditional income threshold to include considerations of foreign contributions, application of income outside India, and gross receipt thresholds. The amendment represented a shift from a purely income-based audit trigger to a more holistic assessment of organizational activities and financial flows [4].

Section 10(23C) and Its Provisos

Section 10(23C) of the Income Tax Act, 1961, forms the cornerstone of tax exemptions for charitable and educational institutions. The section provides exemption to income derived from property held under trust or other legal obligation wholly for charitable or religious purposes, or income of any university or other educational institution, hospital or other medical institution referred to in the various sub-clauses.

The tenth proviso to Section 10(23C) specifically mandates audit requirements, stating that no exemption shall be allowed unless the accounts of the trust or institution are audited by an accountant as defined in the Explanation below sub-section (2) of section 288, and the trust or institution furnishes the report of such audit in the prescribed form on or before the due date. This proviso establishes the legal foundation for mandatory audit and reporting obligations [5].

The prescribed forms under this proviso have now been specified as Form 10B and Form 10BB, depending on specific criteria related to the organization’s financial profile and operational characteristics. The selection between these forms is governed by amended Rule 16CC, which provides detailed guidelines on applicability based on factors such as total income, foreign contributions, and overseas application of income.

Section 12A and Registration Framework

Section 12A of the Income Tax Act provides the registration framework for charitable and religious trusts seeking tax exemption. The section empowers the Principal Commissioner of Income Tax or Commissioner of Income Tax to grant registration to trusts and institutions engaged in charitable or religious activities, subject to satisfaction regarding the genuineness of activities and proper application of income.

Section 12AA provides the procedural framework for registration, requiring the authority to call for necessary documents and information, make inquiries, and satisfy itself about the genuineness of the organization’s activities. The registration process involves scrutiny of the organization’s objects, activities, and financial management systems to ensure compliance with charitable purposes as defined under the Act [6].

The audit requirements under Section 12A(1)(b) apply to registered trusts and institutions whose total income exceeds the basic exemption limit. These organizations must obtain their accounts audited by a qualified chartered accountant and furnish the audit report in the prescribed form along with their income tax return. The integration of this requirement with the new Form 10B and 10BB creates a unified compliance framework for charitable organizations.

Understanding Form 10B and 10BB: Applicability and Distinctions

Criteria for Form Selection

The determination of whether an organization must file Form 10B or Form 10BB involves careful analysis of multiple factors as specified in amended Rule 16CC. The rule establishes a framework that considers not only the nature of activities but also financial thresholds and operational characteristics of the organization.

Form 10B is primarily applicable to charitable trusts and institutions engaged in activities related to social welfare, education, healthcare, or poverty alleviation. However, the mere nature of activities is not the sole determinant. Organizations must also meet specific financial criteria, including total income thresholds and foreign contribution receipts. The form is designed for organizations with total income exceeding rupees five crores during the previous year, or those receiving foreign contributions under the Foreign Contribution (Regulation) Act, 2010 [7].

Form 10BB caters to religious trusts, cultural institutions, and other non-charitable organizations eligible for tax benefits under various sub-clauses of Section 10(23C). This form addresses the unique compliance needs of religious and cultural institutions while maintaining the same level of detailed disclosure requirements as Form 10B. The distinction ensures that different types of organizations can provide relevant information specific to their operational context while meeting uniform transparency standards.

Threshold-Based Applicability

The financial thresholds for mandatory filing of these forms represent a significant departure from earlier practice. Organizations with total income exceeding rupees five crores during the previous year must compulsorily file the applicable form, regardless of other factors. This threshold-based approach ensures that larger organizations, which typically handle substantial public funds, maintain higher levels of transparency and accountability.

Beyond the income threshold, organizations receiving foreign contributions under the Foreign Contribution (Regulation) Act, 2010, must also file the relevant form irrespective of their total income. This provision addresses regulatory concerns about foreign funding of domestic charitable activities and ensures proper oversight of cross-border financial flows in the non-profit sector.

Organizations applying income outside India during the previous year also fall within the mandatory filing category. This provision prevents misuse of tax-exempt status for activities outside India while ensuring legitimate international charitable activities can continue with proper disclosure and oversight mechanisms [8].

Detailed Analysis of Form Structure and Contents

Part A: Organizational Information and Registration Status

Part A of both forms requires detailed information about the organization’s legal structure, registration status, and basic operational parameters. This section serves as the foundation for all subsequent disclosures and establishes the organization’s identity within the regulatory framework. Organizations must provide comprehensive details about their incorporation, registration under various acts, and any changes in their legal status during the relevant period.

The registration status disclosure includes details of registration under Section 12A or 12AB of the Income Tax Act, Foreign Contribution (Regulation) Act, 2010, and any other applicable laws. Organizations must also disclose any pending proceedings, revocation of registration, or suspension of their tax-exempt status during the period under review. This information helps tax authorities maintain updated records and identify organizations facing regulatory challenges.

The organizational information section requires disclosure of key personnel, including trustees, directors, and key management personnel. Changes in leadership during the year must be reported, along with details of any related party transactions or conflicts of interest. This transparency requirement ensures accountability in organizational governance and prevents misuse of charitable status for personal benefit.

Part B: Income, Expenditure and Application Statement

Part B forms the core of both audit report forms, requiring detailed disclosure of income from all sources, expenditure patterns, and application of income for charitable or religious purposes. This section demands segregation of income into various categories including voluntary contributions, grants, income from property, income from investments, and any other sources of revenue.

The expenditure disclosure requirements mandate classification of expenses into program expenses directly related to charitable activities, administrative expenses, and fundraising costs. Organizations must demonstrate that their expenditure patterns align with their stated charitable objects and comply with the prescribed ratios for administrative expenses. The form requires specific disclosure of expenditure on activities outside India, payments to related parties, and any expenses not directly related to charitable purposes.

The application of income section requires organizations to demonstrate how their surplus funds are utilized for charitable purposes. This includes details of corpus fund utilization, capital expenditure on charitable activities, and any accumulation of income under Sections 11(2) or 12(2) of the Income Tax Act. Organizations must justify any significant accumulation of funds and provide plans for future utilization in accordance with their charitable objects [9].

Part C: Auditor’s Declaration and Certification

Part C contains the auditor’s declaration and certification, representing the professional opinion of the chartered accountant on the organization’s compliance with various provisions of the Income Tax Act. The auditor must certify that the accounts have been audited in accordance with auditing standards and that the information provided in the form is true and correct to the best of their knowledge and belief.

The certification requirements extend beyond traditional audit opinions to include specific confirmations about compliance with Section 11, Section 12, and various other provisions applicable to charitable organizations. The auditor must verify that the organization has properly applied its income for charitable purposes, maintained necessary records, and complied with all conditions for claiming tax exemption.

The digital signature requirement for both the auditor and the organization represents a significant technological advancement in the filing process. This requirement ensures authenticity of the filed documents while preventing unauthorized submissions. However, it has also created technical challenges for organizations and auditors not equipped with digital signature infrastructure, particularly in rural areas where many charitable organizations operate.

Annexure Requirements and Supporting Documentation

Annexure I: Foreign Contribution Details

Annexure I specifically addresses organizations receiving foreign contributions under the Foreign Contribution (Regulation) Act, 2010. This annexure requires detailed disclosure of all foreign contributions received during the year, including the source, purpose, amount, and utilization of such contributions. Organizations must reconcile these disclosures with their filings under the FCRA framework to ensure consistency across different regulatory requirements.

The foreign contribution reporting requirements include disclosure of the organization’s FCRA registration details, any restrictions or conditions imposed by the Ministry of Home Affairs, and compliance with the mandatory transfer requirements to designated banks. Organizations must also report any notices or actions taken by FCRA authorities during the year and their response to such regulatory interventions.

The utilization pattern of foreign contributions must be disclosed in detail, showing how these funds were applied for charitable purposes and whether any portion was used for administrative expenses or transferred to other organizations. This disclosure requirement aims to prevent diversion of foreign funds for purposes other than those approved under FCRA regulations.

Annexure II: Application of Income Outside India

Annexure II addresses organizations that apply income outside India, requiring detailed justification and documentation of such applications. Organizations must demonstrate that their overseas activities align with their charitable objects and comply with the conditions specified under Section 11(1)(c) of the Income Tax Act. The annexure requires disclosure of the nature of activities undertaken outside India, the amount of income applied, and the beneficiaries of such activities.

The regulatory framework for application of income outside India has evolved to balance legitimate international charitable activities with concerns about potential misuse of tax-exempt status. Organizations must obtain prior approval from tax authorities for significant overseas applications and comply with reporting requirements throughout the project lifecycle.

The documentation requirements for overseas activities include project reports, beneficiary details, local regulatory compliances, and impact assessments. Organizations must maintain detailed records of their international operations and provide periodic updates to Indian tax authorities about the progress and outcomes of their overseas charitable activities.

Annexure III: Corpus Donations and Utilization

Annexure III requires detailed disclosure of corpus donations received and utilized during the year, including the source of donations, restrictions imposed by donors, and the manner of utilization. Corpus funds represent the permanent endowment of charitable organizations and are subject to specific regulatory requirements regarding their investment and utilization.

The corpus fund management requirements include disclosure of investment policies, returns generated, and any capital appreciation or depreciation during the year. Organizations must demonstrate that corpus funds are invested prudently and that any income generated is applied for charitable purposes in accordance with the organization’s objects and donor restrictions.

The utilization of corpus funds for charitable activities requires proper documentation and approval from governing bodies. Organizations must maintain detailed records of corpus fund movements and provide justification for any significant changes in corpus investment strategies or utilization patterns during the year.

Regulatory Benefits and Enhanced Transparency Measures

Strengthened Accountability Framework

The introduction of Form 10B and 10BB has significantly strengthened the accountability framework for charitable and educational institutions. These forms require detailed disclosure of financial information, operational activities, and governance structures, creating a transparent environment that benefits both regulators and genuine charitable organizations. The enhanced reporting requirements help distinguish between organizations genuinely engaged in charitable activities and those potentially misusing tax-exempt status for other purposes.

The detailed financial disclosures required under these forms enable tax authorities to conduct more effective risk assessment and target their verification efforts toward organizations showing irregular patterns or non-compliance indicators. This risk-based approach to regulation improves the efficiency of tax administration while reducing compliance burden on organizations maintaining proper records and following prescribed procedures.

The transparency measures embedded in these forms also benefit the charitable sector by building public confidence in non-profit organizations. Donors and beneficiaries can access more detailed information about organizational finances and activities, enabling informed decision-making about funding and engagement. This increased transparency ultimately strengthens the charitable ecosystem by promoting best practices in governance and financial management.

Prevention of Tax Avoidance and Evasion

The new forms incorporate several features designed to prevent tax avoidance and evasion by organizations claiming charitable status. The detailed income and expenditure reporting requirements make it difficult for organizations to manipulate their financial statements or divert funds for non-charitable purposes. The mandatory disclosure of related party transactions, significant payments, and administrative expenses creates transparency that deters potential misuse.

The foreign contribution reporting requirements address specific concerns about the use of international funding for activities not aligned with charitable purposes. By requiring detailed disclosure of foreign funding sources, utilization patterns, and compliance with FCRA requirements, the forms create a framework for monitoring cross-border financial flows in the charitable sector.

The requirement for auditor certification on compliance with various provisions of the Income Tax Act creates an additional layer of oversight. Chartered accountants must verify not only the accuracy of financial information but also compliance with substantive provisions governing charitable organizations. This professional oversight helps identify potential non-compliance issues before they escalate into significant regulatory problems [10].

Facilitation of Regulatory Monitoring

The standardized format of Form 10B and 10BB facilitates more effective regulatory monitoring by tax authorities. The consistent information structure enables automated analysis of filing patterns, identification of anomalies, and comparison across similar organizations. This systematic approach to data collection and analysis improves the quality of regulatory oversight while reducing administrative burden on tax departments.

The digital filing requirements create opportunities for real-time monitoring and data analytics applications in tax administration. Authorities can develop sophisticated analytical tools to identify patterns of non-compliance, assess sectoral trends, and allocate regulatory resources more effectively. This technological advancement in regulatory monitoring represents a significant step forward in tax administration capabilities.

The integration of these forms with the broader e-filing infrastructure creates opportunities for cross-verification with other regulatory filings and databases. Organizations filing multiple returns or reports can be subject to consistency checks that identify discrepancies requiring further investigation. This integrated approach to regulatory oversight reduces opportunities for organizations to provide inconsistent information to different authorities.

Implementation Challenges and Compliance Difficulties

Technical and Infrastructure Challenges

The implementation of Form 10B and 10BB has revealed significant technical and infrastructure challenges that affect both organizations and their auditors. The complexity of the forms, combined with lengthy data entry requirements, has strained existing IT systems and software solutions used by the charitable sector. Many organizations, particularly smaller ones operating in rural areas, lack the technological infrastructure necessary to comply with digital filing requirements efficiently.

The e-filing portal of the Income Tax Department has experienced technical difficulties during peak filing periods, creating additional challenges for organizations attempting to meet compliance deadlines. Server crashes, slow response times, and software compatibility issues have frustrated users and potentially compromised timely filing of required documents. These technical problems have been particularly challenging given the detailed nature of the new Form 10B and 10BB and the time required for data compilation and entry.

The digital signature requirement, while enhancing security and authenticity of filings, has created barriers for organizations without access to digital signature infrastructure. The process of obtaining and maintaining digital signatures requires technical knowledge and ongoing investment that may be challenging for smaller charitable organizations with limited administrative resources. This technological barrier has disproportionately affected grassroots organizations serving rural and remote communities.

Resource and Capacity Constraints

The detailed disclosure requirements of the new forms have significantly increased the compliance burden on charitable organizations, requiring substantial investment in administrative capacity and professional services. Many organizations have found it necessary to engage additional qualified personnel or expand their existing accounting and administrative teams to handle the complex reporting requirements. This increased administrative cost diverts resources from charitable activities and may affect the organization’s ability to serve beneficiaries effectively.

The requirement for chartered accountant certification has created capacity constraints in the professional services market, particularly during filing seasons. The limited availability of chartered accountants familiar with charitable sector requirements has led to increased professional fees and delays in audit completion. Smaller organizations operating in remote areas have faced particular difficulty accessing qualified professional services at reasonable costs.

The timeline constraints associated with the new forms have created additional pressure on organizations and their advisors. The notification of new forms relatively late in the compliance cycle left limited time for organizations to understand requirements, modify their accounting systems, and complete the detailed data compilation required for accurate filing. This time pressure has increased the risk of errors and omissions in filed documents.

Training and Knowledge Development Needs

The introduction of complex new forms has highlighted significant training and knowledge development needs across the charitable sector. Many organization leaders, trustees, and administrative staff lack familiarity with the detailed provisions of the Income Tax Act governing charitable organizations. This knowledge gap has made it difficult for organizations to understand their compliance obligations and implement appropriate systems for meeting regulatory requirements.

The professional development needs extend to chartered accountants and other advisors serving the charitable sector. The specialized nature of charitable organization compliance requires deep understanding of various provisions of the Income Tax Act, Foreign Contribution (Regulation) Act, and other applicable laws. Many professionals lack this specialized knowledge, creating quality concerns about audit and compliance services provided to charitable organizations.

The capacity building needs are particularly acute in the technology domain, where organizations must develop capabilities for digital filing, data management, and cybersecurity. The increasing digitization of compliance processes requires investment in both technology infrastructure and human resource development to ensure effective utilization of available systems and tools.

Future Implications and Recommendations

Evolution of Regulatory Framework

The introduction of Form 10B and 10BB represents an important step in the evolution of India’s regulatory framework for charitable organizations, but it is likely not the final development in this area. The government’s emphasis on transparency and accountability in the non-profit sector suggests that further refinements and enhancements to these requirements may be expected in future budget cycles and regulatory updates.

The integration of these forms with broader digitization initiatives in tax administration creates opportunities for more sophisticated regulatory approaches. Future developments may include real-time reporting requirements, automated compliance monitoring systems, and integration with other regulatory databases to create a holistic view of organizational activities and compliance status.

The international trend toward enhanced transparency in the non-profit sector, including initiatives such as beneficial ownership disclosure and anti-money laundering compliance, may influence future developments in India’s regulatory framework. Organizations should anticipate additional disclosure requirements and compliance obligations as the regulatory environment continues to evolve in response to global best practices and emerging risk factors.

Recommendations for Organizations

Charitable and educational institutions should proactively invest in strengthening their compliance infrastructure to meet current requirements and prepare for future regulatory developments. This includes implementing robust accounting systems, developing internal compliance procedures, and training staff on regulatory requirements. Organizations should also consider engaging qualified professional advisors early in their compliance planning process to ensure accurate and timely filing of required documents.

The technology infrastructure requirements suggest that organizations should prioritize digitization of their operations and record-keeping systems. Investment in modern accounting software, document management systems, and digital communication tools will facilitate compliance with current requirements while positioning organizations for future technological developments in regulatory reporting.

Organizations should also focus on governance strengthening initiatives, including trustee training, policy development, and internal control systems. Strong governance practices not only facilitate regulatory compliance but also enhance organizational effectiveness and public confidence in the organization’s activities and management.

References

[1] Central Board of Direct Taxes. (2023). Notification No. 7/2023 dated February 21, 2023. Available at: https://www.incometax.gov.in/iec/foportal/sites/default/files/2024-09/Webinar%20PPT%20for%20Form%2010B%20and%20Form%2010BB%20Webinar_19%20Sept%2024.pdf 

[2] TaxGuru. (2024). Decoding Form 10B & 10BB for Charitable & Educational Institutions. Available at: https://taxguru.in/income-tax/decoding-form-10b-10bb-charitable-educational-institutions.html 

[3] ClearTax. (2025). Form 10B – Applicability, Due Date, How To Download and How To File Form 10B of the Income Tax Act. Available at: https://cleartax.in/s/form-10b-of-income-tax-act 

[4] TaxGuru. (2024). Decoding the audit of Charitable trusts or institutions. Available at: https://taxguru.in/income-tax/decoding-audit-charitable-trusts-institutions.html 

[5] Income Tax Department. (2024). Taxability of income of charitable or religious trusts. Available at: https://incometaxindia.gov.in/tutorials/76.taxability-of-income-of-charitable-or-religious-trusts.pdf 

[6] StartupFino. (2024). Audit of Charitable Trust. Available at: https://www.startupfino.com/blogs/audit-of-charitable-trust-or-ngo-under-section-12a-1-b/ 

[7] TaxScan. (2023). CBDT Notifies New Forms for Audit Reports by Charitable or Religious Trusts and Other Institutions. Available at: https://www.taxscan.in/cbdt-notifies-new-forms-for-audit-reports-by-charitable-or-religious-trusts-and-other-institutions-read-notification/256294/ 

[8] Taxmann. (2023). CBDT notifies New Audit Reports to be furnished by Charitable or Religious Trusts. Available at: https://www.taxmann.com/post/blog/cbdt-notifies-new-audit-reports-to-be-furnished-by-charitable-or-religious-trusts/ 

[9] ClearTax. (2025). Charitable Trusts and NGO – Income Tax Benefits. Available at: https://cleartax.in/s/charitable-trusts-ngo-income-tax-benefits 

[10] LiveLaw. (2023). CBDT Extends Due Date For Educational & Charitable Institution Audit And Form ITR-7 For The Assessment Year 2023-24. Available at: https://www.livelaw.in/tax-cases/cbdt-due-date-educational-charitable-institution-audit-form-itr-7-238149