Section 10(23B) of the Income Tax Act provides a tax exemption for income earned by certain institutions that are:
- Constituted as a public charitable trust or registered under the Societies Registration Act, 1860, or any equivalent law,
- Existing solely for the development of khadi or village industries, and
- Not established for profit-making purposes.
To qualify for the exemption, the institution must:
- Apply or accumulate its income only for the development of khadi or village industries.
- Be approved by the Khadi and Village Industries Commission (KVIC).
- Operate within the approval period, which cannot exceed three assessment years at a time.
Example:
Suppose the “Gram Shakti Khadi Society”, registered under the Societies Registration Act, is engaged in producing and marketing hand-spun khadi garments in rural Odisha. It earns ₹25 lakh in a year from sales and interest income.
If the society:
- Uses all its income for expanding khadi production and training rural artisans,
- Has valid approval from KVIC for the relevant assessment years,
then the entire ₹25 lakh is exempt from income tax under Section 10(23B).
However, if the society diverts funds for unrelated commercial ventures or fails to renew KVIC approval, the exemption can be withdrawn after due notice.
