Article 4(3) Income Tax on the Excess Balance of a Nonprofit Organization
- Maulana Ibrahim, Andre Wilson Siregar, Ellicia Emerliawati, & I Made Arya Wira Utama
- Aug 13
- 4 min read
Excess Balance of a Nonprofit Organization
A nonprofit organization that operates in the educational industry has an important role in shaping and developing the state of education without regard to profit. To run its activities, a nonprofit organization oftentimes receives an excess balance from its budget arrangement, not intended to be a commercial profit.
In order to provide legal certainty and support the development of a nonprofit organization, the government provides an exemption from Income Tax on income from excess balance with certain requirements. This is provided as a way to support the growth of human resources through education and/or research and development through sufficient development of facilities and infrastructures.
Tax Subject
Domestic Corporate Taxpayers or nonprofit organizations that received or obtained income in the form of excess balance.
Non-Tax Object
The tax objects of the tax object exemption of Article 4(3) Income Tax are the excess balance received by a nonprofit corporation or organization.
Criteria
The excess balance exempt from being an income tax object is the excess balance received by a nonprofit corporation or organization that operates in the educational sector and/or research and development sector, which is registered in the institutions that handle them.
For a nonprofit organization or company that operates in the educational sector and/or research and development sector, the excess balance received will be exempted as an income tax object if the balance is used for development and/or procurement of facilities and infrastructure for educational activities and/or research and development within the region of Indonesia, including allocating the excess balance as endowment funds according to the provisions, and is done by at a maximum time of 4 (four) years after the excess balance is received.
The excess balance in question is the difference between the calculation of all income received other than income subject to Final Income Tax and/or not an object of Income Tax, minus the costs of obtaining, collecting, and maintaining said income.
The costs of obtaining, collecting, and maintaining the income include:
assistance, donations, or grants
operational costs for education and/or research and development
costs for the procurement of goods and/or services used to support the operations of education and/or research and development, and/or
costs to increase the capacity, quality, and services of education and/or research and development, as well as community service, following the laws and regulations governing higher education.
The facilities and infrastructure for educational and/or research and development activities as mentioned, include:
development and procurement of infrastructure for educational and/or research and development, including buildings, lands, laboratories, libraries, computer rooms, offices, college dormitories, and official residences for teachers, lecturers, and employees
living within the Republic of Indonesia area.
The amount of excess balance not used for facilities and infrastructure development or procurement in the span of 4 (four) years will be regarded as an Income Tax object at the end of the Tax Year after the 4 (four) years end.
Nonprofit Organization or Agency Obligation
The obligation for nonprofit corporations or organizations that operate in the educational and/or research and development sector includes:
Corporations and organizations must create a report concerning the excess balance amount used for the development and/or procurement of facilities and infrastructure.
File the excess balance report to the Head of the Tax Office where said Taxpayer is registered each year as part of the Annual Income Tax Returns attachment, and
Create a file on the details of excess balance usage, complemented by supporting documents.
Additionally, nonprofit organizations or agencies that received or obtained income in the form of excess balance will have the obligation to file their entire income in the Annual Tax Returns in the Non-Taxable Income section.
If there is an excess balance amount that is not used for development and/or procurement of facilities and infrastructures within 4 (four) years, then said excess balance must be filed as an Income Tax Object in the Annual Tax Returns on the year that the excess balance is recognized as a fiscal correction.
Case Study
Mitra Inovasi Bangsa is an organization that operates within the research and innovation sector. In 2022, Mitra Inovasi Bangsa owns an excess balance of funding amounting to IDR200 million. The organization plans to allocate the excess balance to renovate the research center and its tools. In 2023, Mitra Inovasi Bangsa started the renovation process with a budget of IDR150 million and bought research tools with a budget of IDR50 million.
In this case, the excess balance owned by Mitra Inovasi Banga is not an income tax object since the excess balance is used for the development and procurement of the facilities and infrastructure of research activities.
Legal Basis
Law Number 7 Year 1983 regarding Income Tax as lastly amended by Law Number 6 Year 2023 regarding Stipulation of Government Regulation in Lieu of Law Number 2 Year 2022 on Job Creation to Become Law
Government Regulations Number 55 Year 2022 regarding the Adjustment of Regulation in the Field of Income Tax
The Minister of Finance Number 68 Year 2020 regarding the Income Tax Treatment of Scholarships that Fulfill Certain Requirements and Surplus Received or Accrued by Nonprofit Bodies or Institutions Engaged in the Fields of Education and/or Research and Development
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