Income Tax planning for school
A.
Government Educational Institutions:
Income received by any university or
educational institution existing solely for educational purposes and not for
purposes of profit, and which is wholly or substantially financed by the
Government is fully exempt from tax vide Section 10(23C)(iiiab). Hence, a
Government educational institution is fully exempt from income tax without any
separate approvals etc. as long as it is not for profit purpose.
B.
Non-government Educational
Institutions:
The exemption for non-government
(private) educational institutions depends upon the aggregate annual receipts
of the university / educational institution.
1) Educational Institutions with annual receipts up to Rs. 1
crore:
Thus, an educational institution having
receipts upto Rs. 1 crore can claim full exemption under the above clause
without requiring a separate approval or registration.
Here it is important to note that the
term “annual
receipts” has not been defined under the law. Keeping in mind
the intention of the provisions, annual receipts should mean receipts from the
various fees and charges collected by the institution. It can also include the
receipts from donations.
2) Educational Institutions with annual receipts exceeding
Rs. 1 crore:
Exemption in the case of an educational
institution having receipts exceeding Rs. 1 crore is governed by Section
10(23C)(vi) which states that income earned by any university or other
educational institution existing solely for educational purposes and
not for purposes of profit, other than those mentioned in sub-clause
(iiiab) or sub-clause (iiiad), shall be exempt if they are approved by
the prescribed authority. Thus, where the aggregate receipts of the
institution exceeds Rs. 1 crore, the institution needs a separate approval for
claiming the exemption u/s 10(23C).
The Application for approval is
required to be made in Form No. 56D along with the necessary supporting
documents before the Commissioner of Income Tax (Exemptions). Like the approval
u/s 12AA, the approval u/s 10(23C) is also available indefinitely unless it is
rescinded by the authorities.
There are some further conditions
prescribed for an educational institution having receipts in excess of Rs. 1
crore. The third proviso to Section 10(23C) provides for the following two
conditions:
i) Spend minimum 85%: The educational institution shall apply (spend) its
income wholly and exclusively to the objects for which it is
established. Further, the institution shall apply at least 85% of the
income every year. Thus, just registration u/s 10(23C) by itself does not
result in full exemption. The institution shall spend at least 85% of total
income in order to claim full exemption. It may be noted that the institution
is allowed to retain up to 15% of total income without any conditions.
In case the income applied falls short
of the said 85%, the institution can accumulate such excess income for
application in subsequent year(s) not exceeding five years.
However, the accumulated amounts are
required to be spent by the institution on its own and it cannot spent the same
by way of donations (corpus or otherwise) to any trust registered u/s 12AA or
any other institution claiming exemption u/s 10(23C).
From the above, it is clear that the
provisions are similar to the one available u/s 11 to the Trusts registered u/s
12AA. The only difference here seems to be that there is no need to pass a
trustees’ resolution to accumulate the income and no need to file a separate
Form and specify the purpose of accumulation (unlike Form No. 10 in the case of
12AA registered trusts).
ii) Investments: The second condition is that the institution shall
invest its money only in the modes specified u/s 11(5). This is once again
similar to the provisions applicable to a trust registered u/s 12AA.
iii) Other Conditions:
a) Income Tax Return: By
virtue of 139(4C) every educational institution referred to in 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, shall furnish a return of income. Therefore,
if the total receipts of the institution exceeds Rs. 2,50,000/-, it shall file
the return of income. The Form of ITR is ITR-7, the same as applicable to a
Section 12AA registered Trust.
b) Audit: Proviso no. 10 to Section 10(23C)
provides that where the total income of the institution, without giving effect
to the provisions of this section, exceeds the maximum amount which is not
chargeable to tax in any previous year, such institution shall get its accounts
audited and furnish along with the return of income for the relevant assessment
year, the report of such audit Form No. 10BB. Therefore, if the total receipts
of the institution exceeds Rs. 2,50,000/-, it shall file the return of income.
c) Corpus Donations to other Trusts: Proviso no. 12 to the Section 10(23C) further
provides that any amount credited or paid out of income of any university or
educational institution to any trust or institution registered
under section 12AA, being a corpus donation shall not be treated as
application of income to the objects for which such university or educational
institution is established. Therefore, the educational institutions registered
u/s 10(23C)(vi) are barred from giving corpus donations to other Trusts
registered u/s 12AA.
d) Other Provisions: Applicability
of other provisions like deduction of tax at Source (TDS) on expenses are fully
applicable to an educational institution. Therefore, an educational institution
is required to deduct tax from payments, wherever required, in order to claim
the amount as application of income.
For further clarification and professional
assistance, feel free to contact SRTConsultancy & Co. at sandeeprawatca@gmail.com
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