Investing

Accounting for income taxes is a critical aspect of financial reporting. It affects not only a company’s financial position but also its future tax obligations. 

The AS 22 Accounting Standard, issued by the Institute of Chartered Accountants of India (ICAI), governs how companies account for taxes on income, particularly deferred taxes. 

This guide helps you understand AS 22 with clarity, using practical examples to illustrate its application.

Read on…

Understanding the Objectives of AS 22

The primary objective of AS 22 is to prescribe how a company should account for current and future tax consequences of:

• The future recovery (settlement) of the carrying amount of assets (liabilities).
  
• Transactions and events recognized in the financial statements during the current period.

It ensures the matching of tax expenses with accounting income, so that the financial statements reflect a true and fair view of the company’s performance and obligations.

Scope and Applicability of AS 22

AS 22 applies to all enterprises that are required to prepare financial statements under the Companies Act, 2013 or similar laws.

• It is mandatory for companies and LLPs, especially those covered under tax audits.
  
• It does not apply to entities that follow cash accounting or are not subject to direct tax laws.
  
• AS 22 is aligned with Indian income tax laws and does not cover deferred taxes arising from assets not recognised in the books.

Key Definitions and Terminology in AS 22

Let’s break down a few key terms:

• Accounting Income: Net profit or loss as per the profit & loss account before tax.
  
• Taxable Income: Income computed as per income tax laws, which forms the base for income tax calculation on salary or business earnings.
  
• Current Tax: The amount of tax payable for a period, based on taxable income.
  
• Deferred Tax: Future tax consequences due to differences between accounting income and taxable income.
  
• Timing Differences: Differences that originate in one period and reverse in another.
  
• Permanent Differences: Differences that do not reverse over time (e.g., disallowed expenses).

Recognition of Tax Effects: Current and Deferred

Current Tax Expense

The current tax is straightforward, computed using the prevailing tax rate on taxable income. For salaried employees, this includes income tax calculation on salary, while for businesses, it involves computing taxable profits as per the Income Tax Act.

Example:
If a company earns Rs 10,00,000 as per tax rules and the applicable tax rate is 30%, the current tax liability would be Rs 3,00,000.

Deferred Tax Assets and Liabilities

These arise due to timing differences and affect taxes payable in future years.

Calculation of Deferred Tax Assets

A Deferred Tax Asset (DTA) arises when taxable income is higher than accounting income, leading to future tax benefits.

Example:
A company makes a provision for doubtful debts of Rs 1,00,000 in its financials, but this is not allowed for tax purposes. Taxable income is higher now, but this difference will reverse when the actual bad debt occurs.

If the tax rate is 30%,
Deferred Tax Asset = Rs 1,00,000 × 30% = ₹30,000

Calculation of Deferred Tax Liabilities

A Deferred Tax Liability (DTL) occurs when accounting income is higher than taxable income due to temporary differences.

Example:
A company uses a straight-line method (SLM) for depreciation in books but written down value (WDV) for tax purposes. This results in lower taxable income in early years and a future liability.

If depreciation difference is Rs 2,00,000, and the tax rate is 30% –
Deferred Tax Liability = Rs 2,00,000 × 30% = Rs 60,000

Types of Tax Differences: Permanent and Timing

Tax differences are classified into permanent and timing differences. Permanent differences do not reverse over time, while timing differences arise in one period and reverse in another, impacting the recognition of deferred tax assets or liabilities.

Permanent Differences: Examples and Implications

These do not reverse over time and hence do not give rise to deferred tax.

Examples:

• Penalties or fines (disallowed under tax laws)
  
• Donations to NGOs without 80G benefit
  
• Income exempt under Section 10

Implication: These differences only affect current tax; no DTA or DTL is created.

Timing Differences: Analysis and Impact on Deferred Taxes

Identifying Timing Differences

Timing differences arise when income or expense is recognized in different periods in books and tax computation.

Common Sources:

• Depreciation methods
  
• Provisions for expenses
  
• Preliminary expenses amortization
  
• Gratuity payments

Impact on Future Taxable Income/Expense

Timing differences will reverse in future years, affecting income tax of those periods. This necessitates the recognition of DTA or DTL, ensuring income is matched with its tax impact.

Accounting for Deferred Tax Assets and Liabilities

Valuation and Measurement of Deferred Tax Assets

Deferred Tax Assets are measured using enacted or substantively enacted tax rates at the balance sheet date.

Key condition: There must be reasonable certainty that future taxable income will be available.

In case of carry-forward losses, virtual certainty supported by convincing evidence is required.

Valuation and Measurement of Deferred Tax Liabilities

Deferred tax liabilities are also measured at enacted tax rates. Since they indicate tax payable in future due to income already earned, they are generally recognized without additional conditions.

Recognition and Derecognition Criteria

Recognition:

• DTA is recognized only when there’s probable future taxable income.
  
• DTL is always recognized if timing differences exist.

Derecognition:

• If circumstances change and future taxable income is no longer probable, DTA must be reversed.
  
• DTL is reversed when timing differences are realized or expired.

Disclosure Requirements under AS 22

Required Disclosures in Financial Statements

• The major components of DTA and DTL
  
• The nature of timing differences
  
• Amount of DTA/DTL recognized in P&L

Presentation of Deferred Tax Assets and Liabilities

• DTA and DTL are not netted off, unless from the same governing authority.
  
• They are shown as non-current assets or liabilities.
  

Practical Application and Examples of AS 22

Case Studies Illustrating AS 22 Principles

Case Study 1: Provision for Gratuity

ABC Ltd. creates a provision of Rs 1,50,000 for gratuity in books, but this is allowed for tax only on payment.

• DTA = Rs 1,50,000 × 30% = Rs 45,000
  
• This is reversed when gratuity is paid in the next year.
  

Case Study 2: Depreciation Difference

XYZ Ltd. has a depreciation difference of Rs 5,00,000 (SLM in books and WDV in tax). It results in:

• DTL = Rs 5,00,000 × 30% = Rs 1,50,000

This DTL is reduced in future years as the difference narrows.

Common Scenarios and Solutions

Scenario	AS 22 Treatment
Disallowed expense (penalty)	Permanent difference – no DTA
Provision for doubtful debts	Timing difference – DTA
Income from agriculture	Permanent difference – ignored
Preliminary expenses amortized over years	DTA allowed on balance amount
Different depreciation methods	DTL in initial years

Amendments and Updates to AS 22

While AS 22 Accounting Standard has not undergone many structural changes, it is important to note its convergence with Ind AS 12 in case of large enterprises.

Recent emphasis includes:

• Proper recognition of DTA on Minimum Alternate Tax (MAT) credit.
  
• More stringent documentation for virtual certainty in DTA.
  

For professionals and businesses subscribing to stock advisory services, especially for financial planning or tax estimation, staying updated with any future revisions to AS 22 is crucial.

Conclusion

The AS 22 Accounting Standard plays a crucial role in aligning the tax implications with financial performance. By focusing on both current and deferred tax, it ensures transparency in reporting and helps investors, tax professionals, and analysts make informed decisions.

In today’s era of complex transactions and dynamic regulations, aligning with a competent stock advisory service and staying informed about tax standards like AS 22 can offer a significant edge.

Frequently Asked Questions (FAQs)

What is the accounting entry for income tax paid?
The accounting entry for income tax paid involves debiting the income tax payable account and crediting the bank account.

What is the accounting entry for tax payable?
The accounting entry for tax payable includes debiting the income tax expense account and crediting the income tax payable account. 

Is income tax paid an expense or a liability?
Income tax is both an expense and a liability. When the tax is calculated for the period, it becomes an expense. Until the amount is paid, it is shown as a liability in the balance sheet under current liabilities or provisions.

Is income tax debited or credited?
Income tax is debited to the Profit & Loss account because it represents a cost incurred by the business. 

What are the key differences between AS 22 and IAS 12?

Accounting Standard 22 (AS 22) is based on timing differences, whereas International Accounting Standard 12 (IAS 12) follows the temporary difference approach. AS 22 applies under Indian Generally Accepted Accounting Principles (Indian GAAP), while IAS 12 is aligned with International Financial Reporting Standards (IFRS). The conditions for recognizing Deferred Tax Assets (DTA) and the treatment of revaluation gains also differ significantly between the two standards.

What does tax reconciliation entail?
Tax reconciliation involves comparing accounting income with taxable income to identify differences. 

What is the basic principle for accounting for income taxes under AS 22?

It’s the matching principle: tax expenses should be recognized in the same period as the related income or expense, ensuring fair presentation of financial results.

How to handle changes in tax rates?

If the enacted or substantively enacted tax rate changes, the DTA and DTL are recomputed using the new rate, and the change is reflected in the profit & loss account.

How to account for uncertain tax positions?

Although AS 22 does not provide a detailed framework for uncertain tax positions, best practices involve disclosing contingent liabilities, refraining from recognizing deferred tax assets unless there is reasonable certainty, and seeking guidance from tax experts or professional tax  services.

Introduction

What is Form 10 in Income Tax?

Say a trust aims to build a hospital and intends to accumulate any income it gets. As a trust, it can usually claim tax benefits if at least 85% of the income is utilised for charitable activities or any other activity relevant to the trust’s intentions. But here, since it is accumulating, will the tax benefits lapse? Form 10 (Income Tax) steps as a solution in such situations. 

Form 10 under the Income Tax Act is used by charitable and religious trusts that want to accumulate income instead of applying it immediately for their declared purposes. Filing this form ensures that such accumulation doesn’t lose tax exemption benefits under Section 11(2) of the Act. 

If you’re managing a trust or institution, understanding Form 10 is important for long-term financial planning.

Importance of Form 10 for Charitable and Religious Trusts

When you’re unable to utilize the entire income of your trust in the same year, Form 10 helps you legally set aside the funds for future use. This is especially useful when your projects are large or span multiple years, allowing you to retain tax exemption on unapplied income as long as it’s declared properly.

Who Needs to File Form 10?

Eligible Entities Under Section 11(2) of the Income Tax Act

Any charitable or religious trust or institution in India can file Form 10 income tax if they plan to accumulate income rather than apply it immediately for their stated objectives. This filing helps them continue claiming tax exemptions under Sections 11, 12AA, and 10(23C) of the Income Tax Act.

To be eligible, the organisation must be registered under the relevant section, and it must declare the intention to set aside income for future use within the compliance limits of Section 11(2). This is especially useful when the income exceeds what can be spent within a financial year.

Applicability to Charitable and Religious Institutions

Form 10 is applicable to trusts and institutions working for religious or charitable causes. This includes those involved in education, healthcare, or public welfare. NGOs operating as societies or Section 8 companies must first register under Section 12AB to qualify. Only after this registration can they claim exemptions and submit Form 10 to set apart income for future activities.

Purpose of Filing Form 10

Declaration for Accumulation or Setting Apart of Income

Charitable or religious trusts that wish to accumulate income beyond the standard 15% must declare the amount, duration (up to 5 years), and specific purpose using Form 10 (Income Tax). This declaration is required under Section 11(2) of the Act.

Ensuring Tax Exemption on Unapplied Income

Unapplied income may become taxable unless declared properly. Filing Form 10 ensures you don’t lose tax benefits, even if the money remains unused in that financial year. It supports compliance with direct tax norms.

Conditions for Accumulation of Income Under Section 11(2)

Permitted Period for Accumulation (5 Years)

Trusts or institutions can accumulate more than 15% of their income for up to five years, provided they submit Form 10 within the income tax return deadline. The funds must be invested or deposited as per the modes listed under Section 11(5).

Specific Purpose Requirement

The reason for the accumulation must be clearly stated in Form 10. Common purposes include:

• Setting up new hospitals, schools, or similar infrastructure
• Expanding existing charitable projects
• Awaiting legal or regulatory approvals
• Preparing for future large-scale initiatives

Clear documentation of intent helps maintain eligibility for exemption under Section 11.

Details Required in Form 10

Information About the Trust/Institution

The form asks for basic details such as:

• Name, address, and PAN of the trust or institution
• Year of establishment and registration number
• Section under which the form is being filed (e.g., Section 10(23C)(a), 11(2)(a), or 11(2)(a) read with 10(21))

Details of the Income to Be Accumulated

You need to mention:

• Total amount being set aside
• Percentage of total income allocated
• Year of accumulation and amounts applied in previous years
• Balance left for application and the status of funds already set apart
• A declaration that the funds are invested as per the modes allowed under Section 11(5)

Understanding this section also helps build awareness about how accumulation is treated differently compared to income tax calculation on salary, where income must be declared and taxed annually without such exemptions.

Purpose for Which Income is Being Set Apart

Clearly mention why the income is being accumulated, for instance, infrastructure projects, expansion of existing initiatives, or regulatory delays. Also, state the duration (not exceeding five years) within which the funds will be used for the mentioned purpose.

Step-by-Step Process to File Form 10

Online Filing Through Income Tax Portal

1. Log in to the Income Tax e-filing portal
2. Go to e-File > Income Tax Forms > File Income Tax Forms
3. Select Form 10 from the list
4. Fill in the required details, including purpose, amount, and period
5. Verify and submit with DSC or EVC

Documents Required for Successful Submission

• Registration certificate under 12A/12AB
• Trust deed
• Income statements
• Proof of specific purpose (like board resolutions or project plans)

Consequences of Non-Filing or Incorrect Filing of Form 10

Loss of Tax Exemption Benefits

Failing to file Form 10 on time or with accurate details may result in your income being taxed. The exemptions under Section 11(2) would not apply.

Penalties and Compliance Risks

Incorrect declarations or delayed filing can lead to scrutiny and possible penalties under professional tax compliance rules. It also affects the trust or the institution’s financial credibility.

Recent Updates Related to Form 10 Filing

Changes Introduced in the E-Filing Procedures

Recent changes introduced through the Finance Act, 2022 made it mandatory to file Form 10 online via the Income Tax portal. From 1st April 2023, this requirement applies to all charitable or religious institutions that fall under Section 10(23C) or are registered under Sections 12AA or 12AB of the Income Tax Act. To retain tax exemption on the said income, Form 10 must be submitted at least two months before the due date for filing the income tax return under Section 139.

The online system now auto-fetches details such as registration numbers, helping reduce manual errors. However, the trust must still clearly state the amount being accumulated, the intended purpose, and the duration, which cannot exceed five years. The funds can also be parked in investment options, but only ones allowed under Section 11(5).

While Form 10 deals with income accumulation and exemption, other statutory deductions like professional tax may still apply depending on the state and structure of the organisation or its employees.

Best Practices for Filing Form 10

Maintaining Proper Documentation and Records

Always keep board resolutions, project plans, or correspondence handy to support the reason for income accumulation. This helps in any future assessment.

Timely Declaration and Specific Purpose Identification

Don’t wait until the last minute. File well before the due date with all details ready. Mention exact purposes like “construction of a training centre” rather than general goals to avoid vagueness and rejection.

Conclusion

Form 10 Income Tax is not just a formality; it protects your tax-exempt status while giving you flexibility to plan large-scale programs. Before filing, ensure your trust is registered under Section 12AB through Form 10A income tax. If you’re unsure, consulting a tax expert or a stock market advisory company with experience in nonprofits might help clarify your position.

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

FAQ

Filing your income tax return is only half the job done. What happens after that is equally important — and that’s where Income Tax Assessment comes in. 

If you’ve ever wondered what it means when the Income Tax Department assesses your return, you’re not alone. This guide breaks it all down in plain English.

What is Income Tax Assessment?

Income Tax Assessment is the process through which the Income Tax Department reviews the returns you’ve filed. They do this to ensure you’ve correctly reported your income, claimed the right deductions, and paid your taxes honestly.

Think of it like a quick audit. If everything checks out, great! If not, they may ask for clarification or issue notices.

Purpose of Conducting Income Tax Assessments

The main aim of conducting IT assessments is to:

• Verify your income and tax calculation
  
• Catch errors, under-reporting, or missed income
  
• Ensure compliance under the Income Tax Assessment Act

In simple terms, it’s the government’s way of saying: “Let’s double-check if everything’s alright.”

Types of Income Tax Assessment

There are several types of assessments, each with a specific purpose. Here’s what they mean:

1. Summary Assessment (Section 143(1))

Meaning and Purpose of Summary Assessment

This is the most common and automated form of Income Tax Assessment. It simply checks for basic errors, like mismatched income or incorrect deduction claims.

Processing Without Human Intervention

The return is processed by a computer system. No one physically reviews your file unless something appears to be incorrect. You’ll receive an email notification, either confirming your return or highlighting discrepancies.

Example: Let’s say you claimed Rs 1.5 lakh deduction under Section 80C, but your Form 16 only shows Rs 1.2 lakh. The system will adjust the numbers and notify you.

2. Scrutiny Assessment (Section 143(3))

Meaning and Objective of Scrutiny Assessment

This is a detailed check. If the department suspects underreporting or large, unusual transactions, they may select your return for scrutiny.

Cases Selected for Detailed Scrutiny

Returns are chosen either through computer algorithms or manually. High-value transactions, foreign assets, or mismatched income often trigger scrutiny.

Process and Time Limit for Scrutiny Assessment

You’ll get a notice under Section 143(2). You’ll then need to submit supporting documents. The assessment must be completed within 12 months from the end of the financial year in which the notice was issued.

3. Best Judgment Assessment (Section 144)

When Best Judgment Assessment is Initiated

This happens when you don’t file your return or fail to respond to a notice. The Assessing Officer then estimates your income based on whatever information is available.

Authority of the Assessing Officer in Best Judgment Cases

They can decide your income and tax liability using their best judgment. Not ideal — it’s always better to respond to notices and keep your documents ready.

4. Income Escaping Assessment (Reassessment under Section 147)

Meaning of Income Escaping Assessment

Also known as reassessment, this is used when the department believes some income was missed or concealed in previous years.

Conditions for Reopening Past Assessments

If they have reasons to believe income has escaped, they can reopen old cases, sometimes up to 10 years back.

Time Limits for Reassessment

Normally, reassessment can be initiated within 3 years. For larger income (above ₹50 lakh), it can go up to 10 years.

5. Protective Assessment

Concept of Protective Assessment

This is used when there’s confusion over whose income it really is. For example, in cases involving family trusts or partnerships.

Cases Where Protective Assessment is Applied

The department assesses the same income under multiple persons, just to be safe. Once it’s clear who the rightful taxpayer is, the other assessments are dropped.

Procedure for Different Types of Assessment

Notices Issued During Assessment

Depending on the type, you may receive notices under:

• Section 143(1) for summary processing
  
• Section 143(2) for scrutiny
  
• Section 142(1) for asking more details
  
• Section 148 for reassessment
  

Documents Required During Assessment Process

Have these handy:

• PAN, Aadhaar Card
  
• Form 16 or 16A
  
• Bank statements
  
• Investment proofs
  
• Sale/purchase documents (especially for property or stocks)

Timeline for Completion of Assessment

Each type of Income Tax Assessment has different deadlines — usually between 12 to 24 months from the end of the assessment year. It’s always better to respond quickly.

Key Differences Between Various Types of Assessments

Not all income tax assessments are the same — each serves a unique purpose. This is just like understanding the difference between TCS vs TDS — the terms may sound similar, but their purpose and application are quite distinct. 

Here’s a quick comparison to help you understand how they differ and what it means for you. 

Comparison of Summary vs Scrutiny vs Best Judgment

Type	Trigger	Human Involvement	Purpose	Details
Summary Assessment	Filed return	No	Auto check for basic errors	The system cross-checks your return against Form 16, 26AS, and other data to spot calculation or deduction mismatches.
Scrutiny Assessment	Suspicious or high-value returns	Yes	Detailed examination	If your return involves large transactions or inconsistent data, the department may manually examine it to ensure full disclosure.
Best Judgment Assessment	Non-response or non-filing	Yes	Estimation by officer	When you don’t cooperate or skip filing, the officer makes an estimated tax decision based on available data or third-party info.
Reassessment	Missed or concealed income	Yes	Review of past assessments	If the tax department uncovers new info about unreported income, they can reopen your case even after years.
Protective Assessment	Disputed income ownership	Yes	Cautious parallel assessment	Used when the department isn’t sure who the income belongs to — it temporarily assesses multiple people to avoid revenue loss.

Impact on Taxpayer’s Obligations

Scrutiny and reassessment may lead to additional tax demand, interest, or even penalties. Summary assessments are usually smooth if your filing is clean. If you’re unsure how to file ITR online, there are several government-approved platforms and step-by-step guides available that make the process simple and error-free. Filing correctly the first time can help you avoid unnecessary scrutiny or assessment hassles later.

Consequences of Non-Compliance During Assessment

If you don’t cooperate during Income Tax Assessment, here’s what could happen:

• Penalties for incorrect info or late response
  If you provide false information, underreport income, or delay responding to notices, the department may impose hefty penalties — sometimes up to 200% of the tax due. Staying prompt and accurate helps avoid unnecessary financial stress.
  
• Interest on unpaid tax
  If you’ve underpaid or missed paying your taxes, interest starts accumulating under Sections 234A, 234B, and 234C. This can significantly increase your liability, especially if delays continue over several months.
  
• Prosecution Possibilities in Serious Cases
  Deliberate evasion, hiding income, or using fake documents can lead to prosecution. In serious cases, this may involve legal proceedings, hefty fines, and even imprisonment ranging from 3 months to 7 years, depending on the offence.

Conclusion

Timely filing, proper documentation, and honest reporting are your best defense during any Income Tax Assessment. Maintain transparency and respond to notices promptly. Whether you’re under the old tax regime or the new one, being proactive always helps.

FAQs

How do I know if my return is selected for scrutiny assessment?

You’ll receive a notice under Section 143(2), usually within 6 months from the end of the assessment year.

What documents are needed for income tax assessment?

PAN, Aadhaar, Form 16, income proofs, deduction receipts, and any other relevant paperwork.

Can an old assessment be reopened?

Yes, under Section 147. If the income escaped is above ₹50 lakh, the department can go back up to 10 years.

What happens if I ignore an income tax notice?

It can lead to a best judgment assessment, penalty, or even legal trouble. Always respond on time.

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

Introduction

What is Form 10AC?

The Indian tax regime offers certain exemptions to institutions that work as charitable organizations or trusts. When applying for these exemptions, an institution needs to prove its registration under the said category with Form 10AC of Income Tax Act.

Form 10AC (Income Tax) is issued by the Income Tax Department as proof of registration or approval to certain institutions like trusts, societies, and not-for-profits. This form confirms that the applicant has been granted approval under specific sections of the Income Tax Act for claiming exemptions.

Importance of Form 10AC for Charitable and Religious Institutions

For charitable and religious organisations, Form 10AC of the Income Tax Act provides formal recognition. It validates their status, enabling them to function transparently and allowing donors to claim tax benefits. Without this form, they cannot claim exemption or offer it to donors under relevant sections like 12A or 80G.

Purpose of Form 10AC

Grant of Registration or Approval Under Income Tax Act

Form 10AC income tax registration is granted to entities seeking exemption or deduction from income tax under specific provisions of the law. It formalises their recognition as charitable or scientific institutions and helps them understand where they stand in the context of exemption vs deduction: while exemptions fully exclude certain income from tax, deductions reduce taxable income based on eligible expenses or donations.

Applicable Sections: 12A, 80G, 10(23C), and 35

Approval under Form 10AC is granted under various sections:

• Section 12A: For registration of charitable or religious trusts. It allows complete exemption of income under Sections 11 and 12 if at least 85% of the income is applied to charitable purposes. Without registration under 12A, donations and other receipts become taxable.
• Section 80G: For enabling donors to claim deductions for donations made to specified funds and institutions. The deduction amount can go up to 100% or 50% of the donation, depending on the type of fund. The organisation must have a valid 80G registration at the time of donation for donors to claim the benefit.
• Section 10(23C): For granting tax exemption to educational and medical institutions. If the total annual receipts do not exceed ₹5 crores, these institutions can claim full exemption without separate approval.
• Section 35: For scientific research institutions. This section allows individuals and organisations to claim deductions for revenue and capital expenditure related to approved scientific research.

Why Form 10AC is Important

Mandatory for Claiming Tax Exemption Benefits

Institutions without a valid Form 10AC of Income Tax Act cannot avail tax exemptions. The form acts as the gateway for these benefits under the relevant sections.

Proof of Legal Recognition for Charitable Institutions

The form serves as legal documentation that an entity operates within the permitted boundaries of the Income Tax Act.

Essential for Donors to Claim 80G Deductions

If an organisation doesn’t hold a valid Form 10AC income tax registration under section 80G, donors won’t be able to claim deductions on the donated amount.

Who Can Apply for Registration Under Form 10AC?

Eligibility Criteria for Trusts, Societies, and Institutions

Form 10AC of Income Tax Act is issued to organisations seeking tax-exempt status under sections like 12A, 80G, 10(23C), or 35. This includes charitable trusts, religious institutions, registered societies, and Section 8 companies.

To qualify, the entity must be set up for charitable, religious, educational, medical, or scientific purposes. It should not operate for personal profit. The applicable section depends on the nature of the organisation’s work and the kind of exemption or deduction it aims to offer or receive.

• Section 12A must engage in genuine charitable or religious activities.
• Section 10(23C) includes schools, colleges, and hospitals, especially those with annual receipts not exceeding ₹5 crore.
• Section 80G should be involved in causes that are eligible for donation-based tax deductions.
• Section 35 should be registered for conducting scientific research.

Plus, understanding compliance requirements such as TDS in India is also important, especially when the organisation deals with contractors, professionals, or receives income where tax may need to be deducted at source.

New Registration and Provisional Registration

New organisations can apply for provisional registration through Form 10A, which is valid for three years. This is ideal for recently formed institutions that are yet to establish a track record. Before the provisional period ends, the institution must apply for permanent registration using Form 10AB. If this isn’t done, the registration will lapse, and any associated tax benefits will no longer be applicable.

How is Form 10AC Issued?

Application Process for Registration

You can apply for registration by logging into the official Income Tax e-filing portal and submitting Form 10A (for new or provisional registration) or Form 10AB (for renewal or modification). Along with the form, you’ll need to upload:

• Trust deed or founding documents
• Registration certificates (if applicable under other Acts)
• PAN of trustees or board members
• Audited financials (if applicable)
• Details of charitable or religious activities

After you submit the application, the Income Tax Department reviews the details. If needed, they may ask for more information or documents. 

Timeline and Procedure of Issuance by Income Tax Authorities

After submission, the department usually processes the application within one to two months. On approval, Form 10AC income tax registration is granted.

In case of any future amendments to your trust deed, objects, or operations, you’ll need to inform the jurisdictional Commissioner. The Finance Act, 2022, has also allowed authorities to reassess and cancel the registration if any conditions are violated or if the institution’s activities are not in line with what was claimed during registration.

Details Contained in Form 10AC

Registration Number, Approval Details, Validity Period

Form 10AC issued by the Income Tax Department includes specific identification and registration details of the applicant entity. These include:

• A unique registration number assigned to the trust or institution
• The section under which approval is granted (e.g., 12A, 80G, 10(23C), or 35)
• The date of approval
• The validity period of the registration: three years in case of provisional approval; longer for permanent registration

These details serve as official recognition of the entity’s eligibility for tax exemptions or deductions under the specified section.

Conditions and Compliance Requirements Mentioned in the Form

Form 10AC also outlines the conditions that must be met to retain the granted approval. These compliance requirements include:

• Timely filing of return of income (ROI)
• Maintenance and audit of accounts as per the Income Tax Act
• Use of income strictly for permitted purposes, as declared during registration
• Prior intimation to the Commissioner for any change in the trust deed, MOA, or objectives

The certificate cannot be used to avoid TDS obligations on investments or transactions linked to the trust or institution. Failure to meet these conditions can lead to cancellation of registration and loss of tax benefits.

Validity and Renewal of Form 10AC

Duration of Provisional and Final Registration

Form 10AC provides either provisional or final registration to trusts and institutions:

• Provisional registration is valid for 3 years.
• Final registration is granted for a period of 5 years upon re-application through Form 10AB before the provisional expiry.

Renewal Process After Validity Expires

As per the 6th Amendment Rules, 2021:

• Existing entities registered under Section 12A, 12AA, 10(23C), or 80G must reapply using Form 10A.
• The renewed registration remains valid for 5 years.
• The process involves online filing through the Income Tax portal, along with documents like the trust deed, registration certificates, and audited accounts.
• Once submitted, the Commissioner reviews the application. If satisfied, they issue an updated Form 10AC with a new registration number.

Entities must also comply with Form 10BD (Statement of Donations) and issue Form 10BE (Donation Certificates) annually to maintain Section 80G or 35 benefits.

Recent Clarifications Issued Regarding Form 10AC

CBDT Circulars and Relaxations

The CBDT’s Circular No. 11/2022 clarified that all Form 10ACs issued between April 1, 2021, and June 3, 2022, will now be read in conjunction with the updated conditions, effective from April 1, 2022. These changes apply to registrations under Sections 12AB, 10(23C), and 80G, aligning them with the Finance Act 2022 amendments.

Impact of Amendments on Existing Registrations

The Finance Act 2022 allows tax authorities to examine registered entities for specified violations and cancel registrations through Form 10AD, if needed. Trusts and institutions must follow the revised compliance conditions to retain their approval status.

Consequences of Non-Compliance with Conditions of Form 10AC

Cancellation of Registration

If conditions listed in the form are not followed, the income tax authorities can cancel the registration granted under Form No. 10AC of Income Tax Act.

Impact on Tax Exempt Status

Cancellation of registration results in the loss of tax-exempt status for the institution. It may also impact donor confidence, as contributions would no longer qualify for 80G deductions. In some cases, the income of the institution may be taxed similarly to tax on mutual funds or other taxable entities, depending on how the funds are utilised post-cancellation.

How to Rectify Errors in Form 10AC?

Procedure for Correction or Rectification

If there are any errors in Form 10AC, institutions can file a rectification request through the income tax portal or raise a grievance under the e-Nivaran system.

Common Mistakes to Avoid During Application

• Incorrect PAN or registration details
• Incomplete documentation
• Wrong section selection

Avoiding these can ensure faster approval without future issues.

Conclusion

Complying with the conditions of Form 10AC of the Income Tax Act is necessary for maintaining tax-exempt status and institutional credibility. Whether it’s for enabling donors to receive tax benefits or ensuring smooth approval under relevant sections, having a valid Form 10AC is non-negotiable. 

Just as consistency and compliance matter in areas like stock advisory, charitable institutions must also stay updated with any clarifications or circulars from the CBDT to avoid cancellation or non-renewal of their registration.

FAQs

1. Is Form 10AC applicable for new trusts only?

No, it applies to both new and existing trusts. New entities must obtain provisional registration first, while existing ones need to re-register as per the updated rules.

2. What if my Form 10AC shows incorrect details?

You can file a rectification request on the income tax portal or raise a grievance for correction.

3. Can Form 10AC registration be canceled?

Yes, if conditions are violated or false information is provided, the registration can be canceled. This affects tax benefits for both the institution and its donors.

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

Who is an Assessing Officer (AO)?

Definition and Role of an AO

When learning about the income tax system, one of the most important contacts you’ll come across is your Income Tax Assessing Officer (AO).

An assessing officer in income tax is the person appointed by the Income Tax Department to manage your tax file. This officer is responsible for assessing your returns, processing refunds, issuing notices, and ensuring that your taxes are filed correctly.

Whether you’re a salaried individual, a business owner, or someone earning through stock market advisory services, your AO plays a central role in reviewing and verifying your income details.

Types of Assessing Officers

Assessing Officers are appointed by the Income Tax Department and come with different designations based on their roles and seniority:

• Income Tax Officers (ITOs): These are entry-level officers who handle basic assessments and process tax returns. Most individual taxpayers interact with ITOs.
• Assistant Commissioners (ACs): They supervise ITOs and take care of more complex tax cases that may involve business income or high-value returns.
• Deputy Commissioners (DCs): DCs manage multiple assessing officers and ensure tax compliance across wider jurisdictions. They often deal with escalation cases.
• Commissioners (Cs): These are senior officials who oversee the entire assessment process. They ensure that procedures are followed as per the Income Tax Act and may intervene in special cases.

Each officer level has a defined role in managing tax administration, whether it involves indirect tax or processing refunds. The type of officer you’re assigned to depends on your total income, nature of income, and your jurisdiction.

How to Find Your Assessing Officer

Online Methods to Identify Your AO

Using the Income Tax e-Filing Portal

You can find your Income Tax Assessing Officer by logging into the official e-Filing portal:

• Go to https://www.incometax.gov.in 
• Log in using your PAN and password
• Click on “My Profile”
• Select the “Jurisdiction Details” tab

You’ll see your assessing officer’s name, contact number, designation, and AO code.

Utilizing Other Official Government Websites

You can also find AO details through the TIN-NSDL website using your PAN. Look for the “AO Code” option and enter your PAN to get results.

Offline Methods to Identify Your AO

Contacting the Income Tax Department Directly

You can also call or visit your regional tax office. Provide your PAN and they’ll help you find your Income Tax Assessing Officer.

Jurisdiction and Its Importance

Understanding Tax Jurisdiction

Jurisdiction refers to the specific area and category of taxpayers that an Income Tax Assessing Officer is responsible for. It defines where and with whom the AO can carry out assessments, send notices, or communicate about tax matters. 

Your jurisdiction is usually decided based on factors like your income level, type of return, PAN card details, and location. For instance, individuals with higher incomes may fall under a different circle or range than salaried individuals with lower incomes.

The Significance of Knowing Your Jurisdiction

• It tells you who your assessing officer in income tax is and where your queries or documents should go.
• It makes communication with the Income Tax Department smoother and more organised.
• It becomes important while replying to notices, requesting clarifications, or following up on matters like your assessing officer income tax refund.
• For services like stock market advisory services or if your income involves indirect tax, knowing your jurisdiction can help you reach the right officer quickly.

If you ever need to appeal or raise a concern, the jurisdiction decides where and to whom you do that.

Powers and Responsibilities of an Assessing Officer

Assessment Procedures

Your AO is responsible for evaluating your income tax return. This includes checking accuracy, verifying documents, and ensuring the declared income is aligned with your financial data.

Scrutiny and Investigation Powers

If there are discrepancies or red flags, the AO can initiate scrutiny assessments. This might involve asking for additional documents or explanations.

Issuing Notices and Demands

The AO sends notices under various sections like 139(9), 143(2), or 148 when additional action is required. These notices may relate to missing income, indirect tax mismatches, or unexplained high-value transactions like windfall tax entries.

Penalty Imposition

If you miss deadlines, submit false information, or underreport income, the AO has the authority to impose penalties under the Income Tax Act.

Communicating with Your Assessing Officer

Effective Communication Strategies

Maintaining a good communication approach with your Income Tax Assessing Officer helps resolve tax matters more efficiently. Here are a few tips:

• Stay proactive: If you expect any delays in filing or notice any mismatches in your return, it’s a good idea to inform your AO early.
• Organize your documents: Keeping tax records and financial papers handy can help speed up queries or assessments. This is useful especially when you’re dealing with things like tax on investments, indirect tax, or stock market advisory services income.
• Build clarity: If something in your notice or query is unclear, ask for clarification. Open communication reduces the chances of errors or penalties.

Channels for Communication (Email, Phone, In-person)

Depending on the AO’s availability and your issue, communication can happen over email, phone, or face-to-face at the tax office.

Responding to Notices and Queries

If your AO sends a notice, don’t ignore it. Every communication has a deadline and purpose. Here’s what to do:

• Read the notice carefully and understand what is being asked, whether it’s additional documents, clarification on income (like tax on mutual funds), or confirmation of deductions.
• Reply within the time frame mentioned in the notice to avoid penalties.
• Use the official e-filing portal to submit responses where needed, and keep a copy for your records.

Having an open line with your assessing officer in income tax helps you manage your filings better and keeps the entire tax process hassle-free.

Importance of Knowing Your AO

Efficient Communication and Issue Resolution

When you know your AO, you’ll find it easier to get clarifications, solve disputes, or follow up on pending actions like refunds or assessment orders.

Understanding Your Tax Obligations and Liabilities

Your AO is your point of contact if you have questions about your tax dues, need clarification between the new vs old tax regimes, or want to understand applicable deductions.

Ensuring Compliance and Cooperation

Good communication with your AO ensures smoother assessments and can help avoid penalties or future issues, especially when your income involves varied sources.

FAQs

1. What is the role of an income tax assessing officer in my tax assessment?

The AO assesses your return, verifies your claims, and may ask for supporting documents.

2. How do I find out who my AO in income tax is?

You can check this on the income tax e-filing portal under ‘Jurisdiction Details’ in your profile section.

3. What is the assessing officer’s meaning in the context of income tax?

An assessing officer in income tax is the official assigned to your tax file for review, assessment, and communication.

4. What is the power of an income tax officer?

They can issue notices, review your return, impose penalties, and make assessment orders.

5. What is the main power of an income tax officer during an assessment?

The ability to question the return, call for additional documents, and adjust or reassess tax liability.

6. How does knowing my income tax assessing officer benefit me during income tax assessment?

It helps in quicker resolution of queries, better communication, and smoother handling of disputes or refunds.

7. What is jurisdiction and the purpose of jurisdiction?

It’s the area or group assigned to an AO. Jurisdiction helps assign responsibility to officers.

8. How do I appeal against an assessment made by the AO?

You can appeal before the Commissioner of Income Tax (Appeals) within 30 days of receiving the order.

9. Can an assessee change his AO?

In special cases like change of address or business location, you can apply for AO change via the IT portal.

10. What is the AO code for PAN?

The AO code for PAN is a four-part code that helps identify the jurisdiction under which your income tax matters are handled. It determines which Income Tax Assessing Officer is responsible for your file. Here’s what each part means:

• Area Code: Indicates the broader city or location your AO is assigned to.
• Range Code: Points to the specific region within that area where the AO has jurisdiction.
• AO Type: Shows the type of Assessing Officer—like Ward, Circle, or Range—based on your income and case complexity.
• AO Number: A unique number assigned to each AO for tracking and identification.

This code is important while applying for a new PAN, making corrections, or filing certain forms.

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.