Trust and NGO Audit Guide: FCRA, 80G, 12A Compliance for CA Firms [2026]

The not-for-profit sector in India operates through a web of legal structures — public charitable trusts, private trusts, Section 8 companies, and societies — each governed by different legislation, different regulators, and different compliance requirements. For CA firms, auditing trusts and NGOs requires navigating this overlapping regulatory landscape while addressing the specific compliance demands of the Income Tax Act (12A and 80G), the Foreign Contribution (Regulation) Act (FCRA), the Companies Act (for Section 8 companies), and various state-level laws.

What makes this practice area particularly demanding is that the consequences of non-compliance are severe and often irreversible. Loss of 12A registration means the entity loses its income tax exemption — potentially retroactively. FCRA cancellation means the entity can no longer receive foreign funding, which for many NGOs means an existential threat. 80G cancellation eliminates the tax benefit for donors, which directly affects the entity's fundraising capacity.

This guide provides CA firms with a comprehensive framework for auditing trusts and NGOs, covering entity types, registration requirements, audit scope for each compliance regime, key verification areas, FCRA-specific requirements, and a practical compliance checklist.

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Types of Not-for-Profit Entities in India

The choice of legal structure determines the governing law, regulatory requirements, and audit obligations. CA firms must understand the structural differences to apply the correct compliance framework.

Public Charitable Trust

Public charitable trusts are created by a trust deed and registered under the relevant state Public Trusts Act (such as the Maharashtra Public Trusts Act, 1950, or the Bombay Public Trusts Act). Not all states have specific public trust legislation — in states without a dedicated act, trusts are governed by the Indian Trusts Act, 1882, and general charity law.

The trust deed defines the trust's objects, the powers of the trustees, the beneficiary class, and the rules for fund management. A public charitable trust exists for the benefit of the public at large (or a significant section of the public), distinguishing it from a private trust which benefits specific individuals.

Audit requirements for public charitable trusts depend on the state act (if applicable), the Income Tax Act (if registered under 12A), and FCRA (if receiving foreign contributions). In Maharashtra, for example, the Charity Commissioner prescribes audit requirements for trusts registered under the Maharashtra Public Trusts Act.

Private Trust

Private trusts are created for the benefit of specified individuals (typically family members) and are governed by the Indian Trusts Act, 1882. Private trusts do not qualify for 12A or 80G registration and are not eligible for FCRA registration. Their audit requirements are determined by the trust deed and applicable tax provisions.

While private trusts are not the primary focus of this guide (which addresses charitable/not-for-profit entities), CA firms should note that the distinction between public and private trusts has significant tax consequences. An entity structured as a private trust that claims charitable status will face scrutiny from tax authorities.

Section 8 Company

A Section 8 company is a company formed under Section 8 of the Companies Act, 2013, for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other useful purpose. Section 8 companies enjoy the privilege of operating without the word "Limited" or "Private Limited" in their name.

Section 8 companies are governed by the Companies Act with certain exemptions. They require a statutory audit under the Companies Act, in addition to any audit requirements under the Income Tax Act and FCRA. The dual compliance requirement — Companies Act plus income tax/FCRA — makes Section 8 company audits relatively complex.

Society Registered Under the Societies Registration Act

Societies are registered under the Societies Registration Act, 1860, or corresponding state amendments. A society is an association of persons (minimum seven in most states) united for a literary, scientific, or charitable purpose. Societies are widely used by NGOs, educational institutions, hospitals, and cultural organisations.

Societies are governed by their memorandum of association and rules (equivalent to a trust deed and bye-laws). Audit requirements depend on the state's Societies Registration Act provisions, the Income Tax Act, and FCRA.

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Registration Requirements — The Compliance Stack

Not-for-profit entities typically maintain multiple registrations, each creating its own compliance and audit obligations. Understanding this "compliance stack" is essential for planning audit procedures.

12A Registration — Income Tax Exemption

Registration under Section 12A (read with Section 12AA/12AB) of the Income Tax Act is the foundational registration for any charitable entity seeking income tax exemption. Without 12A registration, the entity's income is taxable at the applicable rate, and it cannot claim exemption under Sections 11 and 12.

Post the 2020 amendment (Finance Act, 2020), all existing 12A registrations were required to be renewed under the new Section 12AB framework. New registrations are granted provisionally for three years (for newly formed entities) and then renewed for five years upon demonstrating actual charitable activities. Existing entities also received five-year registrations subject to renewal.

The auditor's role in 12A compliance includes verifying that the entity has valid 12A registration, that the entity's activities are in accordance with its stated objects, that the application of income meets the prescribed thresholds, and that the entity has not engaged in any activity that would trigger cancellation of registration.

80G Registration — Donor Tax Benefit

Registration under Section 80G enables donors to the entity to claim tax deductions for their donations. This registration is separate from 12A — an entity can have 12A without 80G, though most charitable entities seek both.

Post the 2020 amendment, 80G registrations follow the same provisional-to-regular framework as 12A. The entity must demonstrate that it is genuinely carrying out charitable activities and that donations are being utilised for the stated objects.

A critical compliance requirement introduced by the 2020 amendments is the filing of Form 10BD (Statement of Donations) and issuance of Form 10BE (Certificate of Donation) to donors. The entity must file Form 10BD by 31 May each year, reporting all donations received during the previous financial year with donor details. Form 10BE must be issued to each donor as a certificate confirming the donation.

The auditor must verify that the entity has filed Form 10BD on time, that the details reported match the entity's books, and that Form 10BE has been issued to donors.

FCRA Registration — Foreign Contributions

The Foreign Contribution (Regulation) Act, 2010, governs the receipt and utilisation of foreign contributions by not-for-profit entities. Any entity receiving contributions from foreign sources (foreign governments, foreign companies, foreign citizens, or organisations with more than 50% foreign funding) must be registered under FCRA or obtain prior permission for specific contributions.

FCRA registration is granted by the Ministry of Home Affairs (MHA) and is subject to stringent conditions. Post the FCRA Amendment Act, 2020, several significant changes were introduced that directly affect the audit:

• All FCRA-registered entities must maintain a designated FCRA account with the State Bank of India, New Delhi Main Branch
• Foreign contributions must first be received in this designated SBI account before being transferred to a utilisation account
• Administrative expenses are capped at 20% of foreign contributions received
• FCRA registration must be renewed every five years

DARPAN Registration — Government Grants

NGO DARPAN is a portal maintained by NITI Aayog for creating a database of NGOs. Registration on DARPAN (and obtaining a Unique ID) is mandatory for NGOs seeking grants or funding from central government ministries. While DARPAN registration itself does not create audit obligations, the government grants received through DARPAN-listed NGOs carry their own utilisation and reporting conditions.

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Audit Requirements by Compliance Regime

Income Tax Audit Under Section 12A(1)(b)

Every entity registered under Section 12A that has total income exceeding the basic exemption limit (before applying Section 11 exemptions) must get its accounts audited and file the audit report in Form 10B or Form 10BB (as applicable).

Form 10B applies to entities with total income exceeding Rs. 5 crore, or entities that have received foreign contributions, or entities that have applied income outside India. Form 10BB applies to all other entities — essentially smaller entities with no foreign contribution or overseas activities.

The audit report requires the auditor to verify and certify:

• Whether the entity has applied at least 85% of its income during the previous year (the "application of income" requirement)
• Whether accumulations beyond the 85% threshold are held in approved forms of investment
• Whether corpus donations have been treated correctly (not counted as income for the 85% application test)
• Whether specific donations (earmarked for particular purposes) have been applied for those purposes
• Whether the entity has engaged in any activity outside its stated objects
• Whether the entity has provided any benefit to specified persons (trustees, settlors, or their relatives) in violation of Section 13

FCRA Audit — Form FC-4

Every FCRA-registered entity must file an annual return in Form FC-4 within nine months of the close of the financial year. Form FC-4 must be accompanied by audited financial statements and a chartered accountant's certificate.

The FCRA audit is a distinct engagement from the income tax audit. The FCRA audit specifically covers:

• Receipt of foreign contributions — sources, amounts, and purposes
• Utilisation of foreign contributions — programmes, projects, and activities funded
• Administrative expenses — verification that administrative expenses do not exceed 20% of foreign contributions received
• Designated and utilisation bank accounts — verification that all foreign contributions were first received in the designated SBI account
• Assets created from foreign contributions — verification that assets acquired using foreign contributions are properly recorded and used for the stated purposes
• Compliance with FCRA conditions — including restrictions on transfer of foreign contributions to other entities

Companies Act Audit for Section 8 Companies

Section 8 companies are subject to statutory audit under the Companies Act, 2013. This audit follows the standard companies audit framework — SA compliance, CARO reporting (where applicable), and directors' responsibility statement. However, Section 8 companies receive certain exemptions from Companies Act provisions, and the auditor must understand which exemptions apply.

The Companies Act audit for a Section 8 company is typically conducted alongside the income tax audit and FCRA audit (if applicable). Firms must plan the combined engagement to avoid duplication of procedures while ensuring each reporting requirement is fully addressed.

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Key Audit Areas

Application of Income — The 85% Rule

The 85% application rule is the central compliance requirement for 12A-registered entities. The entity must apply at least 85% of its income (computed before applying Section 11 exemptions) towards its charitable objects during the previous year.

"Application" means actual expenditure on charitable activities — not merely setting aside funds or earmarking reserves. Capital expenditure on assets used for charitable purposes qualifies as application. Accumulation beyond the 15% automatic allowance requires the entity to file Form 10 specifying the purpose and period of accumulation (maximum five years).

The auditor must compute the application percentage, verify that claimed expenditure genuinely relates to charitable activities, ensure that accumulated funds are invested in approved forms (government securities, deposits with scheduled banks, or other approved instruments), and verify that prior-year accumulated amounts have been applied within the specified period.

Corpus Donations

Corpus donations (donations made with a specific direction from the donor that the amount shall form part of the corpus) are not treated as income for computing the 85% application threshold. However, corpus donations must be invested in approved forms, and only the income earned on corpus investments needs to be applied.

The auditor must verify that donations treated as corpus genuinely carry a specific direction from the donor. A general donation without specific corpus direction cannot be reclassified as corpus by the entity. The auditor should examine donation receipts, acknowledgement letters, and donor communications to verify the corpus designation.

Foreign Contributions — End-Use Compliance

For FCRA-registered entities, the auditor must trace foreign contributions from receipt to utilisation. This involves:

Bank account verification — Confirming that all foreign contributions were received in the designated SBI account, New Delhi Main Branch. Any receipt of foreign contribution in any other account is a violation.

Utilisation tracking — Verifying that foreign contributions were utilised for the purposes specified in the FCRA registration or prior permission application. If the entity received funds for a specific project, the auditor must verify that the funds were spent on that project.

Administrative expense cap — Computing the 20% administrative expense ratio. Administrative expenses include salaries of non-programme staff, office rent, utilities, travel of administrative staff, and other overhead costs. The 20% cap applies to the total foreign contribution received during the year, not cumulatively.

Transfer restrictions — Verifying that the entity has not transferred foreign contributions to other entities unless the receiving entity is also FCRA-registered and the transfer is reported to the MHA.

Quarterly reporting — FCRA-registered entities must upload details of foreign contributions received and utilised on the FCRA portal on a quarterly basis. The auditor should verify that quarterly filings have been made.

CSR Fund Utilisation

Some not-for-profit entities receive Corporate Social Responsibility (CSR) funds from companies obligated to spend on CSR under Section 135 of the Companies Act. Entities receiving CSR funds must ensure that the funds are utilised for activities specified in Schedule VII of the Companies Act, and that unspent amounts are transferred to the Unspent CSR Account or a Fund specified in Schedule VII within the prescribed time.

The auditor must verify that CSR funds received are separately tracked, utilised for eligible activities, and reported correctly. Non-utilisation or diversion of CSR funds creates compliance issues for both the receiving entity and the contributing company.

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FCRA-Specific Requirements in Detail

Given the severity of FCRA non-compliance consequences (cancellation of registration, seizure of funds, criminal prosecution), FCRA compliance deserves detailed attention in the audit.

Designated Bank Account — SBI New Delhi Main Branch

Post the 2020 amendment, every FCRA-registered entity must open a designated account with the State Bank of India, New Delhi Main Branch (now designated as the FCRA account). All foreign contributions must first be received in this account. The entity may then transfer funds from this designated account to one or more utilisation accounts (in any scheduled bank) for actual spending.

The auditor must obtain and review the designated SBI account statements, verify that all foreign receipts are routed through this account, and confirm that no foreign contribution has been received directly in any utilisation or other account.

Administrative Expense Cap — 20% Maximum

The 20% ceiling on administrative expenses is strictly enforced. The definition of "administrative expenses" under FCRA includes all expenses that are not directly attributable to project or programme execution. The auditor must classify each expense item as either programme expense or administrative expense and compute the ratio.

If the entity's administrative expenses exceed 20%, the entity must apply to the MHA for approval of higher administrative expenses before exceeding the limit. Unapproved overruns are a serious compliance failure.

Restrictions on Activities

FCRA-registered entities face restrictions on certain activities. Foreign contributions cannot be used for activities that are detrimental to national interest, or for speculative activities. The entity cannot use foreign funds to support political activities or the activities of political parties.

The auditor should review the entity's activity reports and programme descriptions to verify that foreign-funded activities fall within permissible categories and the entity's registered objectives.

Annual Return Filing — Form FC-4

Form FC-4 must be filed online on the FCRA portal within nine months of the close of the financial year. The return includes details of all foreign contributions received (donor-wise), utilisation statements (project-wise), bank statements, and the audited accounts with the CA certificate.

Late filing or non-filing of FC-4 can trigger suspension or cancellation of FCRA registration. The auditor should verify that the entity has filed FC-4 on time and that the reported figures match the audited accounts.

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80G Compliance — Post-2020 Amendment Requirements

Renewal Every Five Years

Post the 2020 amendment, 80G registrations are no longer perpetual. Entities must apply for renewal at least six months before the expiry of their current registration. The renewal application requires the entity to demonstrate that it has been genuinely carrying out charitable activities, that donations have been properly utilised, and that the entity has complied with all applicable conditions.

The auditor should verify the validity period of the entity's 80G registration and flag any upcoming renewal requirements. Failure to renew on time results in loss of 80G status, which directly impacts donors.

Form 10BD and Form 10BE

Form 10BD is an annual statement of donations that the entity must file with the income tax department by 31 May. This form reports details of all donations received during the financial year — donor name, PAN, address, donation amount, and mode of receipt.

Form 10BE is a certificate of donation that must be issued to each donor. Donors need Form 10BE to claim their tax deduction under Section 80G.

The auditor must verify that the entity has filed Form 10BD on time, that the information matches the entity's donation register and bank records, and that Form 10BE has been issued to all donors. Discrepancies between Form 10BD data and the entity's books should be investigated and resolved.

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Common Findings and Penalties

Common Audit Findings

Failure to apply 85% of income — The most common finding, often resulting from delayed project execution, over-accumulation, or classification of donations as corpus without proper donor direction.

FCRA account irregularities — Receiving foreign contributions in accounts other than the designated SBI account, failure to transfer funds from designated to utilisation accounts in a timely manner, or commingling foreign and domestic funds in the same account.

Administrative expense overruns — Exceeding the 20% FCRA cap on administrative expenses without prior MHA approval, often due to incorrect classification of expenses as programme costs.

Anonymous donations — Accepting anonymous donations exceeding the limits prescribed under Section 115BBC. Charitable trusts and institutions must not accept anonymous donations exceeding Rs. 1 lakh or 5% of total donations (whichever is higher) for religious trusts, and anonymous donations to non-religious trusts are taxable.

Non-filing of Form 10BD — Missing the 31 May deadline for filing the statement of donations, which triggers penalties and can affect the entity's 80G compliance status.

Benefit to specified persons — Providing benefits (salary, loans, use of property) to trustees, settlors, or their relatives in excess of reasonable compensation, which triggers taxation under Section 13 and potential loss of 12A exemption.

Penalty Framework

Penalties for non-compliance vary by the regulatory regime:

• Income Tax Act — Loss of 12A/80G registration (cancellation or non-renewal), resulting in full taxation of income and loss of donor tax benefit
• FCRA — Suspension of registration (180 days, extendable), cancellation of registration, seizure of funds in FCRA accounts, criminal prosecution of office bearers
• Companies Act (Section 8) — Penalties for non-compliance with Companies Act provisions, potential loss of Section 8 licence

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Compliance Checklist for CA Firms

Registration validity checks:

• Verify 12A registration validity and renewal date
• Verify 80G registration validity and renewal date
• Verify FCRA registration validity and renewal date
• Confirm DARPAN registration (if receiving government grants)

Income tax compliance:

• Compute application of income percentage (85% test)
• Verify accumulation forms (Form 10) filed for excess accumulation
• Verify investment of accumulated funds in approved instruments
• Review corpus donation documentation for proper donor direction
• Verify Form 10BD filed by 31 May
• Confirm Form 10BE issued to all donors
• Check compliance with Section 13 (no benefit to specified persons)

FCRA compliance:

• Verify designated SBI account is operational
• Trace all foreign receipts through designated account
• Compute administrative expense ratio (20% cap)
• Verify quarterly reporting on FCRA portal
• Confirm Form FC-4 filed within nine months
• Review foreign contribution utilisation against approved purposes
• Verify no prohibited transfers to non-FCRA entities

General compliance:

• Review governing document (trust deed, MOA, bye-laws) for any amendments
• Verify management/trustee composition and governance compliance
• Review minutes of governing body meetings
• Confirm tax audit report filed (Form 10B/10BB as applicable)
• Check TDS compliance on payments made

This checklist should be adapted based on the specific entity type and applicable registrations. Firms should integrate these checks within their broader quality management framework, ensuring compliance with SQM 1 and EQCM standards across all not-for-profit audit engagements.

For entities where the CA firm also serves the CSR and nonprofit sector, maintaining a specialised team with current knowledge of FCRA amendments, income tax circulars, and MHA notifications is essential for delivering reliable audit services.

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Conclusion

Trust and NGO audits sit at the intersection of multiple regulatory regimes, each with its own compliance requirements, filing deadlines, and enforcement mechanisms. For CA firms, this creates complexity — but also opportunity. Firms that develop genuine expertise in not-for-profit audit become indispensable to their clients, who often struggle to navigate the overlapping requirements of the Income Tax Act, FCRA, Companies Act, and state-level regulations.

The key to success in this practice area is staying current. The regulatory environment for not-for-profit entities has changed significantly in recent years — the 2020 amendments to FCRA and the Income Tax Act alone introduced fundamental changes to registration renewal, bank account requirements, administrative expense caps, and donor reporting obligations. Firms that rely on outdated knowledge expose their clients to serious compliance risks.

Approach each engagement with a clear understanding of the entity's compliance stack — which registrations it holds, which reporting obligations flow from each registration, and which audit procedures are needed to verify compliance across all applicable regimes. Document thoroughly, report accurately, and recognise that your audit report may be the primary evidence of compliance that stands between the entity and regulatory action.

Not-for-profit audit is not the most glamorous practice area, but it is among the most consequential. The entities you audit serve vulnerable populations, channel resources to critical social needs, and depend on their compliance status to continue operating. Getting the audit right matters — not just to your client, but to the communities they serve.