Income Tax on Educational Institutions in India – Past Seven Years

Introduction

Educational institutions in India enjoy certain tax exemptions under the Income Tax Act, 1961, especially when they operate for charitable or not-for-profit purposes. However, not all institutions are fully exempt — taxation depends on registration status, source of income, and compliance with prescribed conditions. Over the past seven years, Finance Acts and CBDT circulars have clarified how schools, colleges, and universities are taxed.

In this article, we provide a year-wise overview of the income tax on educational institutions from FY 2018–19 to FY 2025–26, along with insights on surcharge, cess, and GST applicability.

Year-Wise Income Tax Treatment for Educational Institutions  

Source: Finance Acts (2018–2025), Income Tax Department-  incometax.gov.in

Key Insights on Taxation for Educational Institutions  

1. Charitable Exemption under Income Tax Act  

• Institutions existing solely for education (and not for profit) can claim exemption under Section 10(23C) or Section 12AB.

• If the institution earns surplus, it must be applied to educational purposes to retain exemption.

2. Transition from 12AA to 12AB  

• From AY 2021–22, registration of charitable institutions shifted from Section 12AA to Section 12AB.

• Institutions had to re-register to continue availing exemption.

3. Income Tax for Non-Exempt Institutions  

If exemption is not available, taxation applies:

• Trust/NGO model: taxed at slab rates.

• Company model: taxed at 30% corporate rate plus surcharge & cess.

4. GST for Educational Institutions  

• Exempt: Core education (schools, recognized colleges, approved universities).

• Taxable: Private coaching centers, training institutes, canteens, transportation, and commercial courses attract GST @ 18%.

• This distinction between exempt and taxable services is critical for compliance.

5. Effective Tax Burden  

• For exempt institutions, tax liability is zero if compliance is maintained.

• For taxable institutions (non-exempt), effective tax rates range between 26% and 34.94%, similar to domestic companies.

Conclusion  

Over the past seven years, the income tax on educational institutions has remained stable, with the most significant change being the shift to 12AB registration from AY 2021–22. While most genuine educational institutions enjoy exemption, those operating commercially or failing compliance face regular tax liability. At the same time, GST for educational institutions continues to exempt core services but taxes ancillary services at 18%. Careful compliance is necessary to retain exemptions and avoid penalties.

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