CS 04 Scrutiny: 7-Point Compliance Checklist for Trusts & NGOs (AY 2026-27)
CBDT's CS 04 scrutiny category targets charitable trusts and NGOs claiming exemption under Sections 11, 12AB, or 10(23C) with registration defects or mismatches. This checklist covers Section 12AB renewal, Form 10B/10BB audit filing, donor reconciliation, and Section 13 violations—everything you need to verify before ITR-7 due dates in July–October 2026.
CA Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Legal basis: Income-tax Act 1961, Sections 11, 12, 12AB, 10(23C), 13; CBDT Compulsory Scrutiny-compliance))-representation) Guidelines F. No. 225/56/2026/ITA-II dated 04.06.2026 — Effective: AY 2026-27 (FY 2025-26 income). Source: CBDT notification. Last reviewed by CA Harun Raaj: September 2026.
The Central Board of Direct Taxes issues Compulsory Scrutiny (CS) Guidelines each year to flag returns for mandatory examination by Income Tax officers, regardless of compliance history. For AY 2026-27, CBDT released six scrutiny categories (CS 01 through CS 06). CS 04 directly affects your charitable trust, NGO, educational institution, or hospital — it triggers automatic scrutiny of any ITR-7 return claiming exemption under Sections 11, 12AB, 12, or 10(23C) that contains a registration defect, lapse, cancellation, or data mismatch.
With ITR-7 due on 31 July 2026 (non-audit trusts) and 31 October 2026 (audit entities), verification must happen now.
What Is CS 04?
CS 04 is a scrutiny selection trigger, not a charging provision. Being flagged under CS 04 does not automatically deny your exemption — it requires the Assessing Officer to examine your file. The consequence is administrative: scrutiny involves documentation review, possible hearings, and risk of additions if registration defects or Section 13 violations are found.
CS 04 targets returns where the exemption claim in ITR-7 (Schedule IE) does not align with the CBDT's database of valid registrations. The Computer-Aided Scrutiny System (CASS) flags these mismatches automatically.
When Your ITR-7 Gets Selected Under CS 04
The following triggers result in CS 04 selection:
Registration triggers:
- Old Section 12A/12AA registration never migrated to the Section 12AB regime
- Section 12AB registration expired; Form 10AB renewal not filed by 30 September 2025 (unless covered by CBDT Circular 06/2026 condonation)
- Provisional registration not converted to regular registration within the prescribed period
- CIT(E) cancelled your registration under Section 12AB(4)
Data-mismatch triggers:
- ITR-7 Schedule IE claims exempt income, but CBDT records show no valid 12AB/10(23C) approval for AY 2026-27
- Form 10BD (annual donor statement, due 31 May 2026) not filed or mismatched with ITR-7 donations
- Form 10B / Form 10BB (audit report) not filed before ITR-7 due date
The 7-Point Compliance Checklist
1. Verify Section 12AB registration covers AY 2026-27
Locate your Form 10AC (final registration order) or Form 10AD (provisional order) from the CIT(E) and confirm the validity dates. Provisional registrations are valid for 3 years; regular registrations for 5 years (or 10 years for trusts with income ≤ ₹5 crore, under Finance Act 2025 — verify your eligibility). If your registration expired before 01.04.2025, confirm that Form 10AB renewal was filed and approved.
2. Check CBDT Circular 06/2026 condonation eligibility
CBDT Circular 06/2026 (F. No. 300176/3/2026-ITA-I dated 02.07.2026) condones delay in Form 10AB filing for trusts that filed electronically between 01.10.2025 and 31.03.2026. If your renewal application falls in this window, the CIT(E) must process it on merits by 31.12.2026. Confirm your application is registered in the system.
3. File Form 10B or Form 10BB before the ITR-7 due date
The audit report (Form 10B under Rule 16CC for trusts/societies under Section 12AB; Form 10BB under Rule 17B for Section 10(23C) institutions) must be obtained and filed before ITR-7 due date. For AY 2026-27, verify the current e-filing form name and format on the official portal, as Form 112 may consolidate these under the IT Act 2025.
4. Reconcile Form 10BD with ITR-7 donations
The annual donor statement in Form 10BD (due 31 May each year) must match the donation schedule in your ITR-7. If you issued 80G certificates (Form 10BE), ensure totals reconcile for FY 2025-26.
5. Demonstrate 85% application of income
Section 11(1)(a) requires at least 85% of income be applied to charitable purposes during the year. If you fell short due to capital expenditure or intentional accumulation, file the accumulation application under Section 11(2) before ITR-7 due date. Shortfall without an accumulation application results in no exemption on that amount.
6. Audit for Section 13 violations
Section 13 denies exemption for the entire previous year's income if any of these occur:
- Loans to, or from, specified persons (founder, trustee, settlor, family members)
- Prohibited investments (shares in certain companies, unlisted venture capital funds)
- Benefit or advantage to specified persons beyond reasonable remuneration
- Corpus loan-back schemes (trust loans corpus back to the settlor)
If any Section 13 violation occurred during FY 2025-26, take professional advice before filing.
7. Maintain activity and beneficiary records
CS 04 scrutiny routinely requests evidence of actual charitable activities. Keep programme-wise expenditure summaries, beneficiary registers, photographs, and activity reports for FY 2025-26. The Assessing Officer will verify that activities match stated objects in your trust deed.
Comparison: Registration Status vs. Scrutiny Risk
Recent Case Law: Irrevocability Clause Requirement
The Bombay High Court held in Chamber of Tax Consultants v. CIT(E) [2026:BHC-OS:6814-DB] that the absence of an irrevocability clause in a trust deed is not a valid ground for rejecting Section 12AB registration. An irrevocability clause is not a statutory requirement under Section 12AB. If your registration is being held up on this ground, file a representation citing this ruling.
Key point: CS 04 selection requires scrutiny but does not automatically deny exemption — validity depends on registration status, audit report filing, Form 10BD reconciliation, 85% application rule compliance, and freedom from Section 13 violations.
I'm CA Harun Raaj, Visakhapatnam. If your trust or NGO is affected by CS 04 or you need help with ITR-7 compliance, reach out.
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See Also
Frequently Asked Questions
Does CS 04 selection mean my trust's exemption is automatically denied?+
No. CS 04 is a scrutiny selection trigger, not a denial. The Assessing Officer must examine your case on merits. If your Section 12AB registration is valid, your audit report is filed on time, and your activities are genuine, the scrutiny typically closes with no addition. The risk is administrative — you must be prepared with documentation.
Our Section 12AB registration expired in March 2025 and we filed Form 10AB in December 2025. Does CBDT Circular 06/2026 protect us?+
Yes, if your Form 10AB was filed electronically between 01.10.2025 and 31.03.2026, CBDT Circular 06/2026 condones the delay. However, the CIT(E) must issue the renewal order by 31.12.2026. Confirm your application is in the system and await the order before filing ITR-7 claiming exemption for AY 2026-27.
We are a 10(23C)(vi) educational institution, not a Section 12AB trust. Does CS 04 apply to us?+
Yes. CS 04 covers ITR-7 returns claiming exemption under Section 10(23C) as well. Your PCIT/CCIT approval, Form 10BB audit report, and compliance with the conditions under Sections 10(23C)(x) and (xi) are all subject to verification under CS 04.
We missed the Form 10BD filing deadline (31 May 2026). Will this cause our exemption to be denied?+
Missing Form 10BD does not automatically deny your Section 12AB exemption — the exemption depends on registration validity and income compliance, not Form 10BD filing. However, the Assessing Officer may note the non-filing and may scrutinise donors' 80G deduction claims. File the delayed Form 10BD as soon as possible.
What is the difference between Form 10B and Form 10BB in CS 04 scrutiny?+
Form 10B (Rule 16CC audit report) is required for trusts and societies registered under Section 12AB. Form 10BB (Rule 17B audit report) is required for institutions claiming exemption under Section 10(23C). Both must be filed before the ITR-7 due date to avoid CS 04 selection. Verify the current form name on the e-filing portal for AY 2026-27.
Our trust fell short of applying 85% of income this year due to capital expenditure. Can we still claim exemption?+
You must file an accumulation application under Section 11(2) before the ITR-7 due date, stating the reason for shortfall and justifying the accumulation or capital expenditure. Without this application, no exemption is available on the shortfall amount, and CS 04 scrutiny will focus on this deficiency.
What counts as a Section 13 violation that can deny our entire year's exemption?+
Section 13 denies exemption for the entire previous year if the trust makes loans to specified persons (founder, trustee, settlor, family members), invests in prohibited securities, provides unreasonable benefit to specified persons, or lends trust corpus back to the settlor. If any such violation occurred during FY 2025-26, seek professional advice before filing ITR-7.
Our registration was cancelled under Section 12AB(4). Can we file ITR-7 claiming exemption for AY 2026-27?+
No. If registration was cancelled, you cannot claim exemption under Section 12AB for that year. Determine if you are eligible for exemption under an alternative section (e.g., Section 10(23C), Section 10(1)(ac), or Section 10(23D)) and file accordingly. File an appeal against the cancellation or seek professional guidance on your options.
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