Form 10B audit - when it applies, what it covers

A 12A-registered charitable trust must get its accounts audited if total income exceeds prescribed thresholds. The audit report is filed in Form 10B (or Form 10BB) alongside ITR-7. The Finance Act 2023 split the form into two - and the thresholds changed. Here's the current state, who audits what, and how to prep.

The current threshold (FY 2023-24 onwards)

Per the Finance Act 2023 amendment to Rule 17B:

• Form 10B - required if total income (before §11 exemption) exceeds ₹5 crore, OR if foreign contribution was received during the year, OR if any portion of income was applied outside India.
• Form 10BB - required if total income ≤ ₹5 crore AND no foreign contribution AND all application is within India. (i.e., the "simple" case.)

Before the amendment, only Form 10B existed, with no foreign-contribution / outside-India trigger. The 2023 split was about adding scrutiny for FCRA-active and globally-active trusts.

Who can audit

A chartered accountant in practice. Per Rule 17B(2), the auditor cannot be:

• A trustee of the same trust
• A relative of any trustee
• A person who has any business relationship with the trust beyond the audit engagement

If the trust has multiple trustees who are themselves CAs (common in larger NGOs), an external CA is mandatory. The auditor signs the Form 10B / 10BB digitally with their DSC linked to their ICAI membership number.

What the auditor reviews

The audit goes beyond standard statutory audit. Specific charitable-trust matters:

1. Section 11(1)(a) - 85% utilisation. Did the trust apply at least 85% of income for charitable purposes? If not, was Form 10 (5-year accumulation election) filed? See our §11 guide.
2. Anonymous donations. Were anonymous donations above the §115BBC threshold (5% of total donations OR ₹1 lakh, whichever is higher) declared? Was 30% tax paid?
3. Corpus donations. Were corpus donations correctly treated as non-income? (Corpus donations sit outside the 85% calculation.)
4. Application outside India. If any income was applied outside India, was specific CBDT approval obtained? (Required under §11(1)(c).)
5. Foreign contribution treatment. If FCRA-active, was FC-4 filed? Is the designated bank account compliant? Was the 20% admin cap respected? (See our FCRA admin cap guide.)
6. Related-party transactions. Are trustees or specified persons benefiting from trust funds? §13(1)(c) bars such benefits.
7. Investment compliance. Per §11(5), trust funds can only be parked in specified modes (government securities, scheduled bank deposits, debt mutual funds, etc.). Equity / private companies are barred.
8. Object-clause adherence. Are programmes aligned to the trust deed's object clauses?

The Form 10B / 10BB structure

The form has roughly these sections:

• Part A - Audit information. Auditor details, audit period, scope.
• Part B - Income computation. Itemised income for the FY: voluntary contributions, anonymous donations, corpus donations, interest, programme service income, capital gains.
• Part C - Application of income. Programme expenditure, admin overhead, capital expenditure on programme assets, application outside India.
• Part D - 85% test. Computed application as % of income. Pass/fail. If fail, Form 10 election details.
• Part E - Accumulation under Section 11(2). Prior years' accumulated income that was due to be applied within 5 years; was it applied?
• Part F - Specified-person dealings. Any benefit to §13(3) persons (trustees, donors above ₹50K threshold).
• Part G - Investment compliance. Where funds are held; §11(5) compliance check.
• Part H - Auditor's opinion + qualifications.

Filing process

1. The trust finalises its audited Income & Expenditure + Balance Sheet by mid-September (giving 6 weeks before the ITR-7 due date).
2. The CA prepares Form 10B / 10BB on the IT portal using their CA-login.
3. The trust receives the draft, reviews, and approves.
4. The CA signs with DSC and submits. The trust receives the form's ARN.
5. The trust files ITR-7 attaching the Form 10B / 10BB ARN.
6. Deadline: Form 10B / 10BB must be filed by 30 September of the assessment year (i.e., for FY 2025-26 income, filed by 30 September 2026).

What happens if you don't audit

For trusts crossing the ₹5 crore threshold (or with foreign contribution / outside-India application):

• Loss of §11 exemption. The entire income for the FY becomes taxable at maximum marginal rate (40%+ including surcharge). For an NGO with ₹10 cr income, this is a ₹4 cr tax bill on what should have been exempt.
• Section 270A penalty for under-reporting - up to 200% of tax on the under-reported income.
• Scrutiny under §143(3) - full assessment with onsite documentation review.
• 12A registration at risk - repeated non-audit is grounds for cancellation under §12AB(4).

Common audit findings

1. 85% utilisation shortfall. Trust applied only 78%; no Form 10 elected. Auditor raises a qualification; trust pays tax on the shortfall.
2. Corpus donation incorrectly treated as income. Donor specified "corpus" but the trust booked it as voluntary contribution. Auditor reclassifies; income drops, 85% test passes more easily.
3. Investment in non-§11(5) mode. Trust invested ₹50 lakh in a private company's debentures. Auditor flags; trust must divest.
4. Specified-person benefit. Trustee's son's company received a contract from the trust. §13 violation - entire income loses exemption for the year.
5. Anonymous donations not declared. Trust received ₹3 lakh anonymous donations (above 5% threshold). Should have paid §115BBC tax; didn't. Auditor raises.
6. FCRA mismatch. Trust's I&E shows ₹2 cr foreign contribution; FC-4 shows ₹1.8 cr. Auditor reconciles or qualifies.
7. Application outside India without approval. Trust funded a project in Nepal without CBDT approval. §11(1)(c) violation; income on that application loses exemption.

How to prep for the audit

1. By 31 March (FY-close): Reconcile every bank account. Tag every expense as admin / programme / capital. Identify all corpus donations + anonymous donations.
2. By 30 April: Close books for the FY. Provisional I&E + Balance Sheet ready.
3. By 31 May: Form 10BD filed (for 80G compliance) - this gives the auditor the donor-statement they cross-check.
4. By 30 June: Statutory audit kicks off. Auditor gets bank statements, ledger, expense vouchers, donation register, programme reports, trust deed amendments, FCRA filings (if any).
5. By 31 July: Audit draft. Trustees review qualifications. If any disagreements, resolve before signing.
6. By 31 August: Audit signed. Auditor begins Form 10B / 10BB preparation on the IT portal.
7. By 15 September: Form 10B / 10BB submitted (well before the 30 September deadline).
8. By 31 October: ITR-7 filed citing the Form 10B / 10BB ARN.

What to share with your auditor

• Trust deed + all amendments + most recent 12AB certificate
• NGO Darpan ID + 80G certificate + FCRA certificate (if applicable)
• Full bank statements (every account, 1 April to 31 March)
• Donation register with donor PAN, amount, mode, date, restrictions
• Expense ledger with admin/programme classification
• Fixed-asset register + depreciation schedule
• Programme reports (what was delivered, where, to whom)
• Form 10BD acknowledgement + Form 10BE issuance log
• FC-4 filing (if FCRA-active)
• Prior 2 years' audited financials for comparison
• Board / trustee minutes from FY meetings (for governance verification)
• Any specified-person transactions (§13 disclosures)

Cost of audit

Statutory audit fees for a charitable trust typically range:

• Small trust (≤₹1 cr income): ₹15,000 - ₹30,000
• Medium trust (₹1-5 cr): ₹30,000 - ₹75,000
• Large trust (₹5 cr+, falls under Form 10B): ₹75,000 - ₹2,00,000
• FCRA-active trust: Add 30-50% for additional scope

Plus Form 10B / 10BB preparation fee (often included in the audit engagement) and ITR-7 filing fee (separate, ₹5,000-15,000).

Frequently asked questions

Is the ₹5 cr threshold on gross income or net? Gross income before §11 exemption.

What counts as "income" for the threshold test? All voluntary contributions (excluding corpus), grants, interest, programme service income, capital gains. Corpus donations don't count.

If income is ₹4.9 cr but with ₹50 lakh foreign contribution, which form? Form 10B (the foreign-contribution trigger applies regardless of the ₹5 cr threshold).

Can a small trust voluntarily file Form 10B? Yes. Many do, for donor confidence. Form 10B is more comprehensive than 10BB.

What if the audit reveals 85% shortfall? File Form 10 (5-year accumulation) before the ITR-7 due date. This protects the shortfall amount from immediate taxation, on the condition you apply it within the next 5 years.

Can the audit happen after 30 September if we file ITR-7 late? No. Form 10B / 10BB must be filed by 30 September even if ITR-7 will be late. Late ITR-7 separately attracts §234F penalty.