In India, charitable and religious organizations benefit from income tax exemptions under certain conditions. To ensure transparency and compliance, these entities must submit various forms under the Income Tax Act. Three important forms in this regard are Form 10, Form 10B, and Form 10BB. Each serves a specific purpose and plays a critical role in tax reporting for trusts, societies, and non-profit entities. This blog explains the relevance and usage of these forms, helping entities stay compliant and avoid penalties.

FORM 10 & FORM 10B

1. Form 10: Declaration for Accumulation of Income by Charitable/Religious Trusts or Institutions

Purpose:

Form 10 is essential for charitable and religious trusts or institutions under Section 11(2) of the Income Tax Act, 1961. Trusts or institutions that accumulate income beyond the 85% mandatory expenditure threshold use this form to declare their intention to accumulate such income for future use, thereby avoiding the tax implications associated with underutilization of funds.

Who Should File:

·         This form is applicable for trusts or institutions that:

·         Are eligible for tax exemptions under Section 11.

·         Wish to accumulate income for a period not exceeding 5 years for specific purposes like expansion, infrastructure, etc.

Key Details about Form 10:

·         It must be submitted online via the income tax portal.

·         The accumulated income must be utilized within five years for the purpose it was set aside.

·         Failure to comply results in the accumulated income being taxed as the organization's income.

Example: If a trust receives ₹10,00,000 in donations and spends ₹7,00,000 on its activities in a financial year, it can file Form 10 to accumulate the unutilized ₹3,00,000 for a specific purpose in the next five years.

Filing Deadline:

Form 10 should be filed before the due date of filing the income tax return under Section 139(1) to ensure the benefit of accumulation.

2.  Form 10B : Audit report

Form 10B is a crucial form for the audit of charitable and religious trusts under Section 12A(b) of the Income Tax Act. Any organization claiming income tax exemption under Section 11 or Section 12 must get its accounts audited if its income exceeds the basic exemption limit. The auditor prepares and submits Form 10B to certify that the accounts meet the criteria laid down by the law.

Form 10B Applicability :

i)                    The total income of auditee, without giving effect to the provisions of mentioned clauses/ sections, as applicable –

(a)    Sub-clauses (iv),(v),(vi) and (via) of clause 23C of section 10

(b)   Sections 11 and 12 of the act,

exceeds rupees five crores during the previous year; or

ii)                  Auditee has received any foreign contribution during the previous year; or

iii)                Auditee has applied any part of its income outside India during the previous year;

Key Points about Form 10B:

·         It is mandatory for trusts claiming tax exemption and having income above the basic exemption limit.

·         The form must be submitted online, and the audit should be conducted by a certified auditor.

·         Form 10B certifies compliance with the provisions of Section 11 and 12, including income accumulation, utilization, and application for charitable purposes.

Example: A trust with an annual income of ₹25,00,000 must undergo an audit and submit Form 10B to ensure it complies with all relevant tax rules, such as spending the required percentage of its income on charitable activities.

FORM 10BB

3.  Form 10BB :

Form 10BB applies to educational institutions, medical institutions, and other non-profit organizations claiming exemption under Section 10(23C) of the Income Tax Act. The form is required to audit the books of such institutions and certify that the income has been utilized appropriately, ensuring that no part of the income is misused or diverted for non-charitable purposes.

Key Points about Form 10BB:

·         The form is mandatory for institutions claiming tax exemptions under Section 10(23C).

·         The audit is carried out by a chartered accountant, who verifies compliance with the conditions of the exemption.

·         Form 10BB ensures that income is applied exclusively for the stated purposes and that no profit is siphoned off.

Example: An educational institution with gross receipts of ₹50,00,000, exempt under Section 10(23C), must submit Form 10BB to prove that the receipts were spent on educational purposes and not diverted elsewhere.

Importance of Timely Submission :

Failure to file Form 10, Form 10B, or Form 10BB on time may result in the denial of tax exemptions and lead to penalties. Trusts and institutions need to be aware of the filing deadlines and ensure compliance with audit requirements. Typically, these forms must be filed along with the income tax return or by the due date specified.

Conclusion :

Forms 10, 10B, and 10BB are essential for charitable and non-profit organizations to remain compliant with income tax regulations in India. Each form serves a specific function in ensuring that funds are utilized properly, income is accounted for accurately, and tax exemptions are claimed appropriately. Filing these forms timely and correctly helps organizations maintain their tax-exempt status and contributes to their long-term sustainability.