🏛️ TRUST AUDIT & INCOME TAX – COMPLETE DETAILED GUIDE (INDIA)

1️⃣ What is a Trust Audit?

A Trust Audit is the examination of the financial records of a trust by a Chartered Accountant (CA) to ensure:

• Proper utilization of trust funds

• Compliance with the Income Tax Act, 1961

• Fulfilment of conditions for tax exemption

• Accurate maintenance of books of accounts

Trust audit is mandatory for charitable and religious trusts claiming tax benefits.

2️⃣ Types of Trusts Covered

1. Charitable Trusts

2. Religious Trusts

3. Educational & Medical Institutions

4. Public Trusts registered under Trust Act

5. NGOs / Societies / Section 8 Companies

3️⃣ Legal Provisions Governing Trust Audit

4️⃣ When is Trust Audit Mandatory?

Trust audit is mandatory if:

• Trust income exceeds basic exemption limit

• Trust claims exemption under Sections 11 & 12

• Trust is registered under Section 12A / 12AB

• Trust receives voluntary contributions

• Trust carries out charitable or religious activities

👉 Audit must be conducted every year once applicable.

5️⃣ Due Dates for Trust Audit & ITR Filing

(Subject to extensions by government)

6️⃣ Forms Used in Trust Audit & Income Tax

7️⃣ Income Tax Applicability for Trusts

A. Exempt Income

• Income applied for charitable or religious purposes

• Voluntary donations (except corpus donations misuse)

B. Taxable Income

• Income not applied within prescribed limits

• Violation of Section 13

• Business income not incidental to trust objectives

8️⃣ Application of Income (Key Concept)

• Minimum 85% of income must be applied for charitable purposes

• Balance 15% can be accumulated without conditions

• Accumulation beyond 15% requires Form 10

Failure leads to loss of exemption.

9️⃣ Violations Leading to Cancellation of Exemption

• Benefit to trustees or relatives

• Use of trust funds for personal benefit

• Non-genuine activities

• Non-maintenance of books

• Non-filing of audit report or ITR

🔟 Documents Required for Trust Audit

• Trust Deed / MOA

• Registration certificate (12AB / 80G)

• Books of accounts

• Bank statements

• Donation records

• Expense vouchers

• Asset details

• Activity reports

• Minutes of trustee meetings

1️⃣1️⃣ Penalties for Non-Compliance

1️⃣2️⃣ Benefits of Trust Audit

• Retention of tax exemption

• Transparency & credibility

• Donor confidence

• Compliance with law

• Protection from penalties

1️⃣3️⃣ Post-Audit Compliance

1. Upload audit report on portal

2. File ITR-7

3. Preserve records for minimum 6 years

4. Respond to departmental notices

📌 ADVISORY DRAFT – TRUST AUDIT & INCOME TAX COMPLIANCE

Email

SUBJECT : Advisory on Trust Audit & Income Tax Compliance

To: [Trust Name]
Date: __________

Subject: Advisory on Trust Audit & Income Tax Compliance for FY [20XX–XX]

Dear Trustees / Management,

This is to inform you that as per the provisions of the Income Tax Act, 1961, trusts registered under Section 12A / 12AB and claiming exemption under Sections 11 and 12 are required to comply with annual Trust Audit and Income Tax filing requirements.

Key Compliance Requirements:

1. Maintenance of proper books of accounts.

2. Application of at least 85% of income for charitable or religious purposes.

3. Conduct of Trust Audit by a Chartered Accountant.

4. Filing of Audit Report in Form 10B / 10BB within the prescribed time.

5. Filing of Income Tax Return in Form ITR-7.

6. Filing of Form 10 / Form 9A, wherever applicable.

Important Timelines:

• Audit Report Due Date: 30th September

• ITR Filing Due Date: 31st October

Consequences of Non-Compliance:

Non-compliance may result in:

• Loss of tax exemption

• Penalties and interest

• Cancellation of trust registration

Our Scope of Services:

• Trust audit & audit report filing

• Income computation & ITR-7 filing

• Advisory on exemption, accumulation & compliance

• Assistance in handling departmental communications

We strongly recommend timely compliance to safeguard the trust’s tax-exempt status.

Warm regards,
[Consultant / Firm Name]
[Designation]
[Contact Details]

ADDITIONAL & ADVANCED INFORMATION

TRUST AUDIT & INCOME TAX (NOT COVERED ABOVE)

1️⃣ Registration Lifecycle of Trusts (Post-2020 Changes)

• Trust registrations are now time-bound

• Revalidation under Section 12AB required every 5 years

• Provisional registration granted to new trusts

• Failure to apply for renewal leads to automatic lapse of exemption

👉 Important for website users planning long-term compliance.

2️⃣ Provisional Registration & First-Time Trust Audit

• New trusts can get provisional 12AB registration

• Full registration required after commencement of activities

• First audit becomes mandatory once income crosses exemption limit

• Activity reports play a key role in first assessment

3️⃣ Corpus Donations – Special Tax Treatment

• Corpus donations must be:

  • Specifically directed in writing

  • Invested as per prescribed modes

• Misuse or incorrect accounting can make corpus fully taxable

• Corpus application rules differ from regular income

4️⃣ Anonymous Donations (Section 115BBC)

• Anonymous donations taxable at 30%

• Proper donor records mandatory:

  • Name, address, PAN (if available)

• Religious trusts partially exempt from this provision

5️⃣ Business Activities by Trusts

• Business income allowed only if:

  • Incidental to trust objectives

  • Separate books maintained

• Otherwise, exemption may be denied under Section 13

6️⃣ Investments & Modes of Investment (Section 11(5))

Trust funds must be invested only in:

• Government securities

• Bank deposits

• Approved bonds

• Mutual funds as prescribed

Violation results in loss of exemption.

7️⃣ Related Party Transactions & Specified Persons

• Transactions with trustees, relatives, or interested persons

• Excessive payments lead to exemption withdrawal

• Auditor must verify fairness & documentation

8️⃣ Capital Gains in Trusts

• Capital gains exempt if:

  • Proceeds reinvested in another capital asset

  • Within prescribed time

• Otherwise taxable even for charitable trusts

9️⃣ Inter-Trust Donations (New Restrictions)

• Donations to other trusts restricted

• Only 85% of such donations treated as application

• Affects tax planning for NGOs

🔟 Accumulation Monitoring & Utilisation

• Accumulated income must be used within specified period

• Non-utilisation leads to taxation

• Change of purpose requires fresh approval

1️⃣1️⃣ Trust Audit Report Revisions

• Audit report can be revised

• Only for genuine errors

• Must be done before assessment completion

1️⃣2️⃣ Role of Trustees in Compliance

Trustees must ensure:

• No personal benefit

• Proper governance

• Documentation of decisions

• Periodic internal reviews

1️⃣3️⃣ Common Red Flags Triggering Department Scrutiny

• High donations with low charitable activity

• Large cash receipts

• Repeated accumulation

• Related party transactions

• Delay in filings

1️⃣4️⃣ Practical Best Practices for Trusts

1. Maintain donor database

2. Issue donation receipts properly

3. Conduct internal audits

4. Avoid cash transactions

5. Maintain activity reports

1️⃣5️⃣ Importance of Trust Audit for Donors & CSR

• Required for CSR eligibility

• Builds public trust

• Enhances credibility with corporates & government bodies

1️⃣6️⃣ Website-Specific Compliance Tip (Very Important)

For public websites:

• Avoid promising tax exemption

• Use advisory language only

• Always add disclaimer

• Keep content updated annually