Increase in prescribed limit for exemption for educational and medical institutions under section 10(23C) (iiiad) & 10(23C) (iiiae) of the Income Tax Act: -
Clause 23(C) of section 10 of the Income Tax Act provides for exemption of income received by various institutions as specified in various sub-clauses of the section. Section- 10(23C) (iiiad) provides that income received by any university or other educational institution existing solely for educational purposes shall be exempted if the aggregate annual receipts of such university or educational institution does not exceed the prescribed amount of annual receipts (Rs. 1 crore).
Similarly, Section 10(23C) (iiiae) provides that income received by any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for profit making, shall be exempted if the aggregate annual receipts of such institution does not exceed the prescribed amount of annual receipts (Rs. 1 crore).
The above threshold limit of Rs. 1 crore has been increased to Rs. 5 crores. This means that the income of educational and medical institutions will now be exempted up to an aggregate annual receipt of Rs. 5 crores. Such institutions will now be required to obtain necessary approvals under Income Tax Act only when their receipts exceed Rs. 5 crores.
Further, an explanation has also been inserted after sub-clause (iiiae) which states as below: -
“For the purposes of sub-clauses (iiiad) and (iiiae), it is hereby clarified that if the person has receipts from university or universities or educational institution or institutions as referred to in sub-clauses (iiiad), as well as hospital or hospitals or institution or institutions as referred to in sub-clause (iiiae), the exemptions under these clauses shall not apply, if the aggregate of annual receipts of the person from such university or universities or educational institution or institutions or hospital or hospitals or institution or institutions, exceed Rs. 5 crores”.
The above explanation has been inserted to give an end to a long prevailing controversy. The amendment proposed has made it clear now that if a trust is having more than 1 educational institution or hospital or both, the threshold limit of Rs. 5 crores will not be checked for each educational institution or hospital individually but such threshold limit will be checked on aggregate basis for the whole trust itself.
This amendment will take effect from 1st April, 2022 and therefore will apply to A.Y. 2022-23 and onwards.
