Question 1

Which sub-clause of Section 10(23C) applies to a university or educational institution not wholly government-funded?

Accepted Answer

A university or educational institution existing solely for education and not for profit — and not wholly or substantially financed by government — claims exemption under Section 10(23C)(vi) of the Income-tax Act 1961 if its annual receipts exceed Rs 5 crore, after obtaining approval from the prescribed authority under Rule 2CA of the Income-tax Rules 1962. Institutions below the Rs 5 crore threshold fall under Section 10(23C)(iiiad) and need no approval.

Question 2

What is the 85% application test and what happens if income is accumulated instead?

Accepted Answer

Under the proviso to Section 10(23C) read with Rule 17 of the Income-tax Rules 1962, the institution must apply at least 85% of its income derived from property held under trust to educational purposes in India in the same year. If it accumulates the shortfall, it must file Form 9A electronically before the due date under Section 139(1) of ITA 1961 — specifying the purpose and period of accumulation, which cannot exceed 5 years.

Question 3

Does an educational institution under Section 10(23C) also need registration under Section 12A/12AB?

Accepted Answer

No — Section 10(23C) and Sections 12A/12AB are mutually exclusive exemption regimes. An institution registered under Section 12AB (as amended by Finance Act 2020, effective April 1 2021) cannot simultaneously claim exemption under Section 10(23C)(vi) or (via). The institution must choose one regime; switching requires surrendering the existing registration or approval and re-applying under the desired regime.

Question 4

What is the approval and renewal process under Section 10(23C)(vi)?

Accepted Answer

The institution applies in Form 56D to the Principal Commissioner or Commissioner of Income Tax (the prescribed authority under Rule 2CA). From April 1 2022, approvals granted are provisional for 3 years initially; the institution must then apply for regular approval in Form 56D at least 6 months before expiry. Failure to renew results in the institution losing exemption status and all income becoming taxable under normal provisions.

Question 5

Are anonymous donations received by an approved educational institution taxable?

Accepted Answer

Yes. Section 115BBC of ITA 1961 taxes anonymous donations received by any institution referred to in Section 10(23C) at a flat rate of 30% (plus surcharge and cess) on the aggregate of such donations exceeding Rs 1 lakh or 5% of total donations received, whichever is higher. The institution cannot claim the 85% application deduction against this amount, making donor identity records and receipt documentation essential for AY 2026-27 and earlier years.

Education Trust & Section 10(23C) Exemption

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