Indian Accounting Standards for Schools: Complete Compliance Guide 2025

Category: Compliance & Finance Date: October 26, 2025 Author: EduBold Team

Educational institutions in India face unique accounting challenges. Unlike commercial enterprises, schools must balance educational mission with financial sustainability while maintaining strict compliance with Indian Accounting Standards (Indian AS) and regulatory requirements.

Why Accounting Compliance Matters for Schools

Legal Requirements:

Income Tax Act (Section 10(23C) exemptions require proper accounting)
Companies Act (if registered as a company)
Society/Trust regulations
State education department requirements
Audit requirements for grants and subsidies

Operational Benefits:

Accurate financial visibility for decision-making
Audit-ready records (reduce audit prep from 30 days to 7 days)
Better cash flow management
Transparency for stakeholders (management, parents, regulators)

Indian GAAP vs. Tally-based Accounting

The Problem with Tally

Most schools use Tally or Busy for accounting, which creates several challenges:

Disconnected from SMS – Fee data must be manually entered into Tally
Reconciliation nightmares – 30-40 hours monthly matching receipts to ledgers
Costly – ₹3-5 lakhs per year in license + support
Error-prone – Manual entry leads to mistakes requiring corrections
Limited access – Desktop-based, not accessible remotely

Integrated Accounting Benefits

Automatic Posting – Fee receipts post to ledger automatically
Zero Reconciliation – Single source of truth
Cost Savings – Save ₹3-5L annually
Real-time Visibility – Dashboard shows current financial position
Cloud Access – Work from anywhere, anytime

Essential Accounting Components for Schools

1. Chart of Accounts

Schools need a specialized COA structure:

Assets

Current Assets
- Cash & Bank
- Fee Receivables (by class/section)
- Advance to Staff
- Inventory (Books, Uniforms, Stationery)
Fixed Assets
- Land & Buildings
- Furniture & Fixtures
- Computer Equipment
- Laboratory Equipment
- Library Books

Liabilities

Current Liabilities
- Fee Advance (paid for future terms)
- Salary Payable
- Statutory Dues (PF, ESI, TDS)
- Vendor Payables
Long-term Liabilities
- Loans & Borrowings
- Security Deposits

Income

Fee Income (by category)
- Tuition Fee
- Development Fee
- Transport Fee
- Examination Fee
- Activity Fee
Other Income
- Admission Fees
- Interest Income
- Donations
- Grants

Expenses

Staff Salaries & Benefits
Utilities (Electricity, Water)
Rent (if applicable)
Maintenance & Repairs
Administrative Expenses
Teaching Aids & Materials
Depreciation

2. Journal Entries – Common Scenarios

Scenario 1: Fee Collection (Cash)

Dr. Cash ₹10,000 Cr. Fee Income - Tuition ₹8,000 Cr. Fee Income - Transport ₹2,000

Scenario 2: Fee Collection (Bank Transfer)

Dr. Bank - HDFC Current A/c ₹50,000 Cr. Fee Receivable - Student A ₹50,000

Scenario 3: Salary Payment

Dr. Salary Expense ₹5,00,000 Cr. Bank ₹4,20,000 Cr. TDS Payable ₹30,000 Cr. PF Payable ₹35,000 Cr. ESI Payable ₹15,000

Scenario 4: Advance Fee Received

Dr. Bank ₹1,00,000 Cr. Fee Advance (Liability) ₹1,00,000 (When term starts, reverse) Dr. Fee Advance ₹1,00,000 Cr. Fee Income ₹1,00,000

3. Depreciation Accounting

Fixed assets must be depreciated per Companies Act or Income Tax rules:

Common Depreciation Rates:

Building: 10%
Furniture: 10%
Computers: 40%
Vehicles: 15%
Laboratory Equipment: 15%

Monthly Entry:

Dr. Depreciation Expense ₹25,000 Cr. Accumulated Depreciation ₹25,000

4. Payroll Integration

Every salary payment should automatically create accounting entries:

Components:

Gross Salary (Dr. Expense)
PF Deduction (Cr. PF Payable)
ESI Deduction (Cr. ESI Payable)
TDS Deduction (Cr. TDS Payable)
Professional Tax (Cr. PT Payable)
Net Salary (Cr. Bank/Cash)

Key Compliance:

PF: 12% employee + 12% employer (on basic + DA)
ESI: 0.75% employee + 3.25% employer (if salary < ₹21,000)
TDS: As per IT slabs with 87A rebate
Professional Tax: State-specific

5. Statutory Reports Required

Monthly:

Fee Collection Register
Outstanding Fee Report
PF Challan (ECR)
ESI Challan
TDS Challan (if threshold crossed)
Bank Reconciliation

Quarterly:

TDS Return (Form 24Q for salary)
GST Return (if applicable)
Balance Sheet (Internal)
Profit & Loss Statement

Annually:

Audited Financial Statements
Income Tax Return (Form ITR-7 for trusts)
Form 10B/10BB (for exemption)
Annual Information Statement
Fixed Asset Register with Depreciation
Form 16 for all employees

GST Compliance for Schools

GST Exemptions:

Pre-school to higher secondary education: Exempt
Coaching/tuition: Exempt (if affiliated to recognized board)
Transportation: Taxable at 5% (if provided by school)
Hostel: Taxable at 18%
Books/Uniforms: As per GST rates

What This Means:

Most fee income is GST-exempt
Transportation fee needs GST billing
Keep separate accounting for taxable/exempt supplies

Common Accounting Mistakes Schools Make

1. Mixing Personal & Institutional Funds

Wrong: Using school account for trustee’s personal expenses
Right: Strict separation, proper reimbursement process

2. Not Tracking Fee Receivables

Wrong: Recording income when invoice is raised
Right: Track receivables separately, record income on collection (cash basis) or accrual

3. Ignoring Statutory Due Dates

Wrong: Paying PF/ESI when cash is available
Right: Pay by 15th of next month (penalties are severe)

4. Improper Advance Fee Accounting

Wrong: Recording next year’s fee as current year income
Right: Liability until service is delivered

5. Missing Depreciation

Wrong: Ignoring depreciation to show better profits
Right: Monthly depreciation for accurate financial picture

6. No Budget Variance Analysis

Wrong: Creating budget but never comparing actuals
Right: Monthly budget vs. actual reports with variance analysis

How EduBold Ensures Compliance

Automated Accounting

Every fee receipt auto-posts to ledger
Every payroll run creates salary entries
Every expense auto-categorizes
Zero manual journal entries for routine transactions

Built-in Compliance

PF/ESI calculations updated for annual changes
TDS calculation with 87A rebate
Form 16 generation
Depreciation auto-calculated
Statutory reports pre-configured

Audit Trail

Every transaction logged with user & timestamp
No deletion, only reversal entries
Complete audit trail for compliance

Real-time Reports

Balance Sheet (real-time)
Profit & Loss (by month/quarter/year)
Cash Flow Statement
Trial Balance
Fee Outstanding by Class/Section
Expense Analysis

Month-end Closing

Automated month-end checklist
Variance analysis
Outstanding verification
One-click closing

ROI of Integrated Accounting

For a 1,000-student school:

Savings:

Tally license: ₹50,000/year
Tally support: ₹30,000/year
Manual reconciliation time: 40 hours/month × ₹500/hour = ₹2,40,000/year
Error corrections: ₹1,00,000/year
Total: ₹4,20,000 per year

Time Savings:

Reconciliation: 40 hours/month → 0 hours
Month-end closing: 3 days → 4 hours
Audit prep: 30 days → 7 days
Report generation: 2 hours → 5 minutes

Improved Cash Flow:

Real-time outstanding visibility
Automated reminders
30% faster fee collection
Better cash flow forecasting

Implementation Checklist

Before Going Live:

Set up Chart of Accounts
Enter opening balances
Configure fee plans
Map fee categories to income accounts
Set up salary components
Map salary components to expense accounts
Configure automatic posting rules
Train accounts team
Run parallel for one month

Monthly Process:

Daily reconciliation (auto in EduBold)
PF/ESI payment by 15th
TDS payment if threshold crossed
Bank reconciliation
Outstanding follow-up
Expense categorization review
Month-end closing