Audit Requirements for Non-Profit Organisations Under Rule 188: Form 112 & Section 348 Explained

Every charitable trust, religious institution, NGO, university, hospital, and Section 8 company registered as a Registered Non-Profit Organisation (RNPO) under the Income Tax Act, 2025 must comply with mandatory audit requirements if their income exceeds the basic exemption limit. This is not optional-without the prescribed audit report, the RNPO cannot claim tax exemption.

Under the new framework, Section 348 of the Income Tax Act, 2025 mandates the audit, and Rule 188 of the Draft Income Tax Rules, 2026 prescribes that the audit report must be furnished in Form 112-a new consolidated form replacing the old Forms 10B and 10BB. Form 112 introduces differential reporting based on size thresholds and advances the filing deadline to one month before the ITR due date.

This guide explains the audit requirement, the new form, the filing timeline, what the auditor reports, and what NPOs must prepare. For entities requiring professional tax audit services (https://www.patronaccounting.com/tax-audit), understanding Rule 188 is critical for the transition.

Key Terms You Should Know

• Section 348: The audit provision for RNPOs under IT Act, 2025. Mandates audit by a CA when total income (before RNPO exemptions) exceeds the basic exemption limit. Replaces the audit requirements under Section 12A(1)(b) and the tenth proviso to Section 10(23C) of the 1961 Act.
• Rule 188: Prescribes Form 112 as the audit report form and sets the filing deadline at one month before the ITR due date under Section 263(1). Replaces old Rules 16CC and 17B.
• Form 112: The new unified audit report form for all RNPOs. Replaces both Form 10B (used for Section 12AB trusts) and Form 10BB (used for Section 10(23C) institutions). Features differential reporting based on size thresholds.
• Small RNPO: An RNPO whose regular income does not exceed Rs 5 crore during the tax year, has not received foreign contribution, and has not applied any income outside India. Eligible for simplified reporting under Form 112.
• Large RNPO: Any RNPO that exceeds the Rs 5 crore threshold, receives foreign contribution, or applies income outside India. Subject to expanded disclosure requirements in Form 112.
• Section 263(1): The provision prescribing the due date for filing the return of income. The Form 112 audit report must be filed one month before this date.
• Section 335 (Regular Income): Defines the income categories of an RNPO: charitable/religious activity income, property/investment income, voluntary contributions, and permissible commercial income.
• ITR-7: The income tax return form for trusts, institutions, and other persons claiming exemption under RNPO provisions.

Who Must Get Their Accounts Audited Under Section 348?

Under Section 348, audit is mandatory for every RNPO whose total income, without giving effect to the provisions of Part B of Chapter XVII (the RNPO exemptions), exceeds the maximum amount which is not chargeable to income tax in any tax year.

In practical terms, this means: compute the RNPO’s total income before applying the 85% application exemption, corpus exclusion, and other RNPO benefits. If this gross income exceeds the basic exemption limit (currently Rs 2.5 lakh for trusts under the old rate structure-to be confirmed under the 2025 Act), audit under Section 348 is mandatory.

This applies to all entity types registered as RNPOs, including entities previously covered under the trust registration (https://www.patronaccounting.com/trust-registration) framework: charitable trusts, religious trusts, societies, Section 8 companies, universities, hospitals, and other institutions.

The audit must be conducted by an accountant as defined in the Explanation below sub-section (2) of Section 288-which means a Chartered Accountant holding a valid Certificate of Practice issued by ICAI. The CA must be independent (not a trustee, governing body member, or related person of the RNPO).

Legal Framework: Old Provisions vs New Provisions

The most significant change is the filing deadline advancement. Under the old rules, the audit report (Form 10B/10BB) and the ITR (ITR-7) had the same due date-typically 31 October for audit cases. Under Rule 188, Form 112 must be filed one month before the ITR due date. If the ITR due date is 31 October, the Form 112 deadline becomes 30 September. This requires NPOs to complete their audit earlier than before.

How to Comply with Rule 188: Step-by-Step

1. Determine if audit is required. Compute the RNPO’s total income for the tax year before applying RNPO exemptions (85% application, corpus exclusion, etc.). If this amount exceeds the basic exemption limit, audit under Section 348 is mandatory. Entities with valid 12A registration services (https://www.patronaccounting.com/12a-registration) that have transitioned to RNPO status must evaluate this annually.
2. Appoint an independent Chartered Accountant. The CA must hold a valid Certificate of Practice and must not be a trustee, governing body member, or person related to the RNPO. The appointment should be formalised through an engagement letter covering scope, timeline, and fee.
3. Prepare accounts and supporting documents. The RNPO must prepare the income and expenditure account, balance sheet, receipts and payments account, and all supporting schedules for the tax year. Maintain detailed records of: all income (donations, grants, investment income, programme income), all expenditure (programme expenditure, administrative costs, capital purchases), corpus donations received, accumulations under Section 342, investments under Section 350, and anonymous donation details.
4. Conduct the audit. The CA reviews the accounts, verifies compliance with the 85% application rule (Section 336), checks corpus treatment (Section 339), verifies that investments are in prescribed modes (Section 350), examines anonymous donations (Section 337), reviews related-party transactions, and verifies that income is applied exclusively for charitable or religious purposes in India.
5. Prepare and sign Form 112. The CA completes Form 112 with all applicable schedules. For small RNPOs, simplified schedules apply. For large RNPOs, expanded disclosures are required. The CA signs and verifies the form digitally.
6. File Form 112 electronically. The RNPO assigns the form to the CA on the e-filing portal. The CA uploads the completed Form 112. The RNPO then accepts and verifies the form using DSC or EVC. Filing must be completed at least one month before the ITR due date.
7. File ITR-7. After the audit report is filed, the RNPO files ITR-7 on or before the due date under Section 263(1). The ITR must be consistent with the audit report.

What Does the Auditor Report in Form 112?

Form 112 is a comprehensive audit report designed to cover all aspects of RNPO compliance. The key reporting areas include:

• Basic information: Name, PAN, registration number (Section 332), registration validity, type of entity, objects clause, and date of commencement of activities.
• Income details: Regular income categories under Section 335-charitable/religious activity income, property/investment income, voluntary contributions (donations), and permissible commercial income. Corpus donations under Section 339.
• 85% application computation: Detailed computation of income applied for charitable/religious purposes under Section 341, accumulated income under Section 342, and whether the 85% test is met under Section 336.
• Specified income at 30%: Identification of income taxable under Section 337-anonymous donations beyond threshold, income benefiting related persons, non-prescribed investments, and unspent accumulations.
• Investment compliance: Verification that all investments and deposits are in modes prescribed under Section 350.
• Related-party transactions: Disclosure of any income applied directly or indirectly for the benefit of specified persons (trustees, founders, relatives, etc.).
• Foreign contribution details: For large RNPOs receiving foreign contributions under FCRA, detailed reporting of sources, amounts, and application.
• Overseas application: For RNPOs applying income outside India, detailed reporting of amounts and purposes.
• Books of accounts: Confirmation that books are maintained at the registered address and that prescribed documents under the rules are maintained.
• Management details: List of trustees, governing body members, and key management persons.
• Donation statement (Form 10BD compliance): Verification that donation statements have been filed correctly for donor deduction (Section 354) purposes.

Common Mistakes to Avoid

Mistake 1: Missing the new deadline. Under Rule 188, Form 112 is due one month before the ITR due date-not on the same date. Many NPOs accustomed to filing the audit report and ITR together will be caught off-guard. If the ITR due date is 31 October, the Form 112 deadline is 30 September. Plan the audit to conclude at least by mid-September.

Mistake 2: Using old Form 10B/10BB instead of Form 112. From Tax Year 2026-27, the prescribed form is Form 112 under Rule 188. Filing the old forms will not satisfy the requirement. Ensure your CA is using the correct form for the applicable tax year.

Mistake 3: Not classifying the NPO correctly for differential reporting. Form 112 has different reporting requirements for small RNPOs (≤ Rs 5 crore regular income, no foreign contribution, no overseas application) and large RNPOs. Misclassifying the NPO can lead to either over-reporting (unnecessary compliance burden) or under-reporting (risk of scrutiny).

Mistake 4: Not preparing for the 85% application computation. The auditor must verify whether 85% of regular income is applied or accumulated. Many NPOs do not maintain expenditure records at the granular level needed for this computation, leading to audit delays and potential disallowance. For entities also needing 80G registration (https://www.patronaccounting.com/80g-registration), the donor deduction compliance adds another layer.

Mistake 5: Ignoring the capital gains issue. Under the 2025 Act, the old Section 11(1A) exemption for reinvested capital gains is omitted. Capital gains from asset transfers now form part of regular income under Section 335 and must meet the 85% application test. If your NPO sold a property during the year, the entire capital gain is counted in regular income for the audit computation.

Filing Timeline for NPO Audit Compliance

Note: The exact ITR due date under Section 263(1) for the 2025 Act may differ from the illustrative 31 October used above. Trusts should verify the prescribed due date once the final rules are notified.

Key Takeaways

Section 348 of the Income Tax Act, 2025 mandates audit for every RNPO whose total income (before RNPO exemptions) exceeds the basic exemption limit. Rule 188 of the Draft Income Tax Rules, 2026 prescribes Form 112 as the single consolidated audit report, replacing both Forms 10B and 10BB.

The most critical change is the filing deadline: Form 112 must be filed at least one month before the ITR due date under Section 263(1), not on the same date as before. This effectively moves the audit completion deadline forward by one month.

Form 112 introduces differential reporting-small RNPOs (regular income ≤ Rs 5 crore, no foreign contribution, no overseas application) file simplified schedules, while large RNPOs face expanded disclosures covering foreign contributions, overseas application, detailed investment verification, and related-party transactions.

NPOs must plan their annual compliance calendar to accommodate the earlier audit deadline, ensure their CA is using the correct Form 112, and prepare granular expenditure records for the 85% application computation.

Need Help with NPO Audit Compliance Under the New Act?

The transition from Forms 10B/10BB to Form 112, the advanced filing deadline, and the differential reporting requirements create significant compliance obligations for all RNPOs. Whether your trust is a small community organisation or a large educational institution, planning the audit early and ensuring your CA is ready for the new form is essential.

Explore our income tax return filing (https://www.patronaccounting.com/income-tax-return) and tax audit services for end-to-end NPO compliance support-including Form 112 preparation, 85% application computation, investment verification, and ITR-7 filing under the new Act.

For queries, reach out at +91 945 945 6700 or WhatsApp us directly.