Indian income tax | Exempt institutions and funds
Section 10(23C) Income Tax Exemption for Funds, Schools, Hospitals and Charities
Section 10(23C) of the Income-tax Act, 1961 set out exemptions for specified public funds, educational institutions, hospitals and other eligible charitable or religious institutions. The conditions differ according to the category of institution.
Meaning and scope of Section 10(23C)
Section 10(23C) excluded qualifying income from total income under the Income-tax Act, 1961. Its sub-clauses identified named national funds, certain religious and charitable funds, educational institutions and medical institutions. For institutions requiring approval, detailed conditions applied to their objects, investments, use of income, accounts, returns and other compliance matters.
Which funds and institutions were covered?
| Sub-clause or category | Nature of institution and key eligibility test |
|---|---|
| Section 10(23C)(i) | Prime Minister's National Relief Fund. |
| Section 10(23C)(ii) | Prime Minister's Fund (Promotion of Folk Art). |
| Section 10(23C)(iii) | Prime Minister's Aid to Students Fund. |
| Section 10(23C)(iiia) | National Foundation for Communal Harmony. |
| Section 10(23C)(iiiab) | University or other educational institution existing solely for educational purposes and not for profit, substantially financed by the Government. |
| Section 10(23C)(iiiac) | Hospital or other medical institution existing solely for philanthropic purposes and not for profit, substantially financed by the Government. |
| Section 10(23C)(iiiad) | Qualifying educational institution existing solely for education and not for profit, with annual receipts within the prescribed limit. |
| Section 10(23C)(iiiae) | Qualifying hospital or other medical institution existing solely for philanthropic purposes and not for profit, with annual receipts within the prescribed limit. |
| Section 10(23C)(iv) | Fund or institution established for charitable purposes, subject to the applicable approval conditions. |
| Section 10(23C)(v) | Trust or institution established wholly for public religious purposes, or wholly for public religious and charitable purposes, subject to approval conditions. |
| Section 10(23C)(vi) | University or other educational institution existing solely for educational purposes and not for profit, where approval is required. |
| Section 10(23C)(via) | Hospital or other medical institution existing solely for philanthropic purposes and not for profit, where approval is required. |
What does 'substantially financed by the Government' mean?
For specified government-financed educational and medical institutions, the 1961 Act and relevant rules provide a test for substantial government financing. Eligibility must be assessed using the applicable rule and the institution's receipts and government grants for the relevant year; being a government-recognised institution alone does not establish this exemption.
Receipts limit for smaller schools and hospitals
The original article mentioned an annual gross receipts ceiling of Rs. 1 crore. That figure became outdated. Under the later framework of the 1961 Act, the prescribed annual receipts limit for institutions covered by clauses (iiiad) and (iiiae) was increased to Rs. 5 crore, subject to the applicable aggregation rules and assessment-year provisions. It is essential to check the law for the specific year rather than use the earlier Rs. 1 crore threshold.
Approval, use of income and compliance
- Approval or registration: Institutions in approval-based categories must apply to the competent authority in the prescribed form and meet the relevant approval and renewal requirements.
- Qualifying objects: Educational institutions must exist solely for education and not for profit; medical institutions must meet the applicable philanthropic and not-for-profit requirements. Other institutions must meet their stated statutory purposes.
- Application of income: Approved institutions are subject to conditions concerning application and permitted accumulation of income, including the applicable 85% application framework and statutory exceptions.
- Investments and activities: Conditions may restrict investments and regulate business income and activities not incidental to the objects of the institution.
- Books, audit and returns: Depending on the category and income, books of account, audit reports and timely tax returns may be mandatory.
- Anonymous donations: Certain anonymous donations can be taxable under Section 115BBC of the 1961 Act. The earlier article's reference to Section 115BC was incorrect.
- Overlap with other regimes: Where relevant, provisions governing charitable institutions under Sections 11, 12 and 12AB must be considered; an institution should not assume simultaneous benefits under incompatible exemption regimes.
Does the entire income become exempt?
For specifically named funds, the statutory exemption generally covers income falling within the relevant clause. For approved institutions and other conditional categories, the benefit depends on continuing compliance, including application and accumulation of income and applicable exclusions. Non-compliance can result in taxation or withdrawal of approval. Thus, the statement 'entire income exempt' should always be read subject to the relevant sub-clause and its conditions.
Law applicable from 1 April 2026
The Income-tax Act, 2025 came into force on 1 April 2026. Section 10(23C) refers to the 1961 Act and is particularly relevant for periods governed by that Act. For tax years governed by the 2025 Act, institutions should consult the corresponding exemption provisions, notifications and transitional rules rather than assume the old section numbering, forms or limits continue unchanged.
Official references and resources
- Income Tax Department - Income-tax legislation
- India Code - official Central Acts
- Income Tax e-Filing portal - approvals, returns and compliance
- Related article: Section 10 exempt income
- Related article: Chapter VI-A deductions
Frequently asked questions
Which institutions qualify under Section 10(23C)?
Specified funds and qualifying educational, medical, religious or charitable institutions may qualify under different sub-clauses. The relevant sub-clause and its conditions must be checked.
Is the exemption automatic for every school or hospital?
No. Eligibility depends on whether the institution falls within a specified statutory category, meets applicable receipts or financing criteria, or has the required approval.
Is the old Rs. 1 crore receipts limit still correct?
No. For the relevant later years under the 1961 Act, the receipts threshold for specified small educational and medical institutions was increased to Rs. 5 crore, subject to the applicable rules. The threshold for any current year must be verified under the law governing that year.
Are anonymous donations exempt?
Not necessarily. Section 115BBC of the 1961 Act provides special taxation rules for certain anonymous donations, subject to its exceptions.
Do these provisions apply unchanged from April 2026?
No. The Income-tax Act, 2025 applies from 1 April 2026. For years governed by the new Act, check its corresponding provisions and transitional requirements.
This article provides general information. Apply the legislation, notifications and approvals relevant to the institution and tax year.