Decoding Form 10B & 10BB for Charitable & Educational Institutions
A brief overview of the new audit report forms notified by the CBDT for non-profit organizations seeking tax exemptions
The Income Tax Act, India, provides tax exemptions to certain funds, institutions, trusts, universities, educational institutions, hospitals, and medical institutions that are engaged in charitable, religious, or educational activities, subject to certain conditions and compliance requirements. One of the compliance requirements is to get their accounts audited by a chartered accountant and file an audit report in Form 10B or Form 10BB along with their income tax return in Form ITR-7.
On February 21, 2023, the Central Board of Direct Taxes (CBDT) notified new Forms 10B and 10BB with revised guidelines and formats for filing the audit report. The new forms are applicable from the assessment year 2023-24 onwards. The new forms require detailed information and disclosures regarding the activities, income, expenditure, assets, liabilities, foreign contributions, application of income outside India, etc., of the non-profit organizations. The new forms also mandate the use of digital signatures by both the auditor and the auditee.
Applicability of Form 10B & 10BB
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.
Contents related to Form 10B & 10BB
The new forms consist of three parts: Part A, Part B, and Part C. Part A contains general information about the organization and its registration status. Part B contains a statement of particulars regarding the income and expenditure of the organization and its application for charitable or religious purposes. Part C contains a declaration by the auditor certifying that he has examined the accounts and records of the organization and that they are true and correct.
The new forms also have several annexures that require additional information and documents from the organization. For example, Annexure I requires details of foreign contributions received by the organization under the Foreign Contribution (Regulation) Act, 2010. Annexure II requires details of application of income outside India by the organization under section 11(1)© of the Income Tax Act. Annexure III requires details of corpus donations received and utilized by the organization during the previous year.
Benefits and challenges
The new forms are expected to bring more transparency and accountability in the functioning of non-profit organizations and to prevent misuse of tax exemptions by them. The new forms are also expected to facilitate better monitoring and verification by the income tax authorities and to curb tax evasion and avoidance by them.
However, the new forms also pose several challenges and difficulties for both the auditors and the auditees. The new forms are lengthy, complex, and cumbersome to fill and upload. They require a lot of data and documents that are not readily available or accessible to many non-profit organizations. The new forms are not user-friendly and compatible with the existing software and systems used by the auditors and the auditees. They also pose technical glitches and errors while uploading on the e-filing portal of the income tax department.
The new forms have been notified very late in the financial year, leaving very little time for the auditors and the auditees to understand, prepare, and file them before the due date of September 30, 2023. This is especially challenging in view of the ongoing Covid-19 pandemic situation that has affected the normal functioning of many non-profit organizations.
The new forms have increased the compliance burden and cost for both the auditors and the auditees. They also expose them to higher risk of scrutiny, penalty, and litigation in case of any omission or mistake.