Audit
Under the Income Tax Act, 2025 NPOs claiming exemption under Part B of Chapter XVII are required to undergo a statutory audit if their total income (before claiming exemptions) exceeds the basic exemption limit. The provisions governing the format and filing of the audit report are laid down under Section 348 of the Act, read with Rule 188 of the Income Tax Rules, 2026.
To comply with this audit requirement, the organisation must furnish the audit report in Form 112, depending on the total income or receipts of the trust or institution.
The audit report in Form 112 must be furnished at least one month before the due date for filing the return of income under Section 263(1) (c).
Example: If the due date for filing the return is 31st October, the audit report must be obtained and filed by 30th September. (unless revised by Income Tax Department)
Filing of Form 112
- Form 112 must be filed electronically via the Income Tax e-filing portal.
- The Chartered Accountant conducting the audit must digitally sign the audit report.
- The audit report must be uploaded by the auditor and then accepted by the assessee (the organisation) through its login on the portal.
- Form 112 require a detailed disclosure of transactions with related persons under section 355(h). However, common mistakes include:
- Not disclosing transactions with specified persons. include;
- Incorrect classification of relatives and interested persons;
- Omitting benefits given to such persons (like rent-free accommodation, services, or directorships).
- The details and the amounts filed in ITR should reconcile with the Form 112. Most of the time it happens that the figures reported in Form 112 are not reconciled with Income and Expenditure account and Balance sheet.
- Reporting the entire amount of grant paid as application even when part of it remains unutilized or is a corpus donation.
- Not Reporting Foreign Contribution in the Form 112.
- Failed to verify the matching of filed form 108 or 109 with the disclosure made in Form 112
- Mentioning an expired 12A registration number (under Income Tax Act, 1961), instead of the new 332 registration ID (under Income Tax Act, 2025).
