TaxSaral

Section 348 · was Section 12A, Rule 188, Form 112 (IT Rules 2026) in the 1961 Act

Audit of Accounts — Mandatory for NPOs above ₹2.5 Lakh

Every registered NPO whose total income (before claiming exemption) exceeds ₹2.5 lakh in a year must get its accounts audited by a Chartered Accountant. The audit report in Form No. 112 (which replaces the earlier Forms 10B and 10BB) must be filed along with the income tax return.

Who it applies to: All registered NPOs whose gross receipts exceed ₹2.5 lakh in the year — effectively all active trusts.

Key points

  • Threshold: audit mandatory if total income BEFORE exemption > ₹2.5 lakh
  • Audit must be conducted by a practicing Chartered Accountant
  • Form No. 112 is now the single audit report for every registered NPO — it replaces the earlier Forms 10B and 10BB
  • Audit report must be filed BEFORE the return due date (typically 31 October for trusts with mandatory audit)
  • An audit report not furnished by the specified date puts the exemption at risk, and a return filed after the due date also attracts the late fee under Section 428
  • The auditor verifies: proper books maintained, 85% application met, corpus properly invested, no benefit to specified persons

Worked example

Consequences of Not Getting Accounts Audited

A charitable trust with income of ₹80 lakh skips the audit (Form No. 112, earlier Form 10B) and files its ITR claiming full exemption. The Assessing Officer notices the missing audit report.

Trust income:                          ₹80,00,000
Claiming exemption (Section 335):      ₹80,00,000
Audit report (Form No. 112):           NOT FILED ✗

Consequences:
1. Exemption DISALLOWED
2. Income taxable at MMR (30%):         ₹24,00,000
   Cess (4%):                           ₹    96,000
   Total tax:                           ₹24,96,000
3. Late fee:                            ₹     5,000
4. Interest u/s 423/424:                ₹ 2,00,000+

If audit was done and Form No. 112 filed:
  Tax:                                  ₹          0

Result: Skipping the audit costs the trust ₹25+ lakh. The CA's audit fee (typically ₹15,000–₹1 lakh depending on trust size) is negligible compared to the tax and penalty exposure.

Related sections

Not sure how Section 348 applies to you? Ask a question or browse all sections.

Section references are based on the Income Tax Act 2025 (Tax Year 2026-27). Examples are illustrative; verify with a Chartered Accountant before filing.