Tax Exemptions of Educational institutions under section 10(23C) (iiiad)

The issue of the taxability of educational institutions regarding their incomes from investments or income from properties and other sources has been controversial since long. In general educational institutions are not liable to pay tax for the income they earn.

Conditions to be fulfilled to get the exemption:

The following conditions should be fulfilled to get the benefit of the provision as contained in section 10(23C) (iiiad)–

1. the educational institution is not financed by the Government;
2. the total annual receipt of the educational institution is less than Rs.100 lakhs or 1 crore;
3. the educational institution is solely for educational purposes;
4. the institution is a non-profitable one.

Opinion of the Apex court regarding the taxability of educational institutions:

The Supreme Court in a leading reported case has held the exemption has to be given after evaluating whether the educational institution existed during the relevant year solely for educational purposes and not for purposes of profit. If the institution, after paying its expenses derives any additional income, then the additional income is also exempt from tax.

When an educational institution, constituted only for educational purpose, is engaged in publishing books, magazines, etc., then that income is also exempted.

When an educational institution has a rental income by letting out buildings constructed by it, then the said rental income is also exempted provided that the income is spent towards educational purposes.

When an educational institution does not get the exemption?

When an educational institution, constituted only for educational purpose for education, is not involved with any educational activity in India, then it will not get the exemption for its other incomes.

A trust made for the purpose of education will not get the exemption, unless it has started the activity of giving education. Only taking of initiatives for forming an educational institution will not safe guard the assessee from tax consequences, if it has chargeable income during the previous year.

Limit of the income to get benefit of the exemption:

The prescribed limit of annual income of the educational institution is Rs. 1 crore as provided in the provisions of section 10(23C) (iiiad).

The total annual receipts of the educational institution are considered while providing the exemption limit. The total income of the society that runs the educational institution is not considered.

The educational institutions availing the benefits of section 10(23C) (iiiad) does not require to file return of income in view of the exemption provided by the statute. But the provisions regarding tax deduction at source are totally applicable to such institutions.

When the total annual receipts are more than Rs.100 lakhs, then the institution needs to comply with the conditions like that of section 11 to section 13.