Exemption available for educational institutions- Section 10(23C) & 11

Charitable Institutions which are registered under section 12AA of the Act can claim exemptions under section 11 of the Act when conditions are become fulfilled. While Section 11 is a general provision and applicable to all charitable institutions, Sec 10(23C) is a specific exemption provision applicable to certain Government and Non-Government educational institutions.

This article discusses exemptions available for an Educational Institution u/s 10(23C) of the Income Tax Act and comparison of the same to the provisions of Sec 11 of Income Tax Act.

Educational Institutions which come under the provisions of Sec 10(23C)

(i) Government Educational Institution – Applicable Provision- Sec 10(23C)(iiiab)

(ii) Non-Government Educational Institution

> Whose gross receipt < Rs. 1 Crore (Now increased to 5 Crore) –  Applicable Provision- Sec 10(23C)(iiiad)

> Whose gross receipt > Rs. 1 Crore (Now increased to 5 Crore) –  Applicable Provision- Sec 10(23C)(vi)

A) Government Educational Institution

i) The first class of educational institutions dealt with Income Tax is which is financed by Government.

ii) Any income received by any university or educational institution existing solely for purpose of education and is financed by Govt. is fully exempt from tax u/s 10(23C)(iiiab).

iii) No separate approvals required for Govt. institutions.

B) Non-Government Educational Institutions

The exemption for non-government educational institution depends on the annual gross receipt of the institution.

1) Education Institutions whose gross receipt < Rs. 1 Crore (Now increased to 5 Crore)

i) Applicable provision for these institutions is Sec 10(23C)(iiiad) .

ii) Income earned by any university or educational institution existing solely for educational purposes and not for profit purpose shall exempt from tax u/s 10(23C(iiiad) if total gross receipt is less than Rs. 1 Crore (Now increased to 5 Crore).

iii) Annual receipt has not defined in the Act. So Annual receipt should mean all the various fees and charges collected by the Educational Institution. It can also include all the receipts from donations.

iv) No separate approval required from prescribed authority.

2) Educational Institutions whose gross receipt > Rs. 1Crore (Now increased to 5 Crore)

i) Applicable provision for these institutions is Sec 10(23C)(vi).

ii) Income earned by any university or educational institution existing solely for educational purpose not for profit purpose, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad), shall exempt if they approved by prescribed authority.

iii) So, where Gross Receipts exceeds Rs. 5 crore, the institution needs a separate approval from prescribed authority.

iv) For this purpose the educational institution has to make an application in Form No. 56D as prescribed in Rule 2CA with supporting documents before Commissioner of Income Tax (Exemptions). Like Approval u/s 12AA, the approval u/s 10(23C) is also available indefinitely unless it is rescinded by the authorities.

v) There are some conditions to claim exemptions u/s 10(23C)(vi) – (Third proviso to Sec 10(23C)

> Spend Minimum 85%:

• • • The Educational Institution shall spend its income wholly and exclusively to the objects for which it is established.
    • The Institution shall apply at least 85% of the income every year. It is allowed to retain profit up to 15% of total income.
    • In case the income applied falls short of 85%, then the institution shall apply the excess income for application in subsequent year(s) not exceeding 5 years.

For Example: Gross Income – Rs. 1,60,00,000/-
85% of Gross Income – Rs. 1,36,00,000/-
Actual Spent- Rs. 1,20,00,000/-
Balance Rs. 16,00,000/- can be spent with in 5 subsequent years.

• • • However, the accumulated amounts are required to be spent by the institution on its own. It can’t spent by way of donations to any trust registered u/s 12AA or any other institutions claiming exemption u/s 10(23C).
    • The provisions are as applicable in case of institutions registered u/s 12AA. The only difference is in this case there is no need of Trustee’s resolution to accumulate the income and no need to file separate Form and specify the purpose of accumulation (unlike Form No 10 in case of Sec 12AA registered cases).

> Investments

• • • The institution shall invest only in the modes specified u/s 11(5), which is similar to Sec 12AA registered cases.

> Other Conditions

• • • Audit: (Proviso 10 of Sec 10(23C)

Where the Total Income of the Institution, before giving the effects of provisions of Sec 10(23C), exceeds the maximum amount not chargeable to tax in any PY, shall get the accounts audited and furnish along with the return of income, the report of such Audit Form No. 10BB.

• • • Income Tax Return

By virtue of 139(4C) every educational institution referred to in sub-clause (iiiab) or sub-clause (iiiad) or sub-clause (vi) of Section 10(23C) whose total income, without giving effect to the provisions of section 10, exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form. Form No ITR 7 is applicable as applicable to Sec 12AA registered Trust.

• • • Corpus Donations to Other Trusts

Educational Institutions registered u/s 10(23C)(vi) are barred from giving donatins to other Trusts registered u/s 12AA.

Conclusion

From the above discussion, it is cleared that all the provisions relating to Sec 10(23C) and Sec 11 are almost similar. But in case of Institutions registered u/s 10(23C) may enjoy some less requirements regarding accumulation of income i.e. there is no need to file a separate Form and no need to specify the purposes of accumulation.

(Republished with Amendments)