Charitable and Religious Trusts to Face Increased I-T Scrutiny

In a move aimed at tightening financial oversight, the Income Tax Department is all set to bring charitable and religious trusts, universities, and research institutions under deeper scrutiny. These entities, which benefit from significant tax exemptions, will now have to meet stricter compliance norms starting this financial year.

Why This Change is Being Implemented

The government has expressed concerns over the misuse of tax exemptions by certain trusts and institutions. While these bodies are supposed to serve public, educational, or religious purposes, many have allegedly been using their status to evade taxes or underreport income.

The aim of the increased scrutiny is to:

Ensure genuine use of donations and funds
Prevent money laundering through charitable fronts
Maintain transparency in tax-exempt activities

What Types of Institutions Are Affected?

The institutions that will face stricter review include:

Charitable and religious trusts registered under Section 12AB
Research institutions and universities claiming exemption under Section 10(23C)
Educational institutions enjoying tax-free income under specific provisions

All these will now be required to provide detailed financial disclosures and undergo rigorous audits.

Key Changes in Compliance Norms

The Central Board of Direct Taxes (CBDT) has introduced several changes in how these institutions will be monitored and assessed.

Major Reforms:

Annual audit reports must now include detailed income and expenditure statements
Donor information must be maintained and submitted
Increased cross-verification between bank statements, donation receipts, and expenditures
Disqualification for tax benefits if any irregularity is detected

The IT Department will also use data analytics and AI tools to flag anomalies in filings.

Impact on Charitable and Religious Bodies

These changes are expected to bring greater accountability, but they also mean more paperwork and regulatory vigilance for these institutions.

For Charitable Trusts:

Must document fund utilisation with precision
Cannot divert funds for non-charitable or personal purposes
Could face cancellation of registration for non-compliance

For Religious Bodies:

Must prove that donations are being used for religious or welfare purposes
Will face audits if cash donations exceed specific limits
Need to maintain a clear record of all income and expenses

What Trustees Must Do Now (Ordered List)

Reassess their institution’s financial practices
Maintain updated donor and expense records
File timely and accurate audit reports
Train accounting staff on compliance rules
Consult with tax professionals regularly
Stay updated with CBDT circulars and guidelines

Common Pitfalls to Avoid (Unordered List)

Misreporting donation amounts
Using funds for non-approved purposes
Not filing annual returns on time
Failing to maintain digital records
Ignoring audit observations
Overlooking small compliance details

Frequently Asked Questions (FAQs)

Q1. Will all charitable trusts be audited every year now?
Not all, but a larger percentage will be randomly selected for audits under new AI-based systems.

Q2. What happens if a trust fails to comply with the new rules?
It may lose its tax-exempt status and could be liable for penalties or prosecution.

Q3. Is this applicable to small religious trusts too?
Yes, size does not exempt an institution. Even smaller bodies must maintain proper records.

Q4. Can past compliance issues affect current tax benefits?
Yes, unresolved past issues may trigger reassessment and impact present exemptions.

Conclusion

The new scrutiny norms underline the government’s commitment to transparency and responsible use of public donations and tax exemptions. While these rules may increase compliance pressure on religious and charitable institutions, they are ultimately intended to protect the integrity of public trust.

For all trusts, universities, and research institutions, this is a wake-up call to ensure full regulatory compliance, maintain clear financial transparency, and operate within the legal boundaries of their exempt status.