Changes likely in tax audit report for charitable trusts

The report, floated recently, comes a few days after the government cancelled the registration of Bengaluru-based NGO Infosys Foundation for alleged violation of norms in receiving foreign grants.

The income tax department is set to bring changes in the tax audit report for charitable trusts to check misuse of funds, including foreign donations.

This will be done by improving compliance and accountability through augmented disclosure requirements.

The proposed amendments to the tax audit report are being made after a gap of almost five decades.

The draft report, floated by the Central Board of Direct Taxes (CBDT), seeks extensive details of operations of trusts, ensuring that they are fully compliant with the applicable processes and procedures.

The report also calls for increased responsibility of the auditors after implantation.

The report, floated recently, comes a few days after the government cancelled the registration of Bengaluru-based NGO Infosys Foundation for alleged violation of norms in receiving foreign grants.

CBDT invited inputs from stakeholders and the general public on the draft notification for amendment of Form No 10B of the Income Tax Rules.

Charitable institutions are exempt from paying taxes on their income, subject to certain conditions, as these bodies are set up for purposes like providing relief to the poor, education and medical relief.

They are also responsible for preservation of the environment and monuments.

The move may be aimed at curbing incidents pertaining to a possible misuse of funds by trusts and charitable institutions.

Various additional disclosure requirements in the annexure to Form 10B - the section that is being amended - include statute under which a trust/institution is constituted, status of registration under Income Tax Act, object of trust institution, details of modification of object clause, details of income and application of income and compliance to conditions for the application, among others.

The Finance Act 2017 had made it mandatory for a trust, enjoying tax exemptions, to inform the tax authorities if there was any change in its charitable object which did not match with conditions of the original registration.

Earlier, the religious and charitable institutions were not required to report any such change. Last year, the government had tightened the registration norms for such entities under the Income Tax Act.

After the proposed changes, the responsibility of the auditors will increase significantly as there are various additional disclosure requirements.

“It further provides that the person in receipt of an income, furnishes, along with the return of income for the relevant assessment year, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed,” the CBDT release said.

Ashok Maheshwary & Associates LLP partner Amit Maheshwari said the proposed audit report format is much detailed compared to the earlier one and seeks extensive information on many facts which were not asked before.

This includes break-up of a donation received for corpus or other purposes and its further break-up into receipt of donation in cash and kind.

It also seeks details of foreign donations received.

Prateek Agarwal, partner - audit & assurance - Nangia & Co LLP said the auditor will need to certify that in his opinion the particulars given in the said annexure are true and correct.

“Thus, the responsibility of the assessee as well as the auditor will increase significantly after implementation of these changes,” he said.

The revised statement of particulars seeks extensive details of the operations of the trust, ensuring that the trust is fully compliant with the applicable processes and procedures.

“Considering that this form was last revised 45 years ago, the details sought in the new form may seem too many, but they justify the needs of the present times,” added Agarwal.

Photograph: Marco Bello/Reuters