Union Budget 2021 proposes Raising of prescribed limit for exemption under sub-clause (iiiad) and (iiiae) of clause (23C) of section 10 of the Act.

Clause (23C) of section 10 of the Act provides for exemption of income received by any person on behalf of different funds or institutions etc. specified in different sub-clauses.

Sub-clauses (iiiad) of clause (23C) of the section 10 provides for the exemption for the income received by any person on behalf of university or educational institution as referred to in that sub-clause. The exemptions under the said sub-clause are available subject to the condition that the annual receipts of such university or educational institution do not exceed the annual receipts as may be prescribed. Similarly, sub-clauses (iiiae) of clause (23C) of the section provides for the exemption for the income received by any person on behalf of hospital or institution as referred to in that sub-clause. The exemptions under the said sub-clause are available subject to the condition that the annual receipts of such hospital or institution do not exceed the annual receipts as may be prescribed. The presently prescribed limit for these two sub-clauses is Rs 1 crore as per Rule 2BC of the Income-tax Rule.

Representations have been received to increase this limit of Rs 1 crore, as provided under Rule 2BC. In order to provide benefit to small trust and institutions, it has been proposed that the exemption under sub-clause (iiiad) and (iiiae) shall be increased to Rs 5 crore and such limit shall be applicable for an assessee with respect to the aggregate receipts from university or universities or educational institution or institutions as referred to in sub-clause (iiiad) as well as from hospital or hospitals or institution or institutions as referred to in sub-clause (iiiae).

This amendment will take effect from 1st April, 2022 and will accordingly apply to the assessment year 2022-23 and subsequent assessment years.

[Clause 5]

Text of the Relevant Clause of the Finance Bill 2021

Clause 5 of the Bill seeks to amend section 10 of the Income-tax Act relating to incomes not included in total income.

The said section provides that in computing the total income of a previous year of any person, certain categories of income shall not be included in the total income.

Sub-clause (iiiad) of clause (23C) of the said section provides for exemption for the income received by any person on behalf of university or educational institution as referred to in that sub-clause. The exemptions under the clause are available subject to the condition that the annual receipts of such university or educational institution do not exceed the annual receipts as may be prescribed.

Similarly, sub-clause (iiiae) of the said clause provides for exemption for the income received by any person on behalf of hospital or institution as referred to in that sub-clause. The exemptions under the clause are available subject to the condition that the annual receipts of such hospital or institution do not exceed the annual receipts as may be prescribed.

Presently, the amount prescribed for sub-clause (iiiad) as well as (iiiae) is one crore rupees. It is proposed to increase the limit of annual receipts, for exemption under sub-clause (iiiad) and (iiiae), to five crore rupees and provide that such limit shall be applicable for an assessee with respect to the aggregate receipts from university or universities or educational institution or institutions as referred to in sub-clause (iiiad) as well as from hospital or hospitals or institution or institutions as referred to in sub-clause (iiiae).

Explanation to the third proviso to the said clause provides that income of the funds or trust or institution or any university or other educational institution or any hospital or other medical institution, shall not include income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus.

It is proposed to number the said Explanation as Explanation 1 thereof and to provide that such voluntary contributions should be invested or deposited in one or more of the forms or modes specified in sub-section (5) of section 11 maintained specifically for such corpus.

It is further proposed to insert Explanation 2 in the said proviso so as to provide that,––

(a) application out of such corpus shall not be considered as application for charitable or religious purposes for the purposes of third proviso of clause (23C), provided when it is invested or deposited back, into one or more of the forms or modes specified in sub-section (5) of section 11 maintained specifically for such corpus from the income of the previous year, such amount shall be allowed as application in the previous year in which it is deposited back to corpus and to the extent it is deposited back;

(b) application from loans and borrowings shall not be considered as application for charitable or religious purposes for the purposes of third proviso of clause (23C) provided when loan or borrowing is repaid from the income of the previous year, such repayment shall be allowed as application in the previous year in which it is repaid and to the extent it is repaid.

Fourteenth proviso of the said clause provides that if any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of said clause of said section accumulates its income, then payment or credit out of such accumulation, to exempt entities as prescribed in the proviso, shall not be treated as application.

It is proposed to amend the said proviso to make a reference of section 12AB which provides for the procedure of registration.

It is also proposed to number the Explanation as Explanation 1 thereof the twentieth proviso to the said clause and to insert a new Explanation 2 therein so as to provide that for the computation of income required to be applied or accumulated during the previous year, no set off or deduction or allowance of any excess application, of any of the year preceding the previous year, shall be allowed.

These amendments will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-2023 and subsequent assessment years.

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