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NGO, Trust & Not-for-Profit

School & Educational Trust Accounting

School Trust Accounting

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Overview

School trust accounting is the financial management of an educational trust or a society under the Income-tax Act 1961 — the accounting of the fees, the grants and the donations, the expenditure against the approved objects, the maintenance of the prescribed books, the audit under Section 12A(1)(b) in the Form 10B or 10BB, and the return under Section 139(4C). The school trust's accounts are the record of the educational institution's funds, and their quality decides the trust's exemptions and its credibility with the parents, the donors and the regulators.

The school trust runs on the trust accounting discipline — the fees and the donations recorded, the expenditure against the objects, the funds tracked and the surplus computed — and the compliance follows under the Act: the audit in the Form 10B or 10BB where the exemption registrations apply, the return under Section 139(4C), and the renewals of the 12AB and the 80G registrations. The trust that runs clean accounts keeps its exemptions; the one that does not puts them at risk.

The cost of weak school accounts is the exemption risk and the regulatory finding: the audit qualifications that the department reads, the surplus that was never computed, the donations and the grants that were never accounted, the registrations that lapse.

This service is for school trusts and the educational societies. We set up the trust accounting — the fees, the grants, the donations and the funds — maintain the books and prepare the financial statements, conduct the audit in the Form 10B or 10BB under Section 12A(1)(b), file the return under Section 139(4C), and manage the 12AB and the 80G renewals, so the school's accounts are clean, audited and compliant.

How It Works

  1. 1

    Trust Books Setup

    We set up the trust's accounting — fees, grants, donations and funds.

    Harun Raaj & Associates does this1-2 weeks
  2. 2

    Monthly Accounting

    We maintain the books and the records monthly.

    Harun Raaj & Associates does thisMonthly
  3. 3

    Financial Statements

    We prepare the financial statements for the year.

    Harun Raaj & Associates does thisAnnual
  4. 4

    Form 10B / 10BB Audit

    We conduct the audit under Section 12A(1)(b).

    Harun Raaj & Associates does thisAnnual
  5. 5

    Return & Renewals

    We file the return under Section 139(4C) and manage the 12AB and 80G renewals.

    Harun Raaj & Associates does thisAnnual

Frequently Asked Questions

What accounting standards apply to a school run by a charitable trust?
Charitable trusts running educational institutions are not mandatorily required to follow Indian Accounting Standards (Ind AS) or Companies Act accounting standards, but they are required to maintain books of accounts in the form and manner prescribed under Rule 17AA of the Income Tax Rules 1962, introduced by CBDT Notification No. 94/2022. Books must include cashbooks, ledgers, journals, copies of bills and vouchers, and a register of investments. If the trust is also registered under the Foreign Contribution (Regulation) Act 2010, a separate set of books for foreign contributions must be maintained under Section 17 of the FCRA 2010 and Rule 13 of the FCRA Rules 2011. The Institute of Chartered Accountants of India also publishes guidance notes on accounting by not-for-profit organisations that represent best practices.
Is a school trust required to get its accounts audited?
A trust registered under Section 12AB of the Income Tax Act 1961 and claiming exemption under Section 11 must get its accounts audited under Section 12A(1)(b) if total income before the exemption under Section 11 exceeds the basic exemption limit (currently Rs 2.5 lakh). The audit must be conducted by a Chartered Accountant and the audit report must be submitted in Form 10B or Form 10BB, as applicable, before the due date of filing the return of income. Form 10B applies where the total income exceeds Rs 5 crore, the trust has received foreign contributions, or it has applied income outside India, per CBDT Notification No. 7/2023. A trust running a school with significant fee collections will almost invariably exceed the basic exemption limit.
How should a school trust account for fee income versus donations?
Fee income collected from students is income from the pursuit of objects of the trust and, if applied toward educational purposes, is exempt under Section 11(1)(a) of the Income Tax Act 1961 to the extent of 85% of such income applied during the year. Voluntary donations received without any specific direction are corpus or general donations and must be credited to an income and expenditure account with disclosure in the receipts and payments account. Donations received with a specific direction to be treated as corpus must be invested in the modes specified under Section 11(5) of the Income Tax Act 1961 and credited to a corpus fund — they are not income of the year but are shown as a liability item. Mixing fee income and corpus donations in one account is a common accounting error that triggers adverse findings during scrutiny assessments.
What is the consequence if a school trust does not apply 85% of its income to its objects?
A trust registered under Section 12AB of the Income Tax Act 1961 must apply at least 85% of its income to the objects of the trust in the same financial year to claim exemption under Section 11(1)(a). If 85% is not applied, the trust may accumulate up to 15% and, for amounts beyond that, may file Form 9A (for deemed application) or Form 10 (for accumulation up to five years) electronically before the due date of filing the return. The accumulated amount under Form 10 must be applied within five subsequent years and for a specified purpose; failure to apply within the period results in it being deemed income of the year of expiry under Section 11(3) of the Income Tax Act 1961. The filing of Form 10 is mandatory and must precede the actual accumulation decision.
Does a school trust need to renew its income tax registration, and how often?
All trusts and institutions registered under Section 12AB of the Income Tax Act 1961 must file for renewal of registration every five years in Form 10AB, as introduced by the Finance Act 2020. The renewal application must be filed at least six months before the expiry of the current registration period, failing which the registration lapses and the trust loses the benefit of exemption under Section 11 for the period without valid registration. Trusts that received provisional registration under Section 12AB (valid for three years for new trusts) must apply for regular registration in Form 10AB at least six months before the provisional registration expires or within six months of commencement of activities, whichever is earlier. A lapse in registration can result in taxation of the full income of the trust at the applicable AOP rates.

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