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Section 348Charitable Trusts & NPOswas Section 12A, Rule 188, Form 112 (IT Rules 2026) in IT Act 1961

Audit of Accounts — Mandatory for NPOs above ₹2.5 Lakh

Every registered NPO whose total income (before claiming exemption) exceeds ₹2.5 lakh in a year must get its accounts audited by a Chartered Accountant. The audit report in Form 10B (or 10BB for larger trusts) must be filed along with the income tax return.

Who this applies to

All registered NPOs whose gross receipts exceed ₹2.5 lakh in the year — effectively all active trusts.

Key Points

  • Threshold: audit mandatory if total income BEFORE exemption > ₹2.5 lakh
  • Audit must be conducted by a practicing Chartered Accountant
  • Form 10B: standard audit report for most NPOs; Form 10BB: for trusts with receipts above ₹5 crore
  • Audit report must be filed BEFORE the return due date (typically 31 October for trusts with mandatory audit)
  • Filing audit report after the return due date attracts late fees under Section 427
  • The auditor verifies: proper books maintained, 85% application met, corpus properly invested, no benefit to specified persons

Worked Example

1

Consequences of Not Getting Accounts Audited

Scenario

A charitable trust with income of ₹80 lakh skips the audit (Form 10B) and files its ITR claiming full exemption. The Assessing Officer notices the missing audit report.

Calculation

Trust income:                          ₹80,00,000
Claiming exemption (Section 335):      ₹80,00,000
Audit report (Form 10B):               NOT FILED ✗

Consequences:
1. Exemption DISALLOWED
2. Income taxable at MMR (30%):         ₹24,00,000
   Cess (4%):                           ₹    96,000
   Total tax:                           ₹24,96,000
3. Late fee:                            ₹     5,000
4. Interest u/s 423/424:                ₹ 2,00,000+

If audit was done and Form 10B filed:
  Tax:                                  ₹          0

Result

Skipping the audit costs the trust ₹25+ lakh. The CA's audit fee (typically ₹15,000–₹1 lakh depending on trust size) is negligible compared to the tax and penalty exposure.

Related Sections

Section 349Filing Income Tax Return for Charitable Organisations
Section 347Books of Accounts — Mandatory for All Charitable Organisations
Section 332Registration of Charitable Trusts and NPOs
Section 341Application of Income — The 85% Charitable Spending Rule

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Section references are based on the Income Tax Act 2025 (Tax Year 2026-27). Examples are illustrative — verify with a Chartered Accountant before filing.