Taxation of Kindergarten School

Hi Shalini,

I reiterate once again: Income of a Society cannot be taxed, since it was never set up with a commercial motive. Educational institutions registered as societies will of course have to get their accounts examined by a CA if their gross receipts cross Rs 1 crore. But that is just to enable the government to keep an eye on the activities of such organizations— some unscrupulous people may camouflage their business ventures as non-commercial institutions engaged in furthering some social good. In such cases, the society would be just a smokescreen. The government will step in to lift the charity veil to see what lies behind the ostensible social activities. Section 10(23C)(vi) is designed to meet this end in case of educational institutions.As far as Kindergartens are concerned, it would depend upon the question `Whether or not the person running it derives her source of livelihood from it'? Merely registering as a society would not entitle you to claim exemption under the tax laws. In fact, if you are running the Kindergarten as a business venture and have filed your return as a proprietor, then you yourself admit that you're carrying on a business. In that event even operating under the Society form of organization would not absolve you from paying taxes. Section 10(23C)(iiiad) and (vi) clearly stipulate that exemption would be available only to institutions "existing solely for educational purposes and not for purposes of profit". But generally speaking if the preamble to the Societies Act is to be upheld, then I maintain that income of a society cannot be brought to tax no matter how high the annual surplus may be. It may be noted that I am saying this without prejudice to what the proviso to Section 2(15), which has come to occupy its pride of place on the Act wef 1st April 2008, states. The law has disregarded the original intention behind floating social organizations like societies, clubs, chambers of commerce, et al. Any activity resembling business or commerce engaged in by these "social" organizations will be taxed henceforth.Specific to your play school query, I wouldn't think you could now switch over to claiming exemption after two years of having declared the surplus as business income. Exemption can be claimed only if the person who manages the organization holds its assets and resources as a sort of trustee of the society at large. The organization does not belong to her and she can't have been deriving her livelihood from it. If she does, it can't ever be an institution eligible to claim exemption u/s 10(23(c) no matter what the gross receipts are. Thanks,CA Sanjeev Bedi --- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "Shalini Prakash" wrote:>> Sir,> The case of academic institutions is a different one, as they may claim exemption u/s 10(23) (c)(iii ad) , if income less than 1 crore, and u/s 10(23)(vi) if more than 1 crore.> > What will happen in case of society established for any other purpose? If the excess of income over expenditure is coming quite high, but none of the members is getting anything from it, will the society income be taxable? Or will it just have to file IT returns( incase the Excess of Income over expenditure is above 50000/-)( if excess of income over expenditure is less then 50000/- then it does not need to file ITR also?)> If a play school is there with classes from play group to UKG, but in the first two years the return has been filed under proprietorship. Can the school claim exemption u/s 10(23) (iii ad)ie gross income less then 1 crore? Till now the proprietor had not openede a seperate bank account, but was depositing it in her personal account. > What other care has to be taken to claim exemption?