A 35AC audit is an important compliance mechanism established under Section 35AC of the Income Tax Act, 1961, which was introduced to encourage individuals and corporate entities to contribute towards social and economic welfare projects. This audit ensures that organizations implementing approved projects utilize the funds received from donors strictly for the intended welfare purposes and adhere to all the prescribed guidelines laid down by the National Committee for Promotion of Social and Economic Welfare (set up by the Central Government). The primary objective of the 35AC audit is to maintain financial transparency, accountability, and credibility in the utilization of funds. It verifies that donations received have been applied to the approved project or scheme, such as initiatives related to education, healthcare, rural development, sanitation, women empowerment, or environmental conservation. The audit examines not only the flow of funds but also their end-use, ensuring that every rupee donated is effectively directed toward genuine charitable and developmental activities. A qualified Chartered Accountant (CA) conducts the audit and reviews the organization’s financial statements, receipts, expenditure records, and progress reports related to the 35AC-approved project. The auditor confirms that all donations are properly recorded, utilized within the approved time frame, and that no funds are misappropriated or diverted to unrelated purposes. The audit also ensures compliance with reporting requirements, such as filing periodic returns and utilization certificates to the concerned government authorities.