Indian income tax | Khadi and village industries
Section 10(23B) Income Tax Exemption for Khadi and Village Industries Institutions
Section 10(23B) of the Income-tax Act, 1961 provides a specific income-tax exemption for qualifying institutions established to develop khadi or village industries, subject to statutory approval and use-of-income conditions.
What does Section 10(23B) mean?
Under Section 10(23B), income of an institution constituted as a public charitable trust or registered under the Societies Registration Act, 1860 (or a corresponding law in force in any part of India), and established for the development of khadi or village industries, may be excluded from total income where the conditions of the provision are fulfilled.
Khadi generally refers to cloth woven on handlooms in India from cotton, silk or woollen yarn hand-spun in India, or a mixture of such yarns, as defined under the applicable khadi legislation. Village industries are industries within the meaning of the Khadi and Village Industries Commission Act, 1956. The statutory definitions and any relevant notifications should be consulted for a particular activity.
Eligibility, income and exemption
| Eligible institution | A qualifying institution constituted as a public charitable trust or registered society, established for developing khadi or village industries. |
|---|---|
| Nature of income | Income received by or on behalf of the eligible institution, subject to the conditions in the governing provision. |
| Extent of exemption | Income covered by Section 10(23B) is exempt where all applicable statutory requirements are met; exemption is not automatic merely because an entity is a trust or society. |
| Approving authority | The prescribed authority under the provision, historically the Khadi and Village Industries Commission / its specified approving authority, subject to the applicable statutory and procedural framework. |
| Purpose requirement | Income must be applied or accumulated solely for development of khadi or village industries. |
Conditions for claiming exemption
- Legal constitution: The institution must have the form required by Section 10(23B), such as a registered society or public charitable trust.
- Qualifying objects: It must be established for the development of khadi or village industries, rather than an unrelated commercial purpose.
- Approval: It must obtain and maintain the approval required under the applicable provisions. The original provision contemplated approvals for periods not exceeding three years; the institution should verify its approval period and current renewal requirements.
- Use of income: Income must be applied or accumulated solely for development of khadi or village industries.
- Continuing compliance: The approving authority may withdraw approval in accordance with law if the institution fails to satisfy the conditions, after providing the required opportunity to be heard.
How the exemption works in practice
A registered society that promotes village-based production may be eligible if its constitution, actual activities, use of income and approval satisfy Section 10(23B). A society engaged in unrelated activities, or one without the required approval, should not assume that all its receipts are exempt under this clause.
The exemption belongs to the qualifying institution. It does not automatically exempt the personal income of its trustees, members, employees or beneficiaries.
Records and compliance
Institutions should retain their trust deed or society registration certificate, approval orders and renewals, activity reports, books of account, records of expenditure and accumulation, and documents showing that funds support the qualifying objects. Applicable return-filing, audit and reporting requirements must be assessed separately.
Income-tax law applicable from 2026
The Income-tax Act, 2025 applies from 1 April 2026. Section 10(23B) is a reference to the Income-tax Act, 1961 and remains relevant when examining years governed by that Act. For tax years governed by the 2025 Act, consult the corresponding provision, transitional rules and current notifications before claiming an exemption; do not assume that the legacy section number or procedural requirements continue unchanged.
Official legal references
- Income Tax Department: Income-tax legislation - statutory provisions and updates.
- India Code - central legislation, including the Income-tax Act and the Khadi and Village Industries Commission Act, 1956.
- Khadi and Village Industries Commission - official information on khadi and village industries.
- Income Tax e-Filing portal - current compliance services and guidance.
Frequently asked questions
Who can claim exemption under Section 10(23B)?
An institution constituted as a public charitable trust or registered under the Societies Registration Act, 1860, or a corresponding law, established for the development of khadi or village industries and holding the required approval.
Is every charitable trust eligible?
No. Section 10(23B) is a specific exemption for qualifying khadi and village industries institutions. A trust must meet the statutory purpose and approval conditions.
Is the entire income exempt?
The provision covers income of a qualifying approved institution, subject to the conditions and exclusions in the applicable law. The institution must apply or accumulate income solely for development of khadi or village industries.
What happens if approval is withdrawn?
The exemption cannot be assumed for periods for which a valid approval is not in force. The authority may withdraw approval according to the applicable procedure, including an opportunity of being heard.
This article is general information. Eligibility depends on the law applicable to the relevant tax year, the institution's approval and its facts.