Income Tax Exemptions for Educational Institutions and Universities

The Income Tax Act has provided for an exemption for educational institutions under section 10(23C) of the act. Like all other laws the sections applicable for exemptions provided under the act have a lot of things which decides if you are eligible for such exemption, here we have tried to bring brief explanations to such matters.

What exemptions are available?

Income received by any educational institutions or university whose primary objective is to impart education and not to earn profits will be exempted subject to conditions prescribed.

Who can claim such exemption?

An Educational Institution or University registered as a:

Solely for the purpose of providing education and not for earning profits can avail such exemption subject to the following:

Government Institutions:

If you are University or Educational Institution substantially financed by Government and run not for the purposes of profit, income derived from such institution will be exempted under the Income Tax Act.

Note:
Substantially Financed here would mean if Government Grant received by such institution during the previous year exceeds 50% of total receipts of such institution.

Non-Government Institutions:

If you are a Non-Government University or Educational Institution run not for the purposes of profit and your annual receipts of the previous year:

Exceeds 1 Crore:
They can avail such exemption if they hold a certificate of approval to claim such exemption.
Does not Exceed 1 Crore:
Can avail such exemption under section 10(23C)(iiiad) without any approval

How to apply for such exemption?

The only case you would require to apply for exemption under section 10(23C) is when your annual receipts of such institution exceeds one crore. An application for exemption has to be filed electronically via the Form 56 to the Commissioner of Income Tax Exemptions who on further examination and hearing if satisfied would give approval for the same.

The act provided for the following conditions to be met for claiming exemption:

  • Atleast 85% of the total income should be spent exclusively towards the objectives of education
  • The second condition is more of a restriction on where the institution can invest its money, which should be in accordance with section 11(5) of the Act.

What happens if I am not able to use 85% of income towards the objects during the year?

In such case the shortfall has to be accumulated in the subsequent five years.

How much time is taken for approval of exemption application?

The department has to pass an order regarding approval or rejection within twelve months of such application.

How long is the Exemption Certificate Valid?

The Exemption is valid indefinitely unless it is revoked by the department for any reasons thereof.

Mandatory Compliances

Every Educational Institution or University claiming exemption under section 10(23C) whose income during the year exceeds the basic exemption limit have to

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