ICAI Guidance Note on Reports of Audit: Know more

The Institute of Chartered Accountants of India (ICAI) has released Guidance Note on Reports of Audit under Section 12A/10(23C) of the Income-tax Act, 1961.

Over the last three years, the taxation arrangement for charitable trusts has changed significantly. These changes are largely intended to guarantee that only genuine trusts and institutions are eligible for the benefit provisions under sections 10(23C) and sections 11 to 13 of the Income-tax Act, 1961.

The ever-evolving landscape of direct taxes and its dynamism underscores the necessity to remain updated continually. In light of significant amendments in the scheme of taxation of Charitable Trusts and Institutions over the past few years and the notification of new forms of Audit Report, namely, Form No.10B and Form No. 10BB vide Notification dated 21.02.2023, the Direct Taxes Committee of ICAI had published the ‘Technical Guide on Reports of Audit under Section 12A/10(23C) of the Income-tax Act, 1961’ last year in October 2023.

Given the importance of providing thorough information to members on compliance issues with charitable trusts and institutions, the Direct Taxes Committee decided to issue a Guidance Note on the topic.

The Draft Guidance Note has then been considered by the Direct Taxes Committee and the recommendations of the Committee have been considered by the Council. The “Guidance Note on Reports of Audit under Section 12A/10(23C) of the Income-tax Act, 1961” approved by the Council has, thus, been meticulously crafted to offer Chartered Accountants a profound and insightful understanding of the taxation aspects related to Charitable Trusts and Institutions.

Through this Guidance Note, members will benefit from the extensive guidance on various aspects of the taxation of Charitable Trusts and Institutions which will equip them with the necessary knowledge on the reporting requirements in Form No.10B and Form No.10BB.

Introduction

Every charitable or religious trust or institution claiming income not includible in total income under Section 11 and Section 12 or any fund or institution or trust or any university or other educational institution or any hospital or other medical institution claiming income not includible in total income under sub-clauses (iv)/(v)/(vi)/(via) of clause (23C) of section 10 (and the total income without giving effect to the beneficial/exemption provisions exceeds the maximum amount which is not chargeable to income-tax in any previous year) needs to keep and maintain the books of account and other documents as per Rule 17AA of the Income-tax Rules, 1962 and also get its books of account audited mandatorily under the Income-tax Act, 1961.

Rule 16CC and Rule 17B of the Income-tax Rules 1962 as amended by the Income-tax Amendment (3rd Amendment) Rules, 2023 govern the provisions related to the audit of assessees mentioned above. Rule 17AA provides the particulars of books of account and documents to be maintained by the Trust or Institutions, as the case may be.

The audit report in respect of the same is required to be furnished one month prior to the due date of furnishing the return of income u/s 139(1) of the Act. As per Notification No. 7/2023, dated 21.02.2023, CBDT has issued new (re-notified) Audit Report Form No. 10B and Form No. 10BB by the Income-tax Amendment (3rd Amendment) Rules, 2023 which has come into effect from 01.04.2023 applicable for assessment year 2023-24 onwards.

Objective of this Guidance Note

This Guidance Note intends to,

(i) assist in understanding the respective responsibilities of the institution and the auditor.

(ii) guide the auditor as to the nature and scope of information to be obtained by him from the institution to enable him to conduct the audit.

(iii) provide guidance on the verification procedures to be adopted by the auditor for giving the audit report and the necessary information in the annexure thereto.

(iv) give an idea about the various aspects including issues relating to the law of taxation of trusts/institutions.

(v) Explain the circumstances where a disclosure, qualification or disclaimer may be required from the auditor while giving his audit report.

(vi) provide guidance in ensuring compliance with the Accounting Standards issued, prescribed and made mandatory by the Institute of Chartered Accountants of India.

(vii) facilitate compliance with Standards on Auditing (SAs) issued, prescribed and made mandatory by the Institute of Chartered Accountants of India.

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