For any economy, education plays the primary role for its growth. In India, education sector has always been promoted through various measures by the government. One such measure is to reduce the cost of education by doing away with the taxes on the same. Education remains one of the priority sectors of India and government has given some relaxation from GST to the education sector.
Earlier too, it was kept outside the ambit of Service Tax by including the same in the negative list of services. In order to reduce the cost of education in the country, services in relation to education had been kept in negative list as well as exempted vide mega exemption notification No. 25/2012. However, only those services which had been specifically mentioned in the Negative List were exempted from service tax and all the other activities in the field of education were subjected to tax.
Let us understand the Impact on Education sector by throwing some light on Old i.e., Service Tax Law and New GST law.
Service Tax Provisions on Education Sector
Section 66D of the Finance Act, 1994 contains Negative List of Services. The clause (l) of section 66D relates to Education related services. The said clause (l) of Section 66D of the Act states that the following services relating to education are specified in the negative list –
- Pre-school education and education up to higher secondary school or equivalent.
- Education as a part of a prescribed curriculum for obtaining a qualification recognized by law for the time being in force.
- Education as a part of an approved vocational education course
A. So let us understand the meaning of ‘education as a part of curriculum for obtaining a qualification recognized by law’
It means that only such educational services were in the negative list as were related to delivery of education as ‘a part’ of the curriculum that has been prescribed for obtaining a qualification prescribed by law. It is important to understand that to be in the negative list the service should be delivered as part of curriculum. Conduct of degree courses by colleges, universities or institutions which lead grant of qualifications recognized by law would be covered.
Private coaching centers were not covered under this since they did not qualify to be one granting a recognized qualification prescribed by law.
B. Also one has to understand what were the courses which would qualify as ‘approved vocational education courses’
Approved vocational education courses had been specified in section 65B of the Act. This is:-
- a course run by an industrial training institute or an industrial training center affiliated to the National Council for Vocational Training, offering courses in designated trades as notified under the Apprentices Act, 1961(52 of 1961)
- a Modular Employable Skill Course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Employment and Training, Ministry of Labour and Employment, Government of India;
- a course run by an institute affiliated to the National Skill Development Corporation set up by the Government of India.
So, were the services provided by international schools giving certifications also covered in this entry?
Yes. Services by way of education up to higher secondary school or equivalent were covered in this entry.
And, were services provided by boarding schools covered in this entry?
Boarding schools provide service of education coupled with other services like providing dwelling units for residence and food. This may be a case of bundled services if the charges for education and lodging and boarding are inseparable. Their taxability will be determined in terms of the principles laid down in section 66F of the Act. Such services in the case of boarding schools are bundled in the ordinary course of business. Therefore the bundle of services will be treated as consisting entirely of such service which determines the dominant nature of such a bundle. In this case since dominant nature is determined by the service of education other dominant service of providing residential dwelling is also covered in a separate entry of the negative list, the entire bundle would be treated as a negative list service.
Were services PROVIDED TO Educational Institutions also covered in this entry?
No, such services were not covered under the negative list entry. However certain services provided to or by educational institutions were separately exempted under the mega–notification. These were services provided to or by an educational institution in respect of education exempted from service tax, by way of,-
(a) Auxiliary educational services; or
(b) Renting of immovable property
What were auxiliary educational services?
‘Auxiliary educational services’ had been defined in the mega notification. In term of the definition, the following activities are auxiliary educational services:
- any services relating to imparting any skill, knowledge or education, or
- development of course content, or any other knowledge – enhancement activity, whether for the students or the faculty, or
- any other services which educational institutions ordinarily carry out themselves but may obtain as outsourced services from any other person, including following services relating to admission to such institution, conduct of examination, catering for the students under any mid-day meals scheme sponsored by Government, transportation of students, faculty or staff of such institution.
Were the auxiliary educational services for all educational institutions exempt?
No, exemption was available for services to or by educational institutions in respect of education exempted from service tax. Therefore, service tax was chargeable on such auxiliary educational services which were in respect of education chargeable to service tax.
Were private tuition covered in the entry relating to education?
No, however private tutors could avail the benefit of threshold exemption.
Following services were not included in exemption list (i.e., these are the Taxable services)
- Qualifications recognized by law of foreign country
- Service provided to educational institutions
- Private tuition
- Services by educational institutions for campus recruitment
Education Sector under Goods & Service Tax (GST)
The Government with an intent of keeping education sector cost lower under GST scenario clarified that schooling up to higher secondary and most of the services provided to educational institutions are exempt from taxation under GST.
Government notified in Notification 12/2017 some services which are exempt from GST. Services provided:
(a) by an educational institution to its students, faculty and staff;
(b) to an educational institution, by way of,-
(i) transportation of students, faculty and staff;
(ii) catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory;
(iii) security or cleaning or house-keeping services performed in such educational institution;
(iv) services relating to admission to, or conduct of examination by, such institution; up to higher secondary:
Provided that nothing contained in entry (b) shall apply to an educational institution other than an institution providing services by way of pre-school education and education up to higher secondary school or equivalent.
(c) by the Indian Institutes of Management (IIMs), as per the guidelines of the Central Government, to their students, by way of the following educational programs, except Executive Development Program: –
(i) two year full time Post Graduate Programs in Management for the Post Graduate Diploma in Management, to which admissions are made on the basis of Common Admission Test (CAT) conducted by the Indian Institute of Management;
(ii) fellow program in Management;
(iii) five year integrated program in Management.
Few more educational services exempt from GST are stated below:
- National Skill Development Corporation set up by the Government of India
- Sector Skill Councils approved by the National Skill Development Corporation
- Assessment agencies approved by the Sector Skill Council or the National Skill Development Corporation
- Training partners approved by the National Skill Development Corporation or the Sector Skill Council are also included w.r.t the following programs:
(a) the National Skill Development Program implemented by the National Skill Development Corporation
(b) a vocational skill development course under the National Skill Certification and Monetary Reward Scheme
(c) any other Scheme implemented by the National Skill Development Corporation”.
Like Service Tax law, private tuition and coaching centers which do not qualify as an ‘education institute providing prescribed curriculum that give qualification recognized by law’ are still subject to Tax i.e., Goods & Service Tax (GST).
a. Higher Education Institutions and Private Institutions
The exemption under GST has been granted just for pre-schools till higher secondary education and since universities and other advanced educational institutions have not been mentioned in the exception list, and thus GST of 18% is expected to be levied on this.
Higher education in the private segment will end up being more costly and in turn, rivalry for admissions in government schools/colleges/foundations will increment. The burden will be the most on middle class families who obtain education loans or put their life-long savings into educating their wards at reputed institutions.
b. Coaching Institutes
Coaching institutes form an integral part of education today as clearing competitive exams and entrance exams seems just impossible without taking professional coaching on how to clear and attempt them. GST has raised the rate of taxes to 18% from 15% for these coaching institutes.
c. Cost of Organizing Events
Any educational/training events organized in India by foreign entities which are attended by professionals, individuals and overseas participants as well would be taxed under GST.
Hence we can conclude with the facts and stats that GST has actually not affected the authorized institutions and courses which are providing recognized qualifications as per law however, the cost for taking private tuition has been raised in GST.
Disclaimer: This article should not be referred to as one giving legal opinion or advise.