Section 10(23d) of the Income Tax Act: An Overview
Section 10(23d) of the Income Tax Act provides an exemption from income tax for income earned by specified entities. This section applies to a wide range of organizations, including educational institutions, hospitals, and other charitable organizations. In this blog, we will take a closer look at Section 10(23d) of the Income Tax Act and explore its key features.
Entities Covered under Section 10(23d)
Section 10(23d) of the Income Tax Act applies to a variety of entities that are engaged in specific activities. Some of the entities covered under this section include:
- Educational institutions: This includes universities, colleges, and schools that are recognized by the government and are not-for-profit entities.
- Hospitals: Any hospital, medical college or other similar institutions engaged in the treatment of illness or injury is covered under Section 10(23d).
- Charitable institutions: Any trust, institution or organization that is established for charitable purposes, such as the relief of the poor, education or medical relief, can claim exemption under this section.
Conditions to Claim Exemption under Section 10(23d)
To claim exemption under Section 10(23d), the entity must meet certain conditions. These conditions include:
- The entity must be engaged in specific activities: As mentioned above, the entity must be engaged in specific activities such as education, medical relief or charitable purposes.
- The entity must be a not-for-profit entity: The entity must not be established for profit-making purposes.
- The entity must be registered: The entity must be registered under the relevant laws, such as the Societies Registration Act, the Trusts Act, or the Companies Act.
- The entity must maintain books of accounts: The entity must maintain proper books of accounts and get them audited by a chartered accountant.
- The income of the entity must be applied for the specified purposes: The income earned by the entity must be used for the specific purposes for which it was established.
Benefits of Section 10(23d)
Entities that qualify for exemption under Section 10(23d) are not required to pay income tax on their income. This allows them to use their resources for the specific purposes for which they were established, such as providing education or medical relief. The exemption also encourages the establishment of such entities and supports their growth and development.
Section 10(23d) of the Income Tax Act has been enacted with the aim of promoting social welfare and encouraging the establishment of organizations that work towards providing educational, medical and charitable services to the society. This section has also been designed to provide tax relief to these organizations and exempt them from paying income tax on the income earned from their specific activities. Let us explore some more details about Section 10(23d) of the Income Tax Act.
Scope of Activities
The activities that are covered under Section 10(23d) of the Income Tax Act are quite wide and diverse. For example, educational institutions that qualify under this section include universities, colleges, and schools that provide education and are not-for-profit. Medical institutions that are covered under this section include hospitals, medical colleges, and other similar institutions that are engaged in the treatment of illness or injury. Charitable institutions that are covered under this section are those that are established for the relief of the poor, education, medical relief, or any other similar purpose.
Conditions for Exemption
To qualify for exemption under Section 10(23d) of the Income Tax Act, an organization must meet certain conditions. The most important conditions are that the entity must be registered under the relevant law, maintain proper books of accounts and get them audited by a chartered accountant. It is also essential that the income earned by the organization is used for the specific purposes for which it was established. Additionally, the organization must be a not-for-profit entity, and the income earned must not be for the purpose of making profits.
Exemption Limits
Under Section 10(23d), there is no upper limit to the amount of income that can be earned by an entity that qualifies for exemption. However, it is important to note that the exemption is only applicable to the income that is earned from the specific activities that the organization is engaged in. Any income earned from other sources will be taxed as per the applicable tax rates.
Apart from the exemption provided under Section 10(23d) of the Income Tax Act, there are other provisions as well that provide tax relief to entities engaged in social welfare activities. For example, Section 11 of the Income Tax Act provides tax exemption to charitable and religious trusts that use their income for charitable purposes. Similarly, Section 12A of the Income Tax Act provides registration to charitable organizations, which makes them eligible for various tax benefits.
However, it is important to note that even if an organization qualifies for exemption under Section 10(23d), it is still required to file its income tax return. The organization must also maintain proper books of accounts and have them audited by a chartered accountant. The audit report must be submitted along with the income tax return.
Another important aspect to keep in mind is that organizations that are exempt under Section 10(23d) must use their income only for the specific purposes for which they were established. If the income is used for any other purpose, the organization may lose its tax exemption status.
In recent years, the government has introduced several measures to ensure that organizations claiming tax exemption under Section 10(23d) are complying with the conditions for exemption. The government has also increased the transparency requirements for these organizations, such as requiring them to disclose their sources of funding and how they are utilizing their income.
Conclusion
In conclusion, Section 10(23d) of the Income Tax Act provides an exemption from income tax for a wide range of entities that are engaged in specific activities such as education, medical relief, and charitable purposes. To claim exemption under this section, the entity must meet certain conditions, including being a not-for-profit entity, being registered, maintaining proper books of accounts and using the income for the specific purposes for which it was established. The exemption provides several benefits, including allowing entities to use their resources for their specified purposes and encouraging the establishment and growth of such entities.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
- What types of organizations are eligible for tax exemption under Section 10(23d)?
Organizations engaged in activities related to education, medical relief, and charitable purposes are eligible for tax exemption under Section 10(23d).
2. Are there any conditions that an organization must meet to qualify for tax exemption under Section 10(23d)?
Yes, the organization must be registered under the relevant law, maintain proper books of accounts, and have them audited by a chartered accountant. The income earned must also be used for the specific purposes for which the organization was established.
3. Is there a limit to the amount of income that can be earned by an organization eligible for tax exemption under Section 10(23d)?
No, there is no upper limit to the amount of income that can be earned by an organization eligible for tax exemption under Section 10(23d).
4. Is an organization eligible for tax exemption under Section 10(23d) required to file an income tax return?
Yes, even if an organization is eligible for tax exemption under Section 10(23d), it is still required to file its income tax return.
5. Is an organization eligible for tax exemption under Section 10(23d) required to maintain proper books of accounts?
Yes, an organization eligible for tax exemption under Section 10(23d) must maintain proper books of accounts and have them audited by a chartered accountant.
6. Can an organization lose its tax exemption status under Section 10(23d)?
Yes, an organization can lose its tax exemption status under Section 10(23d) if it fails to comply with the conditions for exemption or uses its income for purposes other than the specific purposes for which it was established.
7. What other tax benefits are available to charitable organizations apart from Section 10(23d)?
Charitable organizations can also claim tax exemption under Section 11 and register under Section 12A of the Income Tax Act.
8. Are there any transparency requirements for organizations claiming tax exemption under Section 10(23d)?
Yes, organizations claiming tax exemption under Section 10(23d) are required to disclose their sources of funding and how they are utilizing their income.
9. Can organizations claiming tax exemption under Section 10(23d) receive donations from abroad?
Yes, organizations claiming tax exemption under Section 10(23d) can receive donations from abroad, subject to certain conditions.
10. Can an organization engaged in multiple activities claim tax exemption under Section 10(23d) for all its activities?
No, an organization engaged in multiple activities can claim tax exemption under Section 10(23d) only for the activities that are specifically covered under the section. Any income earned from other activities will be taxed as per the applicable tax rates.
