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      Income Tax

      Comparison of SCHEDULE VII "PERSONS EXEMPT FROM TAX" between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

      18 September, 2025

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      SCHEDULE VII - PERSONS EXEMPT FROM TAX

      Income-tax Act, 2025

      At a Glance

      Schedule VII (Persons Exempt from Tax) as contained in the Income Tax Bill, 2025 - Old Version. It lists categories of persons whose total income is not liable to income-tax subject to specified conditions. It matters to taxpayers, tax administrators and institutions such as funds, trusts, boards, statutory authorities, universities, hospitals and recognised financial entities. Effective date or decision date: Not stated in the document.

      Background & Scope

      Statutory hook: "See section 11" (Schedule VII attached to the Income Tax Bill, 2025 - Old Version). The Schedule sets out a Table of eligible persons (column B) and conditions for exemption (column C). Notes below the Table define expressions used in specified entries. Coverage: persons and entities enumerated in 48 serial entries, ranging from regimental funds, notified welfare funds, pension and insurance funds, statutory boards and authorities, relief funds, universities and hospitals, mutual funds, approved employee funds, commodity boards, national funds, infrastructure and developmental financing institutions, among others. The Schedule provides conditions applicable to many entries (investment modes, approval requirements, purpose and financing thresholds). Definitions/interpretations: limited to the numbered Notes (Note 1 through Note 6) which supply meanings for terms such as "Controller of Insurance", "khadi"/"village industries", "public financial institution", "Scheduled Castes/Tribes/backward classes", "minority community", and "ex-servicemen".

      Statutory Provision Mode

      Text & Scope

      The document under consideration is SCHEDULE VII (See section 11) titled "PERSONS EXEMPT FROM TAX" from the Income Tax Bill, 2025 - Old Version (Document 2). It lists eligible persons (column B) and conditions (column C) under which those persons "shall not be liable to pay income-tax on the total income for any tax year." The table enumerates 48 serial entries, including funds established by armed forces, notified welfare funds, pension funds set up by insurers, State authorities for khadi and village industries, bodies/authorities administering religious/charitable trusts, several central boards and authorities (e.g., Insurance Regulatory and Development Authority, Central Electricity Regulatory Commission), relief funds (Prime Minister's National Relief Fund, PM CARES), universities and hospitals wholly or substantially financed by Government, registered mutual funds, recognised provident and gratuity funds, various commodity boards, New Pension System Trust, government-financed corporations and specialised funds (credit guarantee funds, infrastructure debt funds), institutions set up for financing infrastructure (with time-limited exclusion) and developmental financing institutions licensed by RBI (time-limited exclusion with extension power for Central Government).

      Defined terms and cross-references: Several Notes (1-6) supply definitional cross-references-e.g., "Controller of Insurance" per section 2(5B) of the Insurance Act, 1938; "khadi" and "village industries" per Khadi and Village Industries Commission Act, 1956; "public financial institution" per section 2(72) Companies Act, 2013; meanings of "Scheduled Castes/Scheduled Tribes" per article 366(24)/(25) of the Constitution; "minority community" as notified by the Central Government; and a multi-part definition of "ex-servicemen".

      Interpretation

      The Schedule operates as a list of entities whose total income is excluded from income-tax subject to stated conditions. Legislative intent, beyond providing categories of exempt entities and prescribed conditions, is not expressly stated in the text. Not stated in the document: any explicit statement of underlying policy objectives (e.g., promoting philanthropy, public welfare) beyond the enumerated objects of the institutions.

      Exceptions/Provisos

      Conditions and provisos appearing in the table include:

      • Approval requirement for certain employee welfare funds by Principal Commissioner/Commissioner (Sl. No. 2(b)), with approval effective for up to three tax years.
      • Pension schemes must be approved by the Controller of Insurance or IRDAI (Sl. No. 3(b)).
      • Universities and educational institutions, and hospitals, qualify if "wholly or substantially financed by the Government" with a government grant threshold expressed as "such percentage ... as prescribed" (Sl. Nos. 17, 18).
      • Smaller educational institutions/hospitals (Sl. No. 19) qualify where aggregate annual receipts do not exceed Rs. 5,00,00,000 (Document 2); other substantive conditions mirror charitable/philanthropic purpose and non-profit existence.
      • Time-limited exemptions for institutions established for financing infrastructure (Sl. No. 47: ten consecutive tax years) and developmental financing institutions licensed by RBI (Sl. No. 48: five consecutive tax years, with Central Government power to extend by up to five more years subject to conditions).
      • Notification requirement by Central Government for certain bodies to be eligible (e.g., Sl. Nos. 42, 46, 47, 48).

      Not stated in the document: any formal mechanism for revocation of notifications or detailed transitional rules for entities moving between notified and non-notified status.

      Illustrations

      • Example 1: A university receiving 70% of its receipts as Government grants in a tax year would be "substantially financed" (subject to prescribed percentage). Not stated in the document: the exact percentage threshold; it refers to "as prescribed".
      • Example 2: An infrastructure financing institution notified by the Central Government in tax year X would be exempt from tax on its total income for ten consecutive tax years starting X (subject to notification). This follows Sl. No. 47 as drafted.
      • Example 3: A small hospital with aggregate annual receipts of Rs. 4 crore (below Rs. 5,00,00,000) and meeting philanthropic purpose and non-profit existence would fall under Sl. No. 19 and be exempt, subject to other conditions in that entry.

      Interplay

      The Schedule cross-references multiple statutes (Insurance Act, 1938; IRDA Act, 1999; Companies Act, 2013; various sectoral Acts). It also references specific sections and tables elsewhere in the income-tax code (e.g., section 337; section 355) for treatment of anonymous donations and specified income, indicating intended interaction between Schedules and other statutory provisions. Not stated in the document: any implementing rules, forms or administrative guidance that would operationalise approval and notification processes; those are left to prescribed procedures or Central Government notification.

      Comparison of Differences and Practical Impact

      • Correction/Corrigendum note: Document 1 (SCHEDULE VII of Income-tax Act, 2025) contains a notes section that records a corrigendum dated 03-09-2025 correcting the word "anaonymous" to "anonymous". Document 2 ( Schedule VII of Income Tax Bill, 2025 - Old Version) does not contain this corrigendum entry.
        • Practical impact: The corrigendum in Document 1 clarifies textual error relating to anonymous donations at Sl. No. 19; this reduces ambiguity in statutory text and assists tax administrators and taxpayers in interpreting the anonymous-donation treatment. Document 2 may retain the earlier typographical error and thus could cause uncertainty until corrected.
      • Wording and punctuation variations: Several minor differences in wording and punctuation appear across the two texts (for example, Document 1 uses "in such manner as may be prescribed" at Sl. No.2(b), while Document 2 uses "in such manner as prescribed"; Document 1 uses "Sl. No" styling, Document 2 uses "Sl.No." or similar). Document 2 contains a number of typographical inconsistencies (e.g., "Central Actor State Act" at Sl. No. 29 and broken spacing characters).
        • Practical impact: These drafting and typographical differences are largely formal, but could create interpretive frictions (particularly in administrative guidance or when cross-referencing) until harmonised. Courts/authorities typically prefer the final enacted text (Document 1) for authoritative interpretation.
      • Treatment of anonymous donations / cross-reference language at Sl. No. 19: Document 1 states at Sl. No. 19(e) that where such institutions receive any anonymous donation defined u/s 355(a), the provisions of section 337 (Table: Sl. No. 1) in respect of specified income shall apply mutatis mutandis as they apply in the case of a registered non-profit organisation and such anonymous donations shall be excluded from the income on which no tax is payable. Document 2 instead sets out at Sl. No. 19(d) a monetary aggregate limit ("does not exceed Rs. 5,00,00,000") and uses different phrasing for receipts aggregate in that sub-clause.
        • Practical impact: Document 1's explicit reference to section 355(a) and section 337 (Table: Sl. No. 1) plus the corrigendum suggests a clarified regime for anonymous donations and their exclusion for small educational/hospital entities, tethered to other table provisions. Document 2's numeric formulation (Rs. 5,00,00,000) is clearer on the monetary cap but lacks the cross-referential formulation concerning anonymous donations as in Document 1. Differences could affect eligibility for no-tax exclusion where anonymous donations and aggregate receipts thresholds intersect.
      • Specific enumerations of religious places in Sl. No. 5: Document 1 lists "temples, gurudwaras, wakfs, churches, synagogues, agiaries or a mutt or other places of public religious worship". Document 2 lists "mosques, temples, gurudwaras, wakfs, churches, synagogues, agiaries or other places of public religious worship" (note inclusion of "mosques" and omission of the phrase "a mutt").
        • Practical impact: The slight variation in enumerated religious institutions may reflect drafting inconsistency; however both texts capture core categories of public religious worship. Any omission or change of a category in the enacted text could have material consequences for institutions that expect exemption; the enacted Act (Document 1) should be treated as authoritative.
      • Formatting of exempt entries: Document 1 frequently uses the word "Nil." in the Conditions column for many entries; Document 2 frequently leaves the Conditions cell blank (non-breaking spaces). Functionally, both convey absence of additional conditions, but Document 1 is explicit.
        • Practical impact: Explicit "Nil." reduces ambiguity about conditionality. Blank cells in Document 2 could be misread; administrative officers prefer explicit notation.
      • Use of statutory citations and drafting consistency: Document 1 consistently uses "section" with lower-case and precise cross-references and includes Notes numbered 1-6 like Document 2, but with minor textual variations. Document 2 contains inconsistent spacing and capitalization in notes (e.g., "Scheduled Castes" quotation issues) and minor deviations in wording of Note 4(b) ("as notified" vs "as may be notified").
        • Practical impact: Small differences in note phrasing can influence the scope of delegated powers (e.g., who may notify "backward classes") and administrative discretion. The enacted Act's final wording controls.
      • Entries 46-48 (infrastructure/developmental financing): both documents include similar substantive provisions but differ marginally in punctuation and grammar (e.g., Document 1: "(a) Such institution is notified by the Central Government;" Document 2 similar). No material substantive divergence identified beyond formatting.
        • Practical impact: No substantive change evident; stakeholders should confirm the enacted text for precise compliance timelines and notification requirements.

      Practical Implications

      • Compliance and risk areas: Entities claiming exemption must ensure they meet the enumerated substantive conditions (non-profit/philanthropic purpose, substantial government financing thresholds where specified, approvals/notifications where required). Failure to secure required approvals/notifications (e.g., approval by Principal Commissioner or Central Government notification) risks denial of exemption. The multiple cross-references require careful statutory mapping when preparing tax filings.
      • Record-keeping/evidence points: The Schedule implies need for documentary proof of objects/purposes, government grant receipts and percentage calculations, approvals from tax or regulatory authorities, and notifications by Central Government. Not stated in the document: specific forms or timelines for filing proof; such procedural details are left to "prescribed" rules or notifications.

      Key Takeaways

      • SCHEDULE VII enumerates discrete categories of persons/institutions whose total income is exempt from income-tax, subject to the conditions specified in the table.
      • Several exemptions hinge on approvals or notifications (e.g., Principal Commissioner/Commissioner approval; Central Government notifications), and on cross-referenced statutory definitions.
      • Time-limited exemptions are provided for certain financing institutions (infrastructure and developmental financing), with Central Government power to extend for developmental financing.
      • Smaller educational institutions and hospitals are given a receipts-based threshold (Document 2 uses Rs. 5,00,00,000) for exemption eligibility; anonymous-donation treatment is cross-referenced to other sections.
      • Drafting inconsistencies and typographical variations (as seen between Bill and Act versions) emphasise the need to consult the final enacted Schedule for authoritative interpretation.

      Full Text:

      SCHEDULE VII - PERSONS EXEMPT FROM TAX

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