Taxation of aop & exemption under sec 10(23c)
This query is : Resolved
ASHISH ANEJA
(Querist)
20 August 2018
one of my client is running educational institution under trust, but PAN card is registered under AOP.
AOP is paying salary to one of its member.
Total receipt is less then 1 crore.
MY QUERIES ARE
-whether aop is eligible for exemption u/s 10(23c).
-if yes, then what to do for claiming exemption
-as salary paid to member of aop is disallowed, then profit after diasslowance of salary is exempt or before disallowance.
AOP is paying salary to one of its member.
Total receipt is less then 1 crore.
MY QUERIES ARE
-whether aop is eligible for exemption u/s 10(23c).
-if yes, then what to do for claiming exemption
-as salary paid to member of aop is disallowed, then profit after diasslowance of salary is exempt or before disallowance.
CA R SEETHARAMAN
(Expert)
20 August 2018
Yes educational institution registered as AOP eligible for exemption u/s 10(23c)(iiiad) when gross receipts not to exceed 1 crore.
ASHISH ANEJA
(Querist)
20 August 2018
HOW TO CLAIM THIS EXEMPTION
CA R SEETHARAMAN
(Expert)
20 August 2018
No need to claim.......
ASHISH ANEJA
(Querist)
22 August 2018
in form ITR-7 it is asking for approval no, is approval required to claim this exemption
CA R SEETHARAMAN
(Expert)
22 August 2018
ITR 7 is not applicable to you. It's applicable to approved charitable and educational institution ( gross receipts exceeding 1 crore).
ASHISH ANEJA
(Querist)
22 August 2018
WHICH FORM IS APPLICABLE
ASHISH ANEJA
(Querist)
22 August 2018
Return for persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) or 139(4E) or 139(4F) are required to be filed under form itr-7,
and fund or institution or university or other educational institution or any hospital or other medical institution referred to in sub-clauses (iiiab), (iiiac), (iiiad), (iiiae), (iv), (v), (vi) or (via) of the clause (23C) of section 10 comes under sec 139(4C)
and fund or institution or university or other educational institution or any hospital or other medical institution referred to in sub-clauses (iiiab), (iiiac), (iiiad), (iiiae), (iv), (v), (vi) or (via) of the clause (23C) of section 10 comes under sec 139(4C)
26 July 2025
You're absolutely right to seek clarification, as **tax treatment and return filing for educational institutions claiming exemption under Section 10(23C)(iiiad)** can be nuanced — especially when structured as an **AOP** (Association of Persons). Let’s break this down point by point:
---
### ✅ **Your Situation Recap**
* Educational institution is run under a **Trust**.
* However, **PAN is in the name of an AOP**.
* **Gross receipts are below ₹1 crore**.
* AOP is paying **salary to one of its members**.
---
### ✅ **Query 1: Is the AOP eligible for exemption under Section 10(23C)(iiiad)?**
**Yes**, the **AOP** is eligible for exemption under **Section 10(23C)(iiiad)** if:
* It is **solely** engaged in **educational activities**.
* **Gross annual receipts** are **less than ₹1 crore**.
* The **institution is not run for profit**.
👉 Approval from the Commissioner is **not required** under 10(23C)(iiiad) for institutions with receipts below ₹1 crore.
---
### ✅ **Query 2: How to claim the exemption under Section 10(23C)(iiiad)?**
* **No prior approval is needed** if receipts are below ₹1 crore.
* However, the **return of income must be filed using Form ITR-7**, **under Section 139(4C)**.
* In ITR-7, under the "Exempt Income" schedule, select **Section 10(23C)(iiiad)**.
* **Approval number field** can be left blank or marked as **“Not Applicable”**, as this clause does not require prior approval.
---
### ✅ **Query 3: Is salary paid to a member of AOP disallowed? If yes, how does it affect the exemption?**
**Yes**, under **Section 40(ba)** of the Income Tax Act:
> Any **salary, interest, commission, or remuneration** paid by an **AOP to its members** is **disallowed** while computing business income.
But here’s the key distinction:
* If the **AOP’s income is exempt under Section 10(23C)(iiiad)**, **the computation of business income becomes irrelevant**, because **the entire income is exempt**.
* So, the **disallowance under Section 40(ba)** has **no tax impact**, since income is **not taxable at all**.
👉 Therefore, **exemption applies on the entire gross surplus**, irrespective of the disallowed salary to the member.
---
### ✅ **Form Applicability & Practical Filing Notes**
| Condition | Form Required | Section to File Return Under | Approval Required? |
| ---------------------------------------- | ------------- | ---------------------------- | --------------------- |
| Educational Institution (AOP) ₹1 crore | ITR-7 | 139(4C) | **Yes** (10(23C)(vi)) |
> 📝 **Note**: If any confusion arises during online filing where the portal requests an approval number, enter "Not Applicable" or a placeholder like "NA" if permitted.
---
### ✅ Summary
* ✔️ **Yes**, AOP is eligible for exemption under **Section 10(23C)(iiiad)**.
* ✔️ Use **Form ITR-7** under **Section 139(4C)**.
* ✔️ No approval required if **receipts < ₹1 crore**.
* ✔️ **Salary to member is disallowed under Section 40(ba)**, but it has **no effect** because **entire income is exempt**.
Let me know if you’d like a filled sample ITR-7 or computation sheet.
---
### ✅ **Your Situation Recap**
* Educational institution is run under a **Trust**.
* However, **PAN is in the name of an AOP**.
* **Gross receipts are below ₹1 crore**.
* AOP is paying **salary to one of its members**.
---
### ✅ **Query 1: Is the AOP eligible for exemption under Section 10(23C)(iiiad)?**
**Yes**, the **AOP** is eligible for exemption under **Section 10(23C)(iiiad)** if:
* It is **solely** engaged in **educational activities**.
* **Gross annual receipts** are **less than ₹1 crore**.
* The **institution is not run for profit**.
👉 Approval from the Commissioner is **not required** under 10(23C)(iiiad) for institutions with receipts below ₹1 crore.
---
### ✅ **Query 2: How to claim the exemption under Section 10(23C)(iiiad)?**
* **No prior approval is needed** if receipts are below ₹1 crore.
* However, the **return of income must be filed using Form ITR-7**, **under Section 139(4C)**.
* In ITR-7, under the "Exempt Income" schedule, select **Section 10(23C)(iiiad)**.
* **Approval number field** can be left blank or marked as **“Not Applicable”**, as this clause does not require prior approval.
---
### ✅ **Query 3: Is salary paid to a member of AOP disallowed? If yes, how does it affect the exemption?**
**Yes**, under **Section 40(ba)** of the Income Tax Act:
> Any **salary, interest, commission, or remuneration** paid by an **AOP to its members** is **disallowed** while computing business income.
But here’s the key distinction:
* If the **AOP’s income is exempt under Section 10(23C)(iiiad)**, **the computation of business income becomes irrelevant**, because **the entire income is exempt**.
* So, the **disallowance under Section 40(ba)** has **no tax impact**, since income is **not taxable at all**.
👉 Therefore, **exemption applies on the entire gross surplus**, irrespective of the disallowed salary to the member.
---
### ✅ **Form Applicability & Practical Filing Notes**
| Condition | Form Required | Section to File Return Under | Approval Required? |
| ---------------------------------------- | ------------- | ---------------------------- | --------------------- |
| Educational Institution (AOP) ₹1 crore | ITR-7 | 139(4C) | **Yes** (10(23C)(vi)) |
> 📝 **Note**: If any confusion arises during online filing where the portal requests an approval number, enter "Not Applicable" or a placeholder like "NA" if permitted.
---
### ✅ Summary
* ✔️ **Yes**, AOP is eligible for exemption under **Section 10(23C)(iiiad)**.
* ✔️ Use **Form ITR-7** under **Section 139(4C)**.
* ✔️ No approval required if **receipts < ₹1 crore**.
* ✔️ **Salary to member is disallowed under Section 40(ba)**, but it has **no effect** because **entire income is exempt**.
Let me know if you’d like a filled sample ITR-7 or computation sheet.
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