[Opinion] Practical Difficulties and Probable Solutions of New Audit Report Form of Trusts (10B/10BB)

1. Overview of Tax Exemptions for Charitable Institutions

Under the Income-tax Act, 1961, tax exemptions are available to Charitable Institutions registered under sections 10(23C) and 12AB, subject to compliance with the provisions of sections 11 and 12. To avail these exemptions, the Institutions must adhere to specific conditions, including utilizing at least 85% of their total receipts for charitable purposes, meeting prescribed reporting requirements, and maintaining proper records in accordance with the law.

2. Role and Significance of Forms 10B and 10BB

In line with these provisions, Charitable Institutions are required to submit audit reports in a prescribed format to ensure compliance with the conditions outlined in sections 11 and 12. Just as Form 3CD serves as the tax audit report for assessees other than Charitable Institutions, Forms 10B and 10BB are specifically designed to audit and verify the financial statements of Charitable Institutions availing exemptions under sections 10(23C) and 12AB. These audit report forms help maintain transparency and accountability by certifying that the Charitable Institutions meet the required conditions for tax exemptions through comprehensive reporting requirements.

This topic gains heightened relevance due to the substantial and transformative changes introduced in Forms 10B and 10BB, brought into effect through Notification No. 7/2023, issued by the Central Board of Direct Taxes (CBDT) on February 21, 2023.

3. Key Amendments to Forms 10B and 10BB

These revised audit reports demand more comprehensive disclosures and reporting, leading to greater transparency and compliance. The new forms have done away with the distinction of separate forms based on the section under which a trust is registered under the Income Tax Act, 1961. Instead, a new classification can be made by “small trusts” and “big trusts” based on a threshold limit of Rs. 5 crore, irrespective of whether the trust is registered under Section 10(23C) or 12AB.

The applicability of Forms 10B and 10BB prior to and after amendments can be better understood by this below:

The new audit report forms are so comprehensive that they can be considered a consolidation of the following:

• All amendments in Income Tax Act related to Charitable Institutions
• Earlier 10B and 10BB
• ITR- 7
• Compilation of Personal Information details of Trust and Trustee
• Assessment Orders of AO/CIT/ITAT/HC
• Landmark Judgements of Supreme Court
• Registration Forms i.e., 10A/ 10AB
• Notification for Books of accounts

Let us now shift our focus to the core objective of this article: examining the practical challenges faced during the filing of Forms 10B and 10BB and exploring their potential solutions. This article focuses on key practical challenges deemed significant by the author. However, it is important to note that there are several other challenges not covered in this discussion.

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