Section 10(23C) of Income Tax Act 1961: All You Need to Know

March 17, 2023

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Table of Contents

Introduction

Section 10(23C) of the Income Tax Act, 1961 is an important provision that exempts certain types of income of specified entities or institutions from tax. In this blog, we will discuss this provision in detail, including its applicability, eligibility criteria, and the types of institutions covered.

Applicability

Section 10(23C) applies to certain entities or institutions, which are specified by the Income Tax Act, 1961. These entities or institutions include:

Educational institutions – Educational institutions that are wholly or substantially financed by the government or are affiliated with a university or educational board.

Hospitals – Hospitals that are wholly or substantially financed by the government or are established for the purposes of medical education or research.

Charitable institutions – Charitable institutions that are established for the relief of poverty or distress or the advancement of education or religion or any other object of general public utility.

Eligibility criteria

In order to claim the benefit of section 10(23C), the following eligibility criteria must be met by the entities or institutions:

They must be specified under section 10(23C).
They must be registered under the relevant laws governing them.
They must be engaged in activities that are in accordance with their objects or purposes.

Types of income exempted

The following types of income are exempted under section 10(23C):

Income from education – Income earned by educational institutions from providing education is exempted from tax.

Income from hospitals – Income earned by hospitals from providing medical facilities is exempted from tax.

Income from charitable activities – Income earned by charitable institutions from activities that are in furtherance of their charitable objects is exempted from tax.

Income from investments – Income earned by the entities or institutions from investments is exempted from tax, provided such investments are made in accordance with the relevant laws governing them.

Benefits of Section 10(23C)

Section 10(23C) of the Income Tax Act, 1961 provides significant benefits to educational institutions, hospitals, and charitable institutions. The benefits are as follows:

Tax exemption – The income earned by the entities or institutions covered under section 10(23C) is exempt from tax. This reduces the financial burden on these institutions and allows them to use the resources for the betterment of their activities.
Encourages philanthropy – By providing tax benefits to charitable institutions, the government encourages individuals and corporations to contribute towards philanthropic causes. This promotes social responsibility and helps in the development of the country.
Promotes education and healthcare – By exempting the income of educational institutions and hospitals, the government promotes the development of education and healthcare in the country. This encourages the institutions to provide better facilities and services to the society.
Increases accessibility – The tax benefits provided under section 10(23C) make it easier for educational institutions, hospitals, and charitable institutions to provide services to the society, especially to the underprivileged sections of the society.

Conclusion

Section 10(23C) of the Income Tax Act, 1961 is a significant provision that exempts certain types of income of specified entities or institutions from tax. Educational institutions, hospitals, and charitable institutions are covered under this provision. In order to claim the exemption, the entities or institutions must meet certain eligibility criteria and must engage in activities that are in accordance with their objects or purposes. By exempting the income of these entities or institutions, the government aims to promote education, healthcare, and charitable activities in the country.

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Frequently Asked Questions (FAQs)

What types of institutions are covered under Section 10(23C)?
Answer: Educational institutions, hospitals, and charitable institutions are covered under Section 10(23C).

What is the eligibility criteria for claiming the exemption under Section 10(23C)?
Answer: The eligible institutions must be registered under the relevant laws governing them, and must engage in activities that are in accordance with their objects or purposes.

Is the entire income of the eligible institutions exempt under Section 10(23C)?
Answer: No, only the income earned from the specified activities such as education, healthcare, and charitable activities is exempt under Section 10(23C).

Is there any limit on the amount of income that is exempt under Section 10(23C)?
Answer: No, there is no limit on the amount of income that is exempt under Section 10(23C).

Are donations made to the eligible institutions exempt under Section 10(23C)?
Answer: No, only the income earned by the eligible institutions from specified activities is exempt under Section 10(23C). However, donations made to charitable institutions may be eligible for deduction under Section 80G of the Income Tax Act.

What is the procedure for claiming the exemption under Section 10(23C)?
Answer: The eligible institutions must file their income tax returns and claim the exemption under Section 10(23C) in their tax returns.

Are there any reporting requirements for the eligible institutions under Section 10(23C)?
Answer: Yes, the eligible institutions must file an annual statement of their activities and income with the relevant authority.

Can an educational institution claim the exemption under Section 10(23C) if it is not affiliated with a university or educational board?
Answer: No, educational institutions must be affiliated with a university or educational board to claim the exemption under Section 10(23C).

Can a charitable institution claim the exemption under Section 10(23C) if it is not registered under the relevant laws governing it?
Answer: No, only the registered charitable institutions are eligible for the exemption under Section 10(23C).

Is the exemption under Section 10(23C) applicable to private educational institutions?
Answer: Yes, private educational institutions can also claim the exemption under Section 10(23C) if they meet the eligibility criteria.