Services provided by entity registered under Section 12AA of the Income-tax Act, 1961 by way of charitable activities are exempted from whole of GST vide entry No. 1 of the Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017 .
SERVICES BY ENTITY REGISTERED U/S 12AA ARE EXEMPT
It specifies that “services by an entity registered under Section 12AA of Income-tax Act, 1961 by way of charitable activities” are exempt from whole of the GST. Thus as per this notification, exemption is given to the charitable trusts, only if the following conditions are satisfied.
(a) Entities must be registered under Section 12AA of the Income-tax Act, and
(b) Such services or activities by the entity are by way of charitable activities.
Thus, it is essential that the activities must conform to the term “charitable activities’ which has been defined in the notification as under “charitable activities” means activities relating to:
(1) 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;
(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;
(2) Advancement of religion, spirituality or yoga;
(3) 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;
(4) Preservation of environment including watershed, forests and wildlife.
However, If the trust is running educational institution for the purpose which is not covered above (i.e. not coming within the scope of charitable activities as defined in the notification), income from such activity will not be exempt under notification no. 9/2017-Integrated Tax (Rate) or 12/2017-Central Tax (Rate), but will be exempt under entry 66 of notification no.12/2017-Central Tax (Rate) as follows.
Educational Institution means an institution providing services by way of:
1. Pre-school education and education up to higher secondary school or equivalent;
Educational institutions up to Higher Secondary School level do not suffer GST on output services and also on most of the important input services. Some of the input services like canteen, repairs and maintenance etc. provided by private players to educational institutions were subject to service tax in pre-GST era and the same tax treatment has been continued in GST regime.
Thus output services of lodging/boarding in hostels provided by such educational institutions which are providing pre-school education and education up to higher secondary school or equivalent or education leading to a qualification recognised by law, are fully exempt from GST. Annual subscription/fees charged as lodging/boarding charges by such educational institutions from its students for hostel accommodation shall therefore, not attract GST.
2. Education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;
The term “Educational Institution”, sub-clause (ii) covers institutions providing services by way of education as a part of curriculum for obtaining a qualification recognised by any law for the time being in force. This is an area where doubts have persisted as to what would be the meaning of “education as part of curriculum for obtaining qualification recognised by law”. GST on services being a legacy carried forward from the Service Tax regime, the explanation given in the Education guide of 2012 can be gainfully referred to understand the meaning of the term which reads as under;
It means that only such educational services are in the negative list as are 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. Training given by private coaching institutes would not be covered as such training does not lead to grant of a recognized qualification.
3. Education as a part of an approved vocational education course
The term “Educational Institution”, sub-clause (iii) covers institutions providing services by way of education as a part of approved vocational course, and institutions providing the above courses will come within the ambit of the term educational institution. Notification No. 12/2017- Central Tax (Rate) dated 28th June, 2017, defines approved vocational education course as under:
An “approved vocational education course” means, –
(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 for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961 (52 of 1961); or
(ii) 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.
It is to be noted that only those institutions whose operations conform to the specifics given in the definition of the term “Educational Institution”, would be treated as one and entitled to avail exemptions provided by the law. This would mean that private coaching centres or other unrecognized institutions, though self-styled as educational institutions, would not be treated as educational institutions under GST and thus cannot avail exemptions available to an educational institution.
EXEMPTED SERVICES BY AND TO EDUCATION INSTITUTIONS
(including institutions run by Charitable trusts)
An entry 66 provides exemption for supply by and to “educational institutions” and only the following services received by eligible educational institution is exempt:
(1) Transportation of students, faculty and staff of the eligible educational institution.
(2) Catering service including any mid-day meals scheme sponsored by the Government.
(3) Security or cleaning or house-keeping services in such educational institution.
(4) Services relating to admission to such institution or conduct of examination.
Further Composite and Mixed Supply in so far as Education is concerned 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 2(30) read with section 8 of the CGST Act, 2017.
Such services in the case of boarding schools 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, which means the service which forms the predominant element of such a bundle. In this case since the predominant nature is determined by the service of education, the other service of providing residential dwelling will not be considered for the purpose of determining the tax liability and in this case the entire consideration for the supply will be exempt.
Further educational activities provided by a trust or an institution registered under sub clause (v) of clause (23C) of section 10 of the Income-tax Act or a body or an authority covered under clause (23BBA) of section 10 of the said Income-tax Act are also cover under the exemptions.
Charitable Trusts running institutions conforming to the definition of Educational Institution as specified in the notification would be entitled to the exemptions discussed above. Apart from the general exemption available to all educational institutions, charitable activities of entities registered under Section 12AA of the Income Tax Act is also exempt.
Provided that nothing contained in entry (b) of this exemption shall apply to:
(i) renting of rooms where charges are one thousand rupees or more per day;
(ii) renting of premises, community halls, kalian mandapam or open area, and the like where charges are ten thousand rupees or more per day;
(iii) renting of shops or other spaces for business or commerce where charges are ten thousand rupees or more per month.
TAXABLE SERVICES FOR EDUCATIONAL INSTITUTIONS
If such school or other educational institution gives property owned by such institution on rent to others, no exemption will be available for such services. Therefore, all services received by educational institutions managed by charitable trusts (for other than charitable
Activities, as defined) except those services mentioned above are taxable.
In case of a course in a college which leads to dual qualification only one of which is recognized by law. Would service provided by the college by way of such education be covered by the exemption notification? Provision of dual qualifications is in the nature of 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.
If an artificial bundle of service is created by clubbing two courses together, only one of which leads to a qualification recognized by law, then by application of the rule of determination of taxability of a supply which is not bundled in the ordinary course of business, it shall be treated as a mixed supply as per provisions contained in section
2(74) read with section 8 of the CGST Act, 2017. The taxability will be determined by the supply which attracts highest rate of GST.
However incidental auxiliary courses provided by way of hobby classes or extracurricular activities in furtherance of overall well-being will be an example of naturally bundled course, and therefore treated as composite supply. One relevant consideration in such cases will be the amount of extra billing being done for the unrecognized component viz-a-viz the recognized course. If extra billing 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.
The Education guide of 2012 for the purpose of service tax has given the following important clarifications in respect of educational services. The same can be gainfully referred to, for the purpose of clarity under the GST regime:
“The supply of placement services provided to educational institutions for securing job placements for the students shall be liable to service tax. Similarly, educational institutes such as IITs, IIMs charge a fee from prospective employers like corporate houses/ MNCs, who come to the institutes for recruiting candidates through campus interviews in relation to campus recruitments. Such services shall also be liable to service tax.”
The indicative list of taxable services could be renting of premises by such entities, grant of sponsorship and advertising rights during conduct of events/functions etc. Thus, there could be many services provided by educational institution which are not considered as educational activities and hence, such services come under the GST net.
Education is fundamental to the nation building process. Right to Education is now a fundamental right of every child in India. GST Law recognises this and provides exemption to educational institutions, providing education up to higher secondary school or equivalent from the levy of GST. So, services provided by an educational institution to students, faculty and staff are exempt. The output services of lodging/boarding in hostels provided are fully exempt from GST. Auxiliary services received by such educational institutions for the purpose of education up to Higher Secondary level is also exempt from GST. Other services related to education, not covered by the exemption, would be taxed at a standard rate of 18% with full admissibility of ITC for such taxable services in cases where the output service is not exempt.
Conduct of degree courses by colleges, universities or institutions which lead grant of qualifications recognized by law would be exempted from GST. The output services of lodging/boarding in hostels provided by such educational institutions which are providing education leading to a qualification recognised by law, are fully exempt from GST. Auxiliary education services entry no 66 of notification no. 12, if provided to educational institutions providing degree or higher education, the same would not be exempt from GST. The supply of placement services provided to educational institutions for securing job placements for the students shall be liable to GST. Educational institutes such as IITs, IIMs charge a fee from prospective employers like corporate houses/ MNCs, who come to the institutes for recruiting candidates through campus interviews in relation to campus recruitments. Such services shall also be liable to GST.
Training given by private coaching institutes or other unrecognised institution or self-styled educational institution would not be exempted as such training does not lead to grant of a recognized Degree and also Services provided by way of education as a part of a prescribed curriculum for obtaining a qualification recognized by a law of a foreign country are also not exempted because the course / degree not recognized by Indian Law.
(About the Author– Author was Member of ICAI- Capacity Building Committee 2010-11 and ICAI- Committee For Direct Taxes 2011-12 and can be reached at email [email protected] or on phone Phone: 0 1 2 1-2 6 6 1 9 4 6. Cell: 9 8 3 7 5 1 5 4 3 2 having office at 1 1 5, Chappel Street, Meerut Cantt, UP, INDIA)