Amit Mundhra, FCA, ISA(ICAI)
Education sector is one of the most important sectors in the Indian Economy in terms of the quantum of finances involved. Taxation on educational institutions has always been a matter of various issues and disputes. I am summarizing below the provisions under the Service Tax Laws as applicable to Educational Institutions as amended by Finance Bill 2013.
There are 2 types of tax provisions in terms of educational institutions under the service tax laws.
- Services provided BY the Educational Institutions
- Here educational Institution is Service Provider
- Here educational Institution is Service Provider
- Services provided TO the Educational Institutions
- Here educational Institution is Service Receiver
There are different provisions for above 2 cases. In this article I will try to summarize the provisions relating to Services Provided by the Educational Institutions.
SERVICES PROVIDED BY THE EDUCATIONAL INSTITUTIONS
Generally educational institutions collects charges and fees under different heads from the students and other persons. Broadly these heads can be illustrated as below.
- Admission Fees
- Tuition Fees
- Prospectus Charges / Admission Form Charges
- Sale of Books and Uniforms
- Examination Fees
- Computer Fees
- Hostel Fees
- Day Boarding Charges
- Digital Classroom Fees
- Mess/ Canteen Charges
- Transportation Charges
- Renting of Auditoriums/ Halls
- Staff Quarter Charges.
- Extra Curricular Activities Charges
- Picnic Fees / Special Tour Charges
- Library Fees
I am examining the applicability of service tax on such charges under various provisions of service tax law.
DEFINITION OF SERVICE
In the Finance Act 2012, for the first time term “service” has been defined in the act :
“Service means any ACTIVITY carried out by a person for another for CONSIDERATION, and includes a DECLARED SERVICE, but shall not include;
(a) An activity which constitutes MERELY,
(i) A transfer of title in GOODS or IMMOVABLE PROPERTY, by way of sale, gift or in any other manner; or
(ii) Such transfer, delivery or supply of any goods which is deemed to be sale within the meaning of clause (29A) of article 366 of the Constitution, or
(iii) A transaction in money or ACTIONABLE CLAIM
(b) A provision of service by an employee to the employer in the course of or in relation to his employment.
(c) Fees taken in any court or tribunal established under any law for the time being in force.
The educational services provided by educational institutions clearly fall within the ambit of definition of Service. For detailed analysis of Definition of Service, you can refer to my earlier article by following this link (Click Here)
EDUCATIONAL SERVICES IN THE NEGATIVE LIST
Negative list of service tax signifies the services on which Service Tax is not Chargeable.
As per Section 66D clause (L), which governs the Negative List, following entry appears;
(i) Pre-school education and education upto higher secondary school or equivalent.
(ii) Education as a part of curriculum for obtaining a qualification recognized by any law for the time being in force.
(iii) Education as a part of an approved vocational education course.
Definition Of Education
The term “Education” has not been defined in the Service Tax Laws. So, we should go by the dictionary meaning and general meaning of this term.
As per www.dictionary.com the word “Education” means:
1. The act or process of imparting or acquiring general knowledge, developing the powers of reasoningand judgment, and generally of preparing oneself or others intellectually for mature life.
2. The act or process of imparting or acquiring particular knowledge or skills, as for a profession.
3. A degree, level, or kind of schooling: a university education.
4. The result produced by instruction, training, or study: to show one’s education.
5. The science or art of teaching; pedagogics.
Thus, the term Education is a term of wide range and it should be understood in a wide manner.
ANALYSIS OF CLAUSE (L) IN NEGATIVE LIST – SEC. 66D
Clause (L) of Negative List
|(i) Pre-school education and education upto higher secondary school or equivalent.
|(ii) Education as a part of curriculum for obtaining a qualification recognized by any law for the time being in force.
|(iii) Education as a part of an approved vocational education course.
In above clauses, clause (i) and (ii) are more or less self explanatory but clause (iii) covers approved vocational education course which requires further analysis as below.
Meaning of Approved Vocational Education Course
Definition before Enactment of Finance Bill 2013
Definition after enactment of Finance Bill 2013
|(i) A course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training offering courses in designated trades notified under the Apprentice Act, 1961||(i) A course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training or State Council of Vocational Training, offering courses in designated trades notified under the Apprentice Act, 1961
|(ii) 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, Union Ministry of Labour and Employment||(ii) 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, Union Ministry of Labour and Employment
|(iii) A course offered by an Institute affiliated to the National Skill Development Corporation set up by Government of India.|
- By Finance Act 2013, in the definition of “Approved Vocational Education Course” the courses offered by Industrial Training Institutes or Industrial Training Centres affiliated by State Council of Vocational Training has been included.
- By Finance Act 2013, in this definition, the courses offered by an Institute affiliated to the National Skill Development Corporation has been deleted. Thus in affect, the courses offered by such institutes have now been brought into the Service Tax Net w.e.f. enactment of Finance Act, 2013.
Now if we go through the charges collected by educational institutions, such fees which is charged in respect of educational services as specified in clause (l) of negative list will not be charged to service tax. Going by the wider meaning of “education” charges relating to Admission Fees, Tuition Fees, Examination Fees, Computer Fees and Digital Classroom Fees falls into the negative list and are not subject to charge of service tax.
EDUCATIONAL SERVICES IN THE EXEMPTION LIST
Service Tax notification No. 25/2012 dated 20-06-2012 as amended by Service Tax Notification No. 03/2013 dated 01-03-2013 covers all the exemption available under the Service Tax Provisions. Point numbers. 4, 8, 9, 18, 19, 23 and 35 in said notification covers the exemptions relevant to Educational Institutions in respect of services provided by them.
I am trying to summarize all the exemptions available to Educational Institutions as Service Providers under these respective points.
POINT NO. 4 OF MEGA EXEMPTION NOTIFICATION
Services by an entity registered under Section 12AA of the Income Tax Act
By way of Charitable Activities
|Clause (k) of Definitions part of mega exemption notification defines this term “Charitable Activities” as follows. (As amended on 01-03-2013)
“Charitable Activities” means activities relating to –
(i) public health by way of –
(a) care or counseling of
(i) terminally ill persons or persons with severe physical or mental disability
(ii) persons afflicted with HIV or AIDS, or
(iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or
(b) public awareness of preventive health, family planning or prevention of HIV infection;
(ii) advancement of religion or spirituality;
(iii) advancement of educational programmes or skill development relating to,-
(a) abandoned, orphaned or homeless children;
(b) physically or mentally abused and traumatized persons;
(c) prisoners; or
(d) persons over the age of 65 years residing in a rural area;
(iv) preservation of environment including watershed, forests and wildlife;
Important Points :
- Mostly all the educational institutions are registered under Section 12AA of the Income Tax Act by way of Charitable Organizations.
- But under service tax law, entities registered under Section 12AA of Income Tax Act doing Charitable Activities which are covered in above definition only are eligible for exemption from Service Tax.
- Thus, mere registration u/s 12AA of the Income Tax Act does not grant said entity exemption from Service Tax.
- If we go through the definition, only educational programmes or skill development relating to abandoned, orphaned or homeless children, physically or mentally abused and traumatized persons, prisoners or persons over the age of 65 years residing in a rural area are covered as “charitable activities” and exemption will be available only in respect of these services.
POINT NO. 8 OF MEGA EXEMPTION NOTIFICATION
by way of
Training or Coaching
Arts, Culture or Sports
- In this point, services relating to training or coaching in recreational activities such as dancing, painting, sports etc. which are relating to Arts, Culture or Sports are exempted. Such services may be provided by Educational Institutions in addition to their normal educational curriculum.
- Thus, by virtue of this entry, the charges for Extra Curricular Activities received by educational institutions, if such activities fall into Art, Culture or Sports category, are eligible for exemption from service tax under this clause.
POINT NO. 18 OF MEGA EXEMPTION NOTIFICATION
by way of
Renting of a
Hotel, inn, guest house, club, campsite or other commercial places
Residential or lodging purpose
Having declared tariff
of a unit of accommodation
below ruppes one thousand per day
Meaning Of Relevant Terms
Section 65B(41) of the Finance Act defines “Renting” as
“renting” means allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property.
Clause (n) of Definitions part of Mega Exemption Notification defines “Declared Tariff” as under
“Declared Tariff” Includes charges for all amenities provided in the unit of accommodation (given on rent for stay) like furniture, air conditioner, refrigerators or any other amenities, but without excluding any discount offered on the published charges for such unit.
- In this point, services relating to Hostel or renting of Hall or Auditorium, provided by Educational Institutions will be covered. If the declared tariff / rental of the property is Rs. 1000/- per day or more, then only service tax is chargeable otherwise, it will be exempt under this entry.
However, here it is worthwhile to mention the Point No. 9 of the Mega Exemption Notification.
POINT NO. 9 OF MEGA EXEMPTION NOTIFICATION
An Educational Institution
In respect of Education
Exempted from Service Tax
By Way of
(a) Auxiliary educational services
(b) Renting of immovable property
- Here, the significance of this point is, if the Educational Institution is providing Renting service to another Educational Institution, then such service will be exempted under this point no. 9.
CLAUSE (M) OF NEGATIVE LIST – SECTION 66D
Here, it is also worthwhile to mention the clause (m) of Section 66D which covers negative list under Service Tax.
(m) Services by way of renting of residential dwelling for use as residence.
Thus, the renting of a residential dwelling for use of residence is covered under negative list and is not chargeable to service tax.
By virtue of this point, the charges collected by educational institutions from Staff Quarters will not be chargeable under Service Tax.
POINT NO. 19 OF MEGA EXEMPTION NOTIFICATION
Services Provided in relation to
Serving of Food or Beverages
A Restaurant, eating joint or a mess
Other than those having
The facility of air-conditioning or
Central air heating in
any part of establishment
At any time during the year.
- In this point, services relating Mess, Canteen etc provided by Educational Institutions will be covered. If such mess or canteen are air-conditioned then service tax will be levied otherwise exemption can be claimed under this entry.
POINT NO. 23 OF MEGA EXEMPTION NOTIFICATION
Transport of Passengers,
With or without accompanied belongings
|(i) Air embarking from or terminating in an airport located in the state of Arunanchal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura or a Bagdogra located in West Bengal.
(ii) A contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire; or
(iii) Ropeway, cable car or aerial tramway.
Meaning Of Relevant Terms
Clause (m) of Definitions part of mega exemption notification defines “Contract Carriage” as
“Contract Carriage” has the meaning assigned to it in clause (7) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988)
As per Section 2(7) of Motor Vehicles Act, 1988
Contract Carriage means a motor vehicle which
Carries a passenger or passengers
for hire or reward
and is engaged under a contract,
whether express or implied,
for the use of such vehicle as a whole
for the carriage of passengers
entered into by a person with a holder of a permit in relation to such vehicle
or any other person authorized by him
in this behalf on a fixed or an agreed rate or sum –
(a) On a time basis, whether or not with reference to any route or distance; or
(b) From one point to another
And in either case,
without stopping to pick up or set down passengers not included in the contract
anywhere during the journey and includes
(i) A maxi cab, and
(ii) A motor cab notwithstanding that separate fares are charged for its passengers;
- This point covers the educational institutions which are providing transport services to its students or staff, the clause (ii) of point no. 23 of mega exemption notification will be applicable.
- Here, it is important to understand the meaning of Contract Carriage. For a vehicle to be classified as a contract carriage, should satisfy all of the following conditions.
- Vehicle carries passengers under a contract (whether express or implied)
- There is a pre determined specific list of passengers who use the transportation facility
- Transportation is fixed between one point to another and can be different for each passenger.
- Vehicle operator cannot pickup or set down any person other than the list of passengers in the contract.
Generally, the transport facilities provided by educational institutions satisfies all the above conditions and they generally fall into the definition of “Contract Carriage”. Thus by virtue of this point, the transport facility provided by educational institutions to its students and staff will be exempt.
However, there is a fine exception here.
If we again look at the clause (ii) of point no. 23 of mega exemption notification, there is a exclusion in the point which is highlighted below.
Clause (ii) : A contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire;
It means that Contract carriage used for tourism, conducted tour, charter or hire cannot claim the benefit of exemption under this point, and they will have to pay service tax on such receipts.
Normally, there are cases, where an education institution takes its students for tour under tour packages using the services of Contract Carriage, and charges separately for such tour from the students. In my view, the Educational Institutions cannot claim the exemption from service tax on such charges received from students under this point no. 23.
POINT NO. 35 OF MEGA EXEMPTION NOTIFICATION
Services of Public Libraries
By way of lending of books, publications,
or any other
knowledge enhancing content or material
- This entry is self explanatory, which governs the library fees received by educational institutions.
CLAUSE (E) OF NEGATIVE LIST – SECTION 66D
Clause (e) of Section 66D – which is Negative List is as under
(e) Trading of Goods
- This clause governs the amount charged by educational institutions towards, books, uniforms and other material which are covered in the definition of Goods. Such charges are not subject to charge of service tax by virtue of this entry.
I have tried to compile the provisions of Negative List and Mega Exemption Notification which are relevant to Educational Institutions considering the services which are generally provided by them. If there is an omission about any kind of service which is provided by such institutions, please let me know, I will try to update it in this article.
Amit Mundhra, FCA
Author is a member of ICAI and can be reached at [email protected]
Disclaimer: The views express here in above are based on author’s interpretation of law, which may differ from case to case and person to person. Views expressed above are neither intended nor liable to be used as professional advice or a legal opinion in any manner. The author or publisher is not responsible for the result of any action taken on the basis of this work or for any error or omission to any person.