NGO Audit & ITR Filing
An NGO audit is an examination of the financial records, activities, and operations of a non-governmental organization (NGO) to ensure transparency, accountability, and compliance with regulations.
It involves reviewing the organization’s financial statements, internal controls, and adherence to legal requirements.
On the other hand, ITR stands for Income Tax Return. It’s a form where taxpayers declare their taxable income, deductions, and details of taxes paid to the government.
NGOs also need to file income tax returns to report their income and claim exemptions, if eligible.
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Under which act NGO audit and ITR filing get done?
Non-Governmental Organizations (NGOs) in India are subject to specific laws and regulations for audit and Income Tax Return (ITR) filing. Here are the relevant acts and provisions:
1. Audit of NGOs
NGOs in India can be registered under various acts, and the audit requirements depend on the nature and registration of the NGO. Commonly, NGOs are registered under the following acts:
- – Societies Registration Act, 1860
– Indian Trusts Act, 1882
– Companies Act, 2013 (Section 8 companies)
Audit Requirements:
Societies Registration Act, 1860: Societies registered under this act are required to maintain proper books of accounts and get them audited annually by a qualified Chartered Accountant.
Indian Trusts Act, 1882: Trusts are required to maintain proper accounts and have them audited if they receive any grants from the government or if it is mandated by the trust deed.
Companies Act, 2013: Section 8 companies (Non-profit companies) are required to have their financial statements audited annually by a statutory auditor. The provisions for auditing under the Companies Act, 2013 apply to Section 8 companies.
2. Income Tax Return (ITR) Filing for NGOs
NGOs are required to file their Income Tax Returns under the Income Tax Act, 1961. The relevant sections and forms include:
- Section 12A: This section provides for the registration of the NGO to claim exemption from income tax.
- Section 80G: Donations to NGOs registered under this section are eligible for deduction in the donor’s taxable income.
- Section 10(23C): Certain specified incomes of NGOs are exempt from income tax.
ITR Forms for NGOs:
- Form ITR-7: NGOs are required to file their income tax returns using Form ITR-7. This form is used by individuals and entities that are required to file returns under sections 139(4A), 139(4B), 139(4C), and 139(4D) of the Income Tax Act, 1961.
What are the required docuemnts NGO Audit and ITR Filing ?
For NGO audit, the required documents typically include:
- Financial Statements: Balance Sheet, Income and Expenditure Statement, Receipt and Payment Account.
- Bank Statements: Showing all transactions related to the NGO accounts.
- Receipts and Invoices: Supporting documents for income and expenses.
- Donation Details: Including donor information, amounts, and purposes.
- Utilization Certificates: If funds were received for specific projects.
- FCRA Compliance Documents: If applicable, such as FCRA registration certificate, FCRA annual returns.
- Previous Audit Reports: If any.
- Any other relevant financial documents: Contracts, agreements, etc.
For ITR registration, the required documents typically include:
- PAN Card: Permanent Account Number of the NGO.
- Registration Certificate: Certificate of registration of the NGO.
- Bank Statements: Showing income and expenses.
- Income and Expense Details: Including details of donations, grants, etc.
- Audit Report: If applicable.
- Form 16/16A: TDS certificates.
- Balance Sheet and Profit & Loss Account: For the financial year.
- Any other relevant financial documents: Supporting the financial transactions of the NGO.
What is the process of NGO Audit and ITR filing?
An NGO audit is an independent review of a Non-Governmental Organization’s activities to assess its financial health, governance practices, and program effectiveness. Here’s a breakdown of the typical auditing process for NGOs:
Pre-Audit Activities:
Planning and Engagement:
- The NGO and the independent auditor establish the scope and objectives of the audit. This could involve a financial audit, a compliance audit, or a program evaluation.
- The auditor gathers information about the NGO activities, financial systems, and internal controls.
Understanding the NGO:
- The auditor familiarizes themselves with the NGO mission, programs, funding sources, and any relevant regulations.
Audit Procedures:
Financial Audit:
- The auditor reviews the NGO financial statements (income, expenditure, balance sheet) to ensure accuracy and adherence to accounting standards.
- They verify receipts, invoices, and bank statements to ensure proper financial management.
Compliance Audit:
- The auditor assesses whether the NGO is complying with relevant laws and regulations, including tax regulations, donor restrictions, and employment laws.
Program Evaluation (Optional):
- This assesses the effectiveness, efficiency, and impact of the NGO programs.
- The auditor might use methods like reviewing program documents, conducting surveys or interviews with beneficiaries, and site visits.
Reporting and Follow-Up:
Audit Report:
- The auditor prepares a report summarizing their findings, including any identified weaknesses or areas for improvement.
- The report provides recommendations for the NGO to address any issues.
Management Response:
- The NGO management reviews the audit report and prepares a response outlining their plan to address the auditor’s recommendations.
Process of NGO ITR Filing
Here’s a breakdown of the process for filing Income Tax Returns (ITR) for NGOs in India:
Step 1: Gather Required Documents
- Financial Statements: Audited financial statements for the relevant financial year are crucial. If your NGO isn’t required to undergo an audit, you’ll need to have your accounts prepared by a Chartered Accountant.
- PAN Card: Ensure you have a valid PAN card for your NGO.
- Registration Documents: Keep copies of your NGO registration documents like Trust Deed, Society Registration Certificate, or Section 8 company certificate handy.
- Donation Receipts: You’ll need records of all donations received during the year.
- Expense Records: Maintain proper documentation for all your NGO expenditures.
Step 2: Select the Appropriate ITR Form
- ITR-7: For most NGOs, the applicable ITR form for filing returns is ITR-7. This form is used by persons required to file returns under specific sections of the Income Tax Act, 1961, which applies to NGOs.
Step 3: Prepare the ITR return Electronically
- Online Filing: The Income Tax Department encourages electronic filing of ITR. You can use the official department website (https://www.incometax.gov.in/iec/foportal/) to access e-filing functionalities.
- Tax Professionals: Consider consulting a Chartered Accountant or tax professional specializing in NGO taxation for assistance with preparing the ITR accurately.
Step 4: E-filing and Verification
- Once the ITR is prepared electronically, you can submit it online.
- Digital Signature Certificate (DSC): If your NGO has a DSC, you can use it for digital verification of the ITR.
- Verification via Verification Code: Alternatively, you can verify the ITR using a verification code sent to your registered email or mobile number.
Step 5: Important Dates and Deadlines
- The due date for filing ITR for NGOs is generally October 31st of the assessment year. However, it’s advisable to file well before the deadline to avoid any last-minute complications.
What are the benefits of NGO audit and ITR registrtion?
- Transparency and Accountability: NGO audits ensure transparency in financial operations, helping stakeholders understand how funds are utilized. ITR filings showcase the financial details to the tax authorities, promoting accountability.
- Compliance: Conducting NGO audits and filing ITR ensure compliance with legal requirements, such as the Income Tax Act and the FCRA. This helps NGOs avoid penalties and maintain their legal status.
- Credibility: By undergoing audits and filing ITR, NGOs demonstrate financial responsibility and credibility to donors, supporters, and the public, enhancing trust in the organization.
- Tax Exemptions: Proper ITR filings enable NGOs to claim tax exemptions and benefits available to charitable organizations, allowing them to maximize resources for their social causes.
- Risk Mitigation: Regular audits and ITR filings help identify financial irregularities, errors, or discrepancies early, allowing corrective actions to be taken promptly and reducing the risk of financial mismanagement.
What we can offer?
Here are some additional services you can offer to NGOs (Non-Governmental Organizations) beyond core accounting and tax filing:
Fundraising and Grant Management:
- Develop Fundraising Strategies: Assist in creating comprehensive fundraising strategies aligned with the NGO mission and target donors.
- Grant Proposal Writing: Help with writing compelling grant proposals to secure funding from government agencies, foundations, and individual donors.
- Donor Management System: Implement a donor management system to manage donor relationships, track contributions, and ensure transparency and accountability.
- Donor Cultivation: Develop strategies to cultivate relationships with potential donors and build a strong donor base.
Communication and Advocacy:
- Develop Communication Strategies: Create effective communication strategies to raise awareness about the NGO mission and activities.
- Marketing and Public Relations: Assist with marketing and public relations efforts to increase the NGO visibility and brand recognition.
- Advocacy Support: Provide guidance and support for advocacy efforts aimed at influencing policies and legislation relevant to the NGO cause.
Additional Specialized Services (depending on your expertise):
- Legal Compliance: Offer guidance on legal and regulatory matters specific to NGOs.
- Human Resource Management: Assist with HR functions like recruitment, training, and performance management.
- Risk Management: Help develop and implement risk management frameworks to identify and mitigate potential risks for the NGO.
By offering a combination of these services, you can become a valuable partner for NGOs, helping them navigate the complexities of running a non-profit organization, secure funding, manage projects effectively, and achieve their social goals. Remember to tailor your service offerings to the specific needs and challenges faced by different NGOs.