Following the recent news that IIT Delhi has received a show cause notice demanding Rs. 120 crores in GST on research grants, a social media post has drawn a comparison to another news report about the government granting income tax exemption to the Patanjali Research Foundation. The post suggests a disparity, highlighting that the government appears to be offering incentives to a private research foundation while not extending similar benefits to a publicly funded educational institution. In this article, we fact-check the claim made in the post.
Claim: The government granted income tax exemption to the Patanjali Research Foundation but did not exempt GST on research grants for IIT Delhi.
Fact: This comparison is not entirely rational because similar to Patanjali, the government provides income tax exemptions to various research institutions, including IITs. However, while GST applies to research equipment purchased by institutes like IITs, fees charged by educational institutions solely for providing education are under NIL rate of GST. Hence the claim made in the post is MISLEADING.
The Director General of GST Intelligence recently issued a show cause notice to IIT Delhi, demanding Rs. 120 crores in GST on research grants received between 2017 and 2022. IIT Delhi is one of several educational institutions across India that have received such notices. This development has sparked widespread outrage and criticism of the government. Reports indicate that the Ministry of Education has intervened and is discussing the issue with the Ministry of Finance.
This development has faced criticism on social media, with users questioning the government’s priorities and comparing it to the decision to grant income tax exemption to the Patanjali Research Foundation.
Not the Right Comparison:
However, this comparison is not entirely rational, as the Patanjali case involves income tax exemption, while the IIT Delhi issue pertains to GST. In 2021, the Income Tax Department issued a notification granting a five-year tax exemption to the Patanjali Research Foundation Trust by recognizing it as a ‘research association’.
Exemption is granted under clause (ii) of sub-section (1) of Section 35 of the Income Tax Act and the corresponding IT rules. As a result, donations to the Patanjali Research Foundation (Trust) are 100% exempt from income tax.
Section 35 of the Income Tax Act pertains to deductions related to expenses on scientific research. It permits a deduction of one and a half times the amount donated to a research association focused on scientific research, or to a university, college, or other institution for use in scientific research.
Similar exemptions are also provided to IITs and other institutions:
It is important to note that the aforementioned exemptions apply to the research activities of any institution recognized by the government. The government has extended such benefits to various scientific institutions, some of which are listed here.
- 100% write-off of revenue expenditure on R&D under section 35(1)(i) of I.T. Act, 1961.
- Weighted tax deductions @200 % for sponsored research programs in approved National laboratories, Universities, and IITs (Section 35(2AA) of I.T. Act).
- Income tax rebate @175% on donations for scientific research made to non-commercial research organizations approved and notified under section 35(1) (ii) and 35(1) (iii) of I.T. Act, 1961.
Additionally, according to an IIT Delhi circular, scholarships granted to research fellows are exempt from income tax under Section 10(16) of the Income Tax Act, 1961. This demonstrates that similar income tax exemptions are also extended to institutions like IITs.
IIT Delhi GST notice:
Regarding the GST issue, under the GST Act, fees charged by educational institutions solely for providing education are subject to an NIL rate. Therefore, TDS is not applicable on GST when payments are made to IITs (here & here).
However, other services provided by these institutions that involve an exchange of services are subject to GST. For instance, when IITs and IIMs charge fees from prospective employers, such as corporate houses and multinational companies, for recruiting candidates through campus interviews, these services are liable for GST.
Additionally, equipment purchased by research institutes is subject to GST. Initially, when GST was introduced, IITs and similar institutions paid 5% GST on equipment. However, in 2022, this rate was increased to 18%. Since the funds allocated to research institutes are used to acquire such equipment, the current notice issued to IIT Delhi may be connected to this increase.
To sum up, the government grants income tax exemptions to research institutions, including IITs.
