Applicability of Section 332(1) of Income Tax Act, 2025 for Educational Institutions Covered by Schedule VII Sl. No. 19

Applicability of Section 332(1) of Income Tax Act, 2025 for Educational Institutions Covered by Schedule VII Sl. No. 19

The Income-tax Act, 2025 has restructured the provisions relating to charitable and religious institutions. While many provisions of the erstwhile Income-tax Act, 1961 have been re-organized and renumbered, certain exemptions available to educational and medical institutions have been continued in a modified form.

One issue that has recently attracted attention among tax professionals is whether an educational institution whose annual gross receipts do not exceed ₹5 crore is required to obtain registration as a Registered Non-Profit Organization (RNPO) under Section 332 in order to claim exemption under Schedule VII Sl. No. 19.

Since the Act is relatively new and no specific clarification has yet been issued by CBDT on this aspect, the issue deserves a closer examination.

The Query

Under the Income-tax Act, 1961, an educational institution existing solely for educational purposes and not for profit was eligible for exemption under section 10(23C)(iiiad), provided its annual receipts were within the prescribed threshold.

Importantly, such institutions were not required to obtain registration under section 12A or section 12AB merely for claiming exemption under section 10(23C)(iiiad). The exemption operated independently.

Under the Income-tax Act, 2025, a similar exemption appears in Schedule VII Sl. No. 19.

The question therefore arises:

Does an educational institution covered by Schedule VII Sl. No. 19 need registration under Section 332, or can it claim exemption directly under the Schedule as was possible under the old law?

Relevant Provision in Schedule VII

Schedule VII Sl. No. 19 provides exemption to:

Any university or other educational institution existing solely for educational purposes and not for purposes of profit, if its gross receipts do not exceed ₹5 crore during the tax year.

Thus, on a plain reading, the Schedule itself grants exemption subject to satisfaction of specified conditions.

 The Significance of Section 332

The debate arises because Section 332 deals with registration of Registered Non-Profit Organizations (RNPOs).

Particularly relevant is Section 332(1), which begins with the words:

“The following persons may apply for registration…”

Further, clause (f) of Section 332(1) includes persons referred to in Schedule VII Sl. Nos. 17 to 19 & Sl. No.42.

Some professionals therefore argue that once Schedule VII entities are specifically referred to in Section 332, registration becomes necessary for availing exemption.

While this interpretation is certainly possible, an alternative view also merits consideration.

The Importance of the Word “May”

One of the basic principles of statutory interpretation is that the Legislature is presumed to use words consciously.

Section 332(1) uses the word “may” and not “shall”.

Ordinarily:

• “May” denotes a permissive or enabling provision.
• “Shall” denotes a mandatory requirement.

If Parliament intended every institution covered by Schedule VII Sl. No. 19 to obtain registration before claiming exemption, it could have employed mandatory language.

The use of the word “may” arguably suggests that the provision merely enables eligible persons to seek RNPO registration rather than compelling every such institution to do so.

This becomes particularly relevant because Schedule VII itself contains a substantive exemption provision.

Can Schedule VII Operate Independently?

Another point that supports this view is that Schedule VII is not merely explanatory in nature. It forms part of the Act itself and specifically identifies persons whose income is exempt from tax.

Therefore, one possible interpretation is that:

• Schedule VII Sl. No. 19 grants exemption directly.
• Section 332 provides an optional registration framework for entities wishing to operate under the RNPO regime.
• Registration is not a pre-condition unless the Act expressly states so.

Under this interpretation, the position under the new law would broadly resemble the position that existed under section 10(23C)(iiiad) of the 1961 Act.

The Counter View

At the same time, it would be incorrect to ignore the contrary argument.

Since Section 332(1)(f) specifically refers to institutions covered by Schedule VII Sl. Nos. 17 to 19, the Revenue may contend that Parliament intended such institutions to come within the RNPO framework.

It may also be argued that the charitable exemption provisions under the new Act are intended to operate through a unified registration-based mechanism.

This line of reasoning cannot be dismissed and may eventually receive judicial consideration.

 A Balanced Conclusion

At present, the issue appears to be an interpretational one.

A reasonable view can be taken that registration under Section 332 is not mandatory for an educational institution covered by Schedule VII Sl. No. 19 because:

1. Schedule VII itself grants exemption.

2. Section 332(1) uses the expression “may apply for registration”.

3. No provision expressly states that exemption under Schedule VII Sl. No. 19 is conditional upon RNPO registration.

However, an alternative interpretation is also possible in view of the specific reference made to Schedule VII entities in Section 332(1)(f).

Until CBDT issues a clarification or the matter receives judicial consideration, taxpayers and professionals may need to evaluate the issue based on their own facts and risk appetite.

Accordingly, the matter should presently be viewed as an open question of interpretation rather than a settled proposition of law.

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Disclaimer: The views expressed above are personal interpretational views based on a reading of the relevant provisions of the Income-tax Act, 2025. Readers are advised to examine the statutory provisions independently and seek professional advice before taking any tax position. You can reach to me at rohanrp1983@gmail.com