On April 27, the Appellate Division of the Supreme Court ruled that the country's private universities must pay a 15 per cent tax. This decision has disappointed students and parents, as the tax burden will likely be passed on to students by the university owners.
As we know, the Income Tax Act provides certain tax exemptions. Sub-section 43 of Section 2 of the Income Tax Act 2023, Clause A on 'charitable purpose' states that "poverty relief, educational relief, medical relief, and general public utility purposes" are considered charitable purposes.
When analysing the Private Universities Act 2010 alongside the Income Tax Act 2023, it is clear that university incomes are not intended to be taxable. Voluntary or private donations and government grants aimed at expanding educational programmes are similarly exempt. Therefore, treating private university income as taxable contradicts the law.
The education sector is traditionally viewed as non-profit. Taxes are paid by individuals or organisations because they receive specific benefits from the state in return. In the case of universities, it has not yet been clarified what specific benefits they would receive as a result of paying taxes.
Instead of taxing institutions run by trusts, policymakers might consider for-profit universities. In neighbouring India, several universities operate on a for-profit basis and are subject to taxation accordingly.
The private university authorities, the University Grants Commission, and the National Board of Revenue should sit together for a negotiated settlement. It is essential to carefully consider the implications and explore viable solutions that uphold the non-profit nature of educational institutions while addressing the financial sustainability of the sector.
Atif Azam
Student
East West University
atif.islam.ewu@gmail.com