In the last few years, many changes have been made in the rules for the NGO sector. Actually, the government is increasing strictness regarding NGOs. The rules for registration and compliance of charitable and religious trusts and other institutions are being made stricter. Charitable and religious trusts, societies and companies are registered under section 8 of the Companies Act 2013. They get various exemptions and approvals under sections 10, 11, 12 and 80G of the Income Tax Act. However, to avail these exemptions and benefits, they have to fulfill certain conditions.

Many changes in the rules in the Union Budget as well

In the Union Budget 2023 also, several changes have been made in the income tax rules related to NGOs. Now the Income Tax Department has notified new rules for audit of charitable and religious trusts, societies and other institutions. These will come into effect from April 1, 2023. For this financial year (2022-23), new forms will be used for audit of trusts and institutions. In the new forms, a lot of detailed information has to be given as compared to the earlier forms. Several clauses required under tax audit have also been included in the form.

Auditors will now have to choose the right form from the wide variety of audit forms used for trusts.

(I) Form 10B – This form is for such trusts whose income is more than Rs 5 crore or trusts have received any money from abroad or have not spent any part of the income outside India

(II) Form 10BB- This form will be applicable to all such cases, which are not covered under Form 10B mentioned above, these are:

  • Where the income of the trust is up to Rs.5 crore and
  • No foreign contribution has been received and
  • No part of his income is spent outside India According to the new rule required for audit, auditors will have to provide additional information on such matters
  • Details of founders/society members etc. whose shareholding is 5% or more. Details of registration / approval and commencement of activities
  • Details of Books of Accounts
  • Details of donations, foreign donations and anonymous donations etc. More details in case of application of Income of Trust/Institution
  • Taxable income under section 115BII of the Income Tax Act
  • Details of depreciation of assets which have been claimed earlier in the application of income
  • TDS and TCS details
  • Details related to disallowance of trust’s expenses

Details related to specified violations etc. The above changes will increase the cost of compliance for Trusts/ Institutions and increase the responsibilities of auditors. Along with this, the control and monitoring of NGOs by the Income Tax Department will increase. The good thing about this is that this will stop the wrongdoings of such Trusts and Institutions who are availing the benefits under the Income Tax Act but they are not doing the work for which they have registered.