Taxation of Coaching Services: Now And For Future ?

CA Neha Somani

“Knowledge is an eye for the blind, ears for the deaf, strength for the weak and all in all it is a boon for the mankind”. It is argued that a person who is blind is weak only in one sense but the one who is uneducated is weak by all senses. For every benefit that you receive, a Tax is levied. Perhaps this seemed never so real than today in the Indian context.

The much thoughtful leaders of India have spared the education sector all alone from levy of taxes considering the importance of the same for the country. If a country wants to grow manifold than building infrastructure for education and educated infrastructure (people of the country) is a prerequisite.

Section 65(105)(zzc) of Chapter V of erstwhile Finance Act, 1994 (hereinafter referred as the ‘Act’) provided that any service provided or to be provided by a Commercial training or coaching centre in relation to commercial training or coaching is a taxable service.

‘Commercial Training or Coaching’ means any training or coaching provided by a commercial training or coaching centre – Section 65(26) of the Act.

‘Commercial Training or Coaching Centre’ means any institute or establishment providing commercial training or coaching for imparting skill or knowledge, or lessons on any subjects or field other than sports, with or without issuance of a certificate and includes coaching or tutorial classes but does not include pre-school coaching and training centre or any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognized by law for the time being in force -Section 65(27) of the Act.

It is, however, important to bring out the difference between education and coaching or training as what is not taxable is only ‘education’ and ‘commercial coaching’ shall be liable to Service Tax. For example, if a student is studying for graduate course in commerce (B.com) in a college and also simultaneously pursuing coaching for law entrance exam, while his B.com education shall be exempt from Service Tax, his law related coaching would attract Service Tax @ 14 per cent.

The importance of education has been considered in Service Tax law. Under the negative list following education services were exempt pursuant to section 66 (l) (d) which stipulates as under:

L. Services by way of—

(i)  pre-school education and education up to higher secondary school or equivalent;

(ii)  education as a part of a 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;

Such educational services are exempt from the levy of Service Tax and are in ‘Negative List’ which are related to delivery of education as ‘a part’ of the curriculum that has been prescribed for obtaining a qualification prescribed by law. Conduct of degree courses by colleges, universities or institutions which lead to grant of qualifications recognized by law would be covered. Training given by private coaching institutes would, however, not be covered in this exclusion as such training does not lead to grant of a recognized qualification.

The erstwhile definition of commercial coaching in section 65(27) of the Finance Act, 1994 also confirms this as it defined ‘commercial coaching institute’ to mean any institute or establishment providing commercial training or coaching for imparting skill or knowledge, or lessons on any subjects or field other than sports, with or without issuance of a certificate and includes coaching or tutorial classes but does not include pre-school coaching and training centre or any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognized by law for the time being in force.

Almost 4% of the GDP is spent for educating India’s hidden talent out of which 50% of the amount spent is for primary education.

Coaching Institutions are not considered as educational institutions, though they provide educational services like any other pre-school, primary and secondary schools. The Government should do something in favour of the Coaching Institutions as these are the primary activities. They are not getting any benefit in the present scenario. On one hand the Government seemingly is understanding and compassionate to exempt student’s colouring, textbooks, dictionaries and religious books from GST. On the other hand it is mind boggling, bewildering and baffling for the authorities to impose GST on coaching fees.

With the introduction of Goods and Services Tax, Coaching Institutions should get an exemption. As the rate suggested by Council is 18 % and Revenue Neutral Rate is 27 % i.e.. the rate ranges from 18-27% , cost of coaching institutions would increase as of now , they are paying service tax 14 % due to which their cost is already high (from 12% to 14%) and in the GST scenario , they are going to pay a very high rate of tax which would ultimately increase their cost.

The coaching institutes are engaged primarily in imparting education which is a non-taxable service where no Cenvat credit is available. No CENVAT credit is allowed to coaching institutions as their input and output; both are exempt from the levy of Service Tax no credit is allowed of construction and works contract as in the definition of input services as defined in 2(l) of CENVAT Credit Rules, 2004, specific exclusion is there in definition of input services.

Coaching section also suffers from high completion leading to increased costs in terms of advertisements, fee concessions and discount etc. which are not allowed as credits or are disputed (without any sustainable grounds) leading to tax disputes / litigation. This also ought to be sorted out and settled.

Coaching institutes are only an instrument to impact coaching or tracing. Doing so will not only help improve the quality of education, students and life but also facilitate India to leap frog in the trajectory of top economic powers of the world as India is poised to be so by 2030, given its demographic strength.

(Author is associated with Agarwal Sanjiv & Company, Jaipur)