ITR-7: Who must file, what’s changed and why it matters

To whom does the ITR-7 apply?

ITR-7 IS THE income tax return form meant for not-for-profit institutions engaged in charitable, religious, educational, medical and other public welfare activities. Subject to fulfilling prescribed conditions, these entities enjoy complete exemption from income tax and are required to file ITR-7 to claim the benefit.

With the Excel utility now finally released, the specified institutions now can start the return filing process for AY 2026-27.

Why is the release of the ITR-7 utility significant?

THE RELEASE OF the specific form sets the clock running for ITR filing. The due date for filing ITR-7 depends on whether the taxpaying entity is required to get its accounts audited. Entities subject to audit have until October 31 to file their returns, whereas only a limited category of smaller trusts which are not required to undergo audit under any other law and whose income before claiming exemption does not exceed basic exemption limit must file by July 31.

In practice, there are few small trusts, and a delayed release of utility significantly reduces their compliance timeline, leaving them with less time to compile records, complete the required disclosures and file their returns accurately.

What could be behind the delayed release?

The ITR-7 utility has been released later than usual this year. The delay appears to reflect the income tax (I-T) department prioritising accuracy over speed. Return utilities this year have been rolled out in phases and refined through subsequent updates, suggesting extensive testing.

The I-T department has also introduced stronger validations by integrating data from AIS and Form 26AS making filing more accurate, but also increasing the time needed to build and test utility.

What are the key changes?

Changes in ITR-7 are largely focused on additional disclosures to strengthen reporting and facilitate better verification. Section 13(3) identifies certain persons as related parties of a trust, including substantial contributors, and transactions with them are subject to conditions; non-compliance of which can impact tax exemption.

Earlier, a person qualified as a substantial contributor on contributing more than 50,000 in a year. This threshold is now1 lakh in a year or Rs 10 lakh in aggregate, and the utility reflects this revision.

Political parties are now required to disclose whether their compliance report under the Representation of the People Act has been filed with the Election Commission of India or the relevant State Election Commission, along with the date of filing.

Trusts registered under other laws such as Foreign Contribution (Regulation) Act, or DARPAN (the portal where NGOs, societies, or Section 8 companies get an official ID to receive government grants, foreign donations, and certain tax exemptions) or Securities and Exchange Board of India regulations, must disclose the validity period of such registrations.

In the schedule on investments in concerns where specified persons hold a substantial interest, reporting has moved from “nominal value” to “total value” i.e. from cost to possibly fair value.

Consequences of incorrect disclosures

Incorrect disclosures, such as misreporting related-party transactions or investment values, can attract penalties. For instance, where a trust provides benefit to a related party charging less than fair market value the tax exemption for said income may be denied, and the income will be taxable at the maximum marginal rate. Delayed filing can also be costly, as the trust may lose the benefit of accumulating income for future charitable purposes, making such income liable to tax.

Best practices for accurate filing

For entities filing ITR-7 income tax return filing is only one part of the compliance framework. They should maintain proper books of account, complete the required audit, and stick to prescribed timelines. Timely filing of forms such as 10BD and 10BE for eligible donations is equally important.

Where income is to be accumulated rather than applied during the year, the prescribed form must be filed on time by the entities to claim the benefit. Related-party transactions should be properly documented and carried out at fair value, and newly established trusts must obtain registration within prescribed timelines to stay eligible for exemption.

Entities should also ensure compliance with other applicable laws. For instance, organisations registered under the Foreign Contribution (Regulation) Act should file the prescribed returns, such as FC-1 or FC-4, within the applicable timelines.

The writer is partner, Dhruva Advisors