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ITR (Income Tax Return) / Audit Compliance for NGOs
Non-Governmental Organizations (NGOs) in India, like all organizations, must comply with Income Tax Return (ITR) filing and auditing requirements to maintain their legal standing, tax exemptions, and credibility. These obligations ensure transparency, accountability, and the correct usage of funds in accordance with the applicable laws. Below is a detailed guide to ITR filing and audit compliance for NGOs.
1. ITR Filing for NGOs
NGOs in India are required to file annual Income Tax Returns (ITR) to report their income and expenses, despite enjoying tax exemptions under certain sections of the Income Tax Act, 1961. Key points regarding ITR filing for NGOs include:
ITR-7 Form: NGOs must file their returns using Form ITR-7, which is specifically designed for entities that are exempt under sections such as 12A or 80G.
Section 12A Registration: NGOs must obtain this registration to be eligible for income tax exemption on surplus funds used for charitable purposes.
Section 80G Certification: This certification allows donors to claim tax deductions for donations made to the NGO, which in turn incentivizes contributions.
Filing Deadline: The annual return should be filed by the due date (usually July 31st for the previous financial year). Failing to meet this deadline can result in penalties and interest.
Required Documents: The NGO must submit:
- Audited financial statements (balance sheet, income and expenditure statement, receipts, and payments).
- A copy of the registration certificate under Section 12A/80G, if applicable.
- Audited financial statements (balance sheet, income and expenditure statement, receipts, and payments).
- A copy of the registration certificate under Section 12A/80G, if applicable.
Audit Requirement: Along with filing ITR, NGOs must undergo a statutory audit by a qualified Chartered Accountant (CA). The audited financial statements must be submitted with the ITR filing.
2. Annual Audit Compliance
NGOs are required to conduct an annual audit to maintain financial transparency, especially when dealing with funds that are often donated for specific purposes. Audits ensure that funds are being properly utilized and that the NGO is adhering to its legal and financial obligations. Key aspects of audit compliance include:
Statutory Audit by a Chartered Accountant (CA): NGOs must have their accounts audited by a qualified CA in accordance with the provisions of the Income Tax Act. The audit is crucial for verifying the accuracy and authenticity of financial statements.
Audit of Financial Records: The CA will examine the NGO's financial records, including:
- Income and Expenditure Statements
- Balance Sheet
- Receipts and Payments Account
- Income and Expenditure Statements
- Balance Sheet
- Receipts and Payments Account
Audit Report: After the audit, the CA provides an audit report that includes the auditor’s opinion on the accuracy of the financial statements. If there are discrepancies or concerns, the NGO must address these issues in the report.
Filing of Audited Financial Statements: The audited financial statements must be submitted along with the ITR, demonstrating that the organization has followed due process in managing its finances.
Non-Compliance Consequences
Failure to adhere to ITR filing and audit requirements can lead to several consequences, including:
Revocation of Tax Exemptions
If an NGO fails to file its ITR or undergo an audit, it risks losing its income tax exemptions, including those under Section 12A and Section 80G.
Penalties
Non-compliance with ITR filing deadlines can result in penalties for late filing and interest charges. In severe cases, the NGO may face prosecution for failure to comply with tax laws.
Loss of Credibility
Donors and government agencies may lose trust in the NGO if they fail to file accurate returns or conduct audits, making it harder to secure future funding.
Audit Report and Board Approval
NGOs that employ staff must comply with labor laws, which may include:
Professional Tax: Deducted from employees' salaries in states where it is applicable.
Board Review: Before the audited financial statements are filed, the NGO's board must review the documents. This ensures that the financial information is accurate and that it reflects the organization's actual activities and financial standing.
Annual General Meeting (AGM): In the case of a Society or Section 8 Company, the audited accounts must be presented at the AGM for approval by the members. The minutes of the meeting must be recorded and filed as part of compliance.