Income Tax Planning for Educational Institutions (Schools, Colleges & Universities)
🏫 Income Tax Planning for Educational Institutions (Schools, Colleges & Universities)
Author: CA Sandeep Rawat
Contact: +91-9315776867
Firm: ;CAsandeeprawat.
🔹 Introduction
Tax planning plays a vital role in managing the financial health of educational institutions. Whether a school is run by the government or privately managed, understanding the Income Tax provisions under Section 10(23C) can help in achieving tax efficiency while maintaining compliance.
This guide provides a detailed explanation of Income Tax exemption for educational institutions, focusing on both government and non-government entities.
A. Government Educational Institutions
Income received by any university or educational institution existing solely for educational purposes and not for profit, and which is wholly or substantially financed by the Government, is fully exempt from tax under Section 10(23C)(iiiab).
Key Point: Government-funded institutions don’t need any separate approval if they are not established for profit purposes.
B. Non-Government (Private) Educational Institutions
The tax exemption for private or non-government institutions depends on their annual receipts.
1️⃣ Institutions with Receipts up to ₹1 Crore
Under Section 10(23C)(iiiad), income earned by an institution existing solely for educational purposes and not for profit is exempt from tax if its aggregate annual receipts do not exceed ₹1 crore.
No approval required for exemption in this case.
Note: “Annual receipts” include income from fees, charges, and donations received by the institution.
2️⃣ Institutions with Receipts Exceeding ₹1 Crore
Where receipts exceed ₹1 crore, approval under Section 10(23C)(vi) from the Commissioner of Income Tax (Exemptions) is mandatory.
Form 56D must be filed with supporting documents to apply for approval. Once approved, the exemption continues indefinitely unless withdrawn.
Conditions for Educational Institutions (Exceeding ₹1 Crore)
i) 85% Application Rule
The institution must apply at least 85% of its income for educational purposes every year. Up to 15% may be retained for future use. Unspent income can be accumulated for up to 5 years, but must be spent on the institution’s own activities — not donated to another trust.
ii) Investment Norms
Funds must be invested only in modes specified under Section 11(5) — such as government securities, deposits, or approved investments.
iii) Filing of Return & Audit
- Institutions with total income exceeding ₹2,50,000 (before exemption) must file ITR-7 under Section 139(4C).
- If income exceeds ₹2,50,000, an audit report in Form 10BB is mandatory.
iv) Corpus Donations
Any amount given as a corpus donation to another trust under Section 12AA will not be treated as application of income.
v) Compliance with TDS & Other Laws
All institutions must comply with TDS, GST, and other statutory laws for claiming tax benefits.
Key Takeaways
- ✅ Government institutions are automatically exempt under Section 10(23C)(iiiab).
- ✅ Private institutions up to ₹1 crore receipts enjoy automatic exemption under Section 10(23C)(iiiad).
- ✅ Above ₹1 crore, approval under Section 10(23C)(vi) is required.
- ✅ Spend at least 85% of income for educational purposes.
- ✅ File ITR-7 and maintain audit compliance.
📢 Professional Assistance for Schools and Trusts
For expert assistance in:
- Income Tax Planning for Schools and Trusts
- 10(23C) & 12A/80G Registration
- Audit, Compliance & Tax Filings
- GST & Income Tax Advisory
Contact: +91-9315776867
Email: sandeeprawatca@gmail.com
Firm: SRTConsultancy & Co.
Author: CA Sandeep Rawat – Tax & Compliance Expert, Author & Speaker (Ex-Taxman, ICAI)
🧾 Disclaimer
The information in this article is for educational and informational purposes only. It should not be construed as legal or tax advice. Readers are advised to seek professional guidance before acting on any information contained herein.
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