Section 10(23C) of the Income Tax Act provides tax exemption to certain funds, institutions, universities, and hospitals that are established for charitable or religious purposes. It’s one of the two main regimes (alongside Section 11) under which charitable entities can claim exemption from income tax.
Who Can Claim Exemption:
Entities like:
- Educational institutions (e.g., schools, colleges, universities),
- Medical institutions (e.g., hospitals),
- Charitable trusts or funds,
- Religious institutions,
can apply for exemption under various sub-clauses of Section 10(23C), such as:
- (iiiab): Government-funded educational institutions,
- (iiiac): Government-funded hospitals,
- (iv): Charitable funds or institutions approved by the CBDT,
- (v): Trusts for public religious purposes,
- (vi): Educational institutions not funded by the government but approved by the Commissioner,
- (via): Similarly, medical institutions.
Conditions for Exemption:
- The institution must exist solely for charitable or religious purposes.
- It must apply at least 85% of its income toward its stated objectives.
- It must be approved by the prescribed authority (Principal Commissioner or Commissioner).
- It must not be for profit and should maintain proper books of accounts.
Example:
Let’s say “Shiksha Jyoti Trust” runs a chain of schools and colleges in India. It applies for and receives approval under Section 10(23C)(vi). In FY 2024–25, it earns ₹10 crore from tuition fees and donations. It spends ₹8.5 crore on educational activities and infrastructure.
Since it:
- Exists solely for education (a charitable purpose),
- Applies 85% of its income to its objectives,
- Is approved under Section 10(23C)(vi),
the entire ₹10 crore is exempt from income tax.
However, if it diverts funds for unrelated commercial ventures or fails to meet compliance requirements, the exemption can be withdrawn.
