With the new academic session set to begin, educational institutes enjoying tax benefits will come under the income tax scanner following allegations that they indulged in malpractices, thus duping the exchequer.
According to I-T department sources, the need for increased scrutiny comes following the department's own report for last fiscal which mentions that 'educational institutions' among other 'various sectors' have indulged in huge 'tax evasions'.
Last fiscal, the department detected an overall tax evasion of over Rs 3,400 crore (Rs 34 billion) by various sectors, including the education sector.
Section 10 (23) (C) of the Income-Tax Act, 1961 provides that the income received by educational societies, which exist solely for educational purposes and not for the purpose of profit, shall not be subjected to tax.
The I-T department exempts educational trusts and institutions enjoying 'tax benefits' from the Act. But officials say that as education by definition is considered a 'charitable act', some institutions 'divert' the money and thereby rob the exchequer of its legitimate tax.
Apart from donation money, which generally remains unaccounted, some institutions levy capitation fee, establishment and other charges from candidates.
Income under these heads are not solely related to dissemination of education and are diverted to fund the 'commercial and private enterprise' of the institute concerned, sources say.
"In its investigation, the I-T department found that educational institutions and coaching institutes have violated the Income Tax Act and have evaded tax money," a senior income tax official said, adding that "the education business is witnessing a boom and a lot of money is floating around."
While 'real estate' and 'infrastructure development' figured high on the department's focus area last fiscal, the official said this year, the main focus would be on educational institutions.
Placement agencies, air-services institutes and even foreign-education placement agencies were also under the scanner since the agency has already done a survey of the same, I-T sources said.
Coaching and education institutes in cities like Noida, Ghaziabad, Hyderabad, Pune, Kota and Indore, which have thousands of institutes and run degree courses or impart coaching to enable students secure a seat in prestigious institutes, would be under special focus by the I-T department.
The department said that even though the agency would be scrutinising the education sector, the public can always come forward to register complaints regarding malparctices by such institutions.
"The department carries out necessary checks once it receives complaints with substantial documentary proof, against any such institution", an I-T officer said.
If found guilty, Chief Commissioner of Income Tax (Exemptions) is authorised to withdraw the privilege and tax benefits of the trust, he added.
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