Audit.

348

Where the total income of a registered non-profit organisation, without giving effect to the provisions of this Part, exceeds the maximum amount which is not chargeable to income-tax in any tax year, the accounts of such registered non-profit organisation for that tax year shall be audited by an accountant and the person in receipt of the income shall be required to furnish a report of an audit of such income by such date in the prescribed form, duly signed and verified by such accountant and setting forth such particulars, as prescribed.

Explanation

Section Summary:

Section 348 of the Income Tax Act mandates that registered non-profit organizations (NPOs) must have their accounts audited by a qualified accountant if their total income (before applying any exemptions under this Part) exceeds the maximum amount not chargeable to income tax in a given tax year. The audit report must be submitted in the prescribed form, signed and verified by the accountant, and include specific details as required.

Key Changes:

• Audit Requirement for NPOs: Previously, the audit requirement for NPOs was based on their total income after applying exemptions. Under the new provision, the audit requirement is triggered based on the total income before applying any exemptions under this Part.
• Clarification on Threshold: The threshold for audit is now explicitly tied to the maximum amount not chargeable to income tax, which is typically the basic exemption limit (e.g., ₹2.5 lakh for individuals).

Practical Implications:

• Increased Compliance Burden: NPOs with income exceeding the basic exemption limit (even if exempt under other provisions) must now undergo an audit, increasing compliance costs and administrative efforts.
• Timely Submission: NPOs must ensure the audit report is prepared and submitted by the prescribed due date to avoid penalties or non-compliance issues.
• Accountant’s Role: The audit must be conducted by a qualified accountant, and the report must include specific details as prescribed by the tax authorities.

Critical Concepts:

• Total Income Without Exemptions: The audit requirement is based on the total income of the NPO before applying any exemptions under this Part. This means even if the income is ultimately exempt, the audit requirement is triggered if the gross income exceeds the threshold.
• Prescribed Form: The audit report must be submitted in a specific format as prescribed by the tax authorities, including details such as income, expenses, and compliance with tax provisions.

Compliance Steps:

1. Determine Gross Income: Calculate the total income of the NPO for the tax year without applying any exemptions under this Part.
2. Check Threshold: Compare the gross income with the maximum amount not chargeable to income tax (e.g., ₹2.5 lakh).
3. Engage Accountant: If the income exceeds the threshold, engage a qualified accountant to conduct the audit.
4. Prepare Audit Report: Ensure the audit report is prepared in the prescribed form, signed, and verified by the accountant.
5. Submit Report: File the audit report by the due date specified by the tax authorities.

Example:

• Scenario: A registered non-profit organization has a total income of ₹3 lakh for the tax year. This income is exempt under Section 11 of the Income Tax Act.
• Application of Section 348: Since the total income (₹3 lakh) exceeds the basic exemption limit of ₹2.5 lakh, the NPO must have its accounts audited by a qualified accountant and submit the audit report in the prescribed form.
• Outcome: The NPO incurs additional compliance costs for the audit but ensures adherence to the new requirement.