GST on Educational Institutions

Education plays an important role in any economy as the education of the country’s youth will decide how the country will flourish. Taxing the Education Sector has always been a sensitive issue, as education is seen more as a social activity than a business one. Therefore, government has given certain exemptions to educational institution in regard to GST.

In a nutshell, every attempt is made to ensure that the core educational services are fully exempt from GST.

PrepAway recognizes the pivotal role of education in shaping a prosperous and resilient society, adhering to Aristotle’s wisdom: “Education is an ornament in prosperity and a refuge in Adversity.”

Exemption entry:

Entry 66 of Notification no. 12 CTR dated 28^Th July 2017, Services provided –

(a) by an educational institution to its students, faculty and staff;

(b) by an educational institution by way of conduct of entrance examination against consideration in the form of entrance fee

Explanation:

Services provided by an educational institution to its students shall be exempt, it is important to note the following points:

• Educational services provided by an educational institution shall be exempted only if the services are provided to its students, faculty or staff.
• Exemption shall be applicable only on supply of services to student and not on supply of goods to students.
• To claim exemption the services must be provided to its students, staff and faculty, exemption shall not be applicable if the services are provided to the students, staff or faculty of other educational institution.

(c) 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

(v) Supply of online educational journals or periodicals

Provided that nothing contained in sub-items (i), (ii) and (iii) of item (c) 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.

Provided further that nothing contained in sub-item (v) of item (c) shall apply to an institution providing services by way of

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

(ii) education as a part of an approved vocational education course.

Summarised in the below table:

Analysing definition of educational institution:

Since exemption with respect to said services is available only when these services are provided by/to ‘educational institution’, it is important to analyse the term EDUCATIONAL INSTITUTION

• Pre-school education and education up to higher secondary school or equivalent – This includes education up to 12^th class provided by any institution which offers both Indian and international syllabi.
• Education as a part of curriculum for obtaining a qualification recognised by any law – educational services provided to obtain qualification which is part of curriculum (the subjects comprising a course of study in a school or college) recognised by any Indian law shall be an educational institution, that is any college, institution or university which grants qualification on providing education as a part of curriculum shall be treated as educational institution.

Hence private coaching institutions shall not be covered under educational institution as they cannot grant qualification prescribed under any law for the time being in force.

• Education as a part of an approved vocational educational course – In terms of explanation to Notification no. 12 CTR dated 28^Th July 2017 approved vocational educational course means

a) A course run by an industrial training institution or an industrial training centre affiliated to the National Council for Vocational Training or State Council for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961 (52 of 1961); or

b) A Modular Employable Skill Course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Training, Ministry of Skill Development and Entrepreneurship.

Training given by private coaching institutions would not be covered under educational institution as such training does not lead to grant of a recognized qualification.

Taxability with respect to services provided by an educational institution:

All kind of services provided by an educational institution to its students, faculty or staff are exempt, provided that the supplies made are services and the services are provided to its students, faculty or staff.

Summary of services provided by an educational institution along with the taxability:

Bundled services provided by an educational institution and their taxability:

Bundled services means bundle of provision of provision of various services wherein element of provision of one service is combined with element or elements of provisions of any other services.

Naturally bundled: if various elements of services are bundled together in the ordinary course of business, it shall be treated as provision of single service which gives the bundle its essential character.

How to determine whether services are naturally bundled:

To determine whether services are naturally bundled depends on the practices followed by the industry, the following factors would help to determine the same:

• Whether it is common practice in the industry to provide such services in bundle.
• All such services together as a bundle are required for providing the main service and service receiver reasonably expects such services to be provided in a bundle.
• If the nature of services is such that one of the services is the main service and all other services help in better enjoyment of a main service.
• All services are advertised as a single package.
• It is not possible to provide services individually.

Composite supply: means a supply is comprising two or more goods/services, which are naturally bundled and supplied in with each other in the ordinary course of business, one of which is a principal supply. Taxability is determined based on principle supply. The tax applicable to the principle supply will apply to the whole supply.

 Mixed supply: means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply. a mixed supply comprising two or more supplies shall be treated as a supply of that supply which attracts the highest rate of tax.

Education institution generally provides educational services as bundle which includes:

• Fee for coaching
• Hostel fee (If boarding)
• Canteen fee (If boarding)
• Extra-curricular activities Like sports, dancing etc.,
• Sale of textbooks, notebooks, stationery etc.,

Hostel fee, canteen fee and extra-curriculum activities are provided to its students and the educational institution cannot provide such services alone to outsiders and such services are offered as a package and they are provided for the overall wellbeing of the students, it can be said that such services are naturally bundled and supplied in the ordinary course of business. Therefore, the bundle of services will be treated as consisting entirely of the principal supply. Since the education service is predominant, entire service will be treated as a composite supply and the taxability will be determined as per the principle supply, which is education service, Hence the entire bundle of service is exempt.

If extra billing (i.e. ,not as a part and parcel of education) is being done, it may be a case of artificial bundling of two different supplies, not supplied together in the ordinary course of business, and therefore will be treated as a mixed supply, attracting the rate of the higher taxed component for the entire consideration.

However, all the services provided by an educational institution to its students are exempt all the services whether assessed separately or together as a bundle are exempt.

If a course in a college leads to dual qualification only one of which is recognized by law would the service provided by the college by way of such education be covered in this entry?

Provision of dual qualifications is two separate services as the curriculum and fees for each of such qualifications are prescribed separately. Service in respect of each qualification would, therefore, be assessed separately.

Taxability with respect to services provided to an educational institution:

1) Renting of school bus to an education institution:

Services provided by way of renting of school buses is liable to tax since the above entry covers transportation services only. In the instant case, it is of renting of motor vehicles.

2) Catering services provided to educational institution:

If the educational institution outsources the catering activity to an outside contractor, then it is a supply of service to the concerned educational institution by such outside caterer. Catering services provided to an educational institution shall be exempted only if such services are provided to an educational institution providing pre-school education and education up to higher secondary school or equivalent.

Which is summarised as follows:

3) Supply of fixed assets like sale of benches, projector, furniture etc., to an educational institution:

Fixed assets supplied to an educational institution is taxable as the exemption entry is applicable only on services provided to an educational institution.

4) Advertisement services provided to an educational institution:

Educational institution procures services from advertising agencies for promoting their brand or institution, such advertisement services shall be taxable as the same is not included in the exemption entry.

5) Services like Karate, Music, Swimming provided directly to the students of educational institution:

In terms of exemption entry services provided by an educational institution to its students is exempt, however the exemption shall not be applicable is the services are provided by a third-party service vendor directly to the students.

If consideration for such services is paid by students to the educational institution which in turn is paid to the third-party services provider –  

Even if consideration is routed through educational institution, it can be said that the service is provided directly to the students and not to the educational institution, As the definition of consideration includes payment made by any other person other than institution which means that consideration can be routed from third person.

6) Sale of Books, Uniform, Stationary to an educational institution:

Sale of books, uniform and stationery to educational institution is taxable/exempt based on their classification (HSN).

7) Admission services to educational institution:

Admission services that is services such as enrolling students is exempted.

8) Lunch management services/Transport management services provided to an educational institution:

Lunch management services such as food items to be included in menu, arranging food to the students, arranging plates/tables and transport management services such as arranging time slots for picking/dropping students, supply of drivers etc., is taxable as such services will not be covered under catering (As it does not involve supply of food) and transportation services (as vehicle is not rented by the supplier only management services are provided).

9) Campus placement services provided to educational institutions for securing job placements for the students

Campus placement services provided to an educational institution are taxable as the same are not covered in the exemption entry.

10) Renting of building to an educational institution:

Renting of building to an educational institution is taxable as rental services are not covered in the exemption entry.

Providing free education to certain class of people:

Few educational institutions undertake to provide free education to certain class of people to uplift the economically backward classes, in such a case those service will not be considered as supply as it is provided without any consideration (unless otherwise in schedule-I).

Eligibility of Input tax credit to an Educational institution:

1) Education institution is not eligible to avail input tax credit on inputs/input services which are exclusively used for effecting exempt supplies.

2) However, such institutions are eligible to avail input tax credit on input/input services which are used for effecting taxable supplies.

3) On inputs/inputs services which are used for effecting both taxable and exempt supplies input tax credit eligible to be availed shall be calculated as per rule 42/43 which is to be calculated as follows

Let C = Common credit that is input tax credit on input/input services which is used for effecting both taxable and exempt supplies

Amount of ineligible credit = C*E/F

Where E = Aggregate value of exempt supplies during the tax period (Period for which return is filed)

F = Aggregate value of Taxable supplies during the tax period

Eligible amount of credit = C – amount of ineligible credit.

Since majority of the supplies made by an educational institution are exempt, it is suggested to have of expenses which are used exclusively for effecting exempt supplies and taxable supplies and on admin related exempted input tax credit can be availed based on the above formulae.

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