Trust audits in India: income-tax, state law and foreign contribution
A trust's tax exemption in India depends on registration, proper use of its income and timely audit. The rules were tightened over the past few years and were carried into the Income-tax Act, 2025. This guide explains the audits a trust needs, what the auditor checks and the deadlines that matter.
The audits a trust may need
| Audit | Law | When it applies |
|---|---|---|
| Income-tax audit | Income-tax Act | Registered trusts and institutions whose total income, before exemption, exceeds the basic exemption limit |
| State trust law audit | State public trusts acts, such as the Maharashtra Public Trusts Act | Public trusts registered under that state's law, as the law requires |
| FCRA audit | Foreign Contribution (Regulation) Act, 2010 | Trusts receiving foreign contribution, through the FCRA audit and annual return |
| Other audits | GST, Companies Act or grant conditions | Trusts registered under GST, section 8 companies, or grant agreements requiring audits |
Income-tax audit for trusts
Trusts and institutions registered for exemption must get their accounts audited if their total income, computed before the exemption, exceeds the basic exemption limit. Under the 1961 Act, from the 2023-24 assessment year, the audit report is filed in one of two forms:
- Form 10B where total income before exemption exceeds ₹5 crore, the trust has received foreign contribution, or it has applied income outside India
- Form 10BB in other cases
Under the Income-tax Rules, 2026, Forms 10B and 10BB are replaced by a single audit report, Form 112. The report is due one month before the return due date, normally by September 30, and the trust then files its return of income.
Using funds correctly
The core of a trust's tax exemption is that its income is used for its charitable or religious objects. Under the 1961 Act, a trust generally had to apply 85% of its income in the year, could accumulate the rest only for specified purposes and periods with the prescribed form filed, and could not give benefits to founders, trustees and their relatives. These principles carry into the 2025 Act's provisions for registered non-profit organisations, so the audit tests them every year.
- Income received, income applied and amounts accumulated, year by year
- Spending outside India, which needs specific approval
- Loans or advances to related persons, and payments at above-market rates
- Donations to other trusts, and whether they count as application
What the auditor checks
- Registration and approvals are valid, and renewed on time
- Donations are recorded donor-wise, with corpus donations kept separate
- Anonymous donations are identified and treated as the law requires
- Income is applied to the trust's objects within the time allowed, or accumulated with the prescribed form filed
- No benefit is given to founders, trustees, their relatives or other specified persons
- Investments are made only in the modes the law permits
- Donor statements and donation certificates are filed and issued correctly
- Business income, if any, is incidental to the objects and accounted for separately
- TDS is deducted on payments to staff, consultants and contractors
Common issues in trust audits
- Donations received in cash without full donor details
- Corpus donations mixed with general donations
- Income not applied within the time allowed, and accumulation forms not filed
- Payments to trustees or their relatives without clear justification
- Investments made in modes the law does not permit
- Statements of donations not reconciled with receipts in the books
- Foreign donations received without FCRA registration
- Registrations not renewed on time, putting the exemption at risk
Annual compliance calendar for a registered trust
| Item | Usual timing | Form (old / new) |
|---|---|---|
| Statement of donations received | By May 31 | 10BD / 113 |
| Donation certificates to donors | By May 31 | 10BE / 114 |
| Accumulation of income, if any | By the date the law sets, ahead of the return | 10 / 109 |
| Audit report | One month before the return due date | 10B or 10BB / 112 |
| Return of income | Return due date, usually October 31 | Trust return form |
| State trust law audit report | As the state law requires | State form |
Registrations themselves need renewal, usually every five years, and provisional registrations must be converted within the time allowed. Our 12A and 80G registration service handles these.
State trust law audits
Public charitable and religious trusts registered under a state public trusts act must keep accounts and have them audited under that law. In Maharashtra, for example, the Maharashtra Public Trusts Act requires public trusts to have their accounts audited and the auditor's report filed with the Charity Commissioner's office. Our Charity Commissioner submission service covers the filing.
State audit reports and income-tax audit reports should tell the same story. We prepare both from the same audited accounts, so differences in format do not lead to differences in numbers.
NRI founders and US donors
US donors usually cannot claim a US tax deduction for a gift made directly to an Indian charity. Many donors give through a US-registered charity that supports Indian programmes, and that charity then follows its own US rules on grants abroad. Your US adviser can explain the US side; we handle the Indian audit, registrations and reporting.
Other trusts we audit
- Employee trusts: gratuity trusts, superannuation trusts and ESOP trusts set up by companies
- Section 8 companies: non-profit companies that also need a statutory audit under the Companies Act
- Societies: registered societies running schools, colleges and hospitals
- Private and family trusts: accounts and tax compliance for trusts holding family assets
Trust, society or section 8 company?
| Feature | Public trust | Society | Section 8 company |
|---|---|---|---|
| Registered under | State public trusts act or as a private deed | State societies registration act | Companies Act, 2013 |
| Main audit | Income-tax and state trust law | Income-tax and state law | Statutory audit and income-tax |
| Governance | Trustees under the deed | Governing body elected by members | Board of directors |
| Regulator filings | Charity Commissioner or state authority | Registrar of Societies | Registrar of Companies |
NRI founders often choose a section 8 company for its clear governance, or a trust for simplicity. Each has its own audit and filing calendar.