Presently, educational services are excluded from the levy of Service Tax and are in ‘Negative List’ under section 66D(i) 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 are also in negative list. Similarly, vocational training is also out of tax net. However, training or coaching imparted by coaching institutes would, however, not be covered in this exclusion as such training does not lead to grant of a recognized qualification. Such services are liable to service tax but subject to exemption under Notification No. 25/2012-ST dated 20.06.2012 vide Entry No. 9 and 9A in relation to following services:
“9. 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 Government;
(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
9A. Any services provided by,—
(i) the National Skill Development Corporation set up by the Government of India;
(ii) a Sector Skill Council approved by the National Skill Development Corporation;
(iii) an assessment agency approved by the Sector Skill Council or the National Skill Development Corporation;
(iv) a training partner approved by the National Skill Development Corporation or the Sector Skill Council in relation to —
(a) the National Skill Development Programme implemented by the National Skill Development Corporation; or
(b) a vocational skill development course under the National Skill Certification and Monetary Reward Scheme; or
(c) any other Scheme implemented by the National Skill Development Corporation.”
The present rate of service tax is 15% including cesses viz Swachh Bharat Cess (SBC) and Krishi Kalyan Cess (KKC).
Proposed GST Law
According to the Model law on GST which neither contains the exemptions nor the rates of taxation as of now, it appears that all services in relation to coaching and training would be subject to levy of GST as the scope of ‘service’ is very wide. However, the rates are expected to be in the range of 12-18% as approved by the GST Council on 3rd November, 2016.
In the proposed GST regime, GST shall be payable by taxable persons on the supply of goods and services. Taxable person is defined in Section 9 of Model GST law which stipulates that the Central Government , a State Government or any local authority shall be regarded as a taxable person in respect of activities or transactions in which they are engaged as public authorities other than the activities or transactions as specified in Schdeule IV to the Act. Clause 3 of Schedule IV specifically provides that services provided by a Government or local authority or a governmental authority by way of education shall not be regarded as a taxable person.
Further, ‘education services’ have been defined in the said Schedule IV which means 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; or
(iii) Education as a part of an approved vocational education course.
Hence, the exemption may be restricted to activities or transactions done by Central Government, State Government or any Local Authority.
It, therefore, appears that education services provided by Government will not be taxable. There is no specific provisions for inclusions or exclusions of coaching and training services or any other activity related to education elsewhere in the proposed law.
Likely Impact in GST Regime
Based on the provisions of Model Law, it can be said that education sector shall be impacted both positively and negatively under the GST regime.
(i) The rate of tax is likely to go up by 3-5% as it is expected that GST may be levied @12-18%. If coaching is considered as an essential service, a lower GST rate of 5 % can not be ruled out.
(ii) There are likely to be concerns in valuation of coaching services in view of the industry practice of discounts / concessions / scholarship. The proposed valuation rules are different from the existing ones and as such coaching institutes need to frame an appropriate policy for such discounts in advance making it a part of documentation.
(iii) Service providers having centralized registration will have to get registered in each state whether providing coaching on own account or through agent (franchise).
(iv) Service providers will have an option to take different registration or separate business verticals which needs to be examined on case to case basis.
(v) The procedure for all the invoices / receipts towards inward and outward supplies will become cumbersome as each one of them will have to be uploaded in the system.
(vi) The frequency and number of returns to be filed will go up.
(vii) There is a provision for GST audit if the turnover is more than Rs. 1 crore.
(viii) The procedure for taking credit of input taxes will become simple and seamless which will have a positive impact.
In the present scenario, while Cenvat Credit on all inputs / input services is not available, once the GST would be implemented, tax component will also increase by 3-5% resulting in an increase of cost of services to the end user i.e., students.
In fact, education / coaching institutions play an important role in the economy. Keeping a lower rate of GST 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.
In order to provide real benefit to the education sector, seamless credit should be allowed across the supply chain so that even if GST comes into force, the total cost of education will be lower that what it is today. The idea of zero-rated tax on inputs may therefore, be explored.