Education sector is one of the most important sectors in our country. Service tax has become an important source of revenue collection for Indian Government. Since all the services are taxable w.e.f. 01.07.2012 except services covered under Negative List; therefore, education sector being service sector in nature is also covered under service tax net. Government has provided various concessions to this sector due to education being basic need of the society. I studied and tried to compile the provisions relating to service tax on education sector as applicable in present scenario as follows:
Whether Education is covered under Definition of “Service”?
Definition of “Service” as given in Sec. 65B(44) of Finance Act, 1994 covers any activity for consideration carried out by a person for another. Therefore, to be covered under definition of service it shall fulfill following two conditions:
- Activity shall be provided by one person to another as one person cannot provide service to himself. It is to be noted that as per explanation 3 to Sec. 65B(44), two establishment of the same person shall be treated as different establishment if one is in taxable territory and other is in non taxable territory.
- Activity shall be for consideration, i.e., any activity without consideration will not be covered under the definition of service. Consideration in general meaning means anything which has been received or receivable and includes monetary and non monetary payment.
Therefore, education will be treated as service only if the above two conditions are satisfied.
Education under Negative List, i.e., Sec. 66D of Finance Act, 1994:
Entry No. (l) of Negative List is related to education. Following educational services are covered under this entry:
- Pre-school education and education upto higher secondary school or equivalent;
- Education as a part of curriculum for obtaining a qualification recognized by any law for the time being in force;
- Education as a part of an approved vocational education course.
Government does not want to tax basic education upto higher secondary (12th standard) or equivalent qualification and therefore put it under negative list.
Further, tax will not be levied if education is being provided as a part for getting any qualification and degree provided by any law. It is to be noted here that qualification can be recognized by foreign law even since words used are ANY LAW. However, other interpretation may be “Indian law as applicable for the time being in force”. But if we read the language, then it is ANY LAW but not Indian Law and therefore foreign law may also get included in it.
Pre-school education includes many things, e.g., play schools, crèche etc. Generally education provided to children upto the age of 6 is covered in it.
Priamirily, Entry No. (9) of Mega Exemption is related to education. Following educational services are covered under this entry:
1. Service provided BY educational institution to its:
- Faculty, and
2. Service provided TO and educational institution, by way of :
- Transportation of students, faculty and staff;
- Catering, including mid-day meals scheme sponsored by the Government;
- Security or cleaning or housekeeping services performed in such educational institution;
- Services relating to admission to, or conduction of examination by, such institution.
Education service as BUNDLED service and interpretation thereof:
Bundled service is such service where more than one services are provided as a part and parcel. Education can also be covered as bundled service. For example, institutions which provide education as well as lodging and boarding facilities.
Principles for recognition of bundled services are given in Section 66F of Finance Act, 1994 as follows:
- Reference to main service shall not include reference to a service which is used for providing main service, for e.g., if main service is exempt then it does not mean that ancillary service will also be exempt.
- Specific description shall be preferred over a more general description.
- If various elements of services are naturally bundled, then categorize it into that service which is dominant. For e.g., if an educational institute is providing schooling as well as lodging and boarding services then it is naturally bundled.
- If various elements of services are not naturally bundled, then categorize it into that service which attracts highest liability of service tax. For e.g., if two qualifications are being provided where one is recognized by law but other is not and it is also not separable, then service tax will be levied on both.
Place of Provision:
Basically, providing education is a person based service where presence of service provider, i.e., teacher is required. Therefore, POP for such service is given under Rule 4(b), i.e., Place of Performance. Place of teaching or classroom will be Place of Provision. If class room is in taxable territory, then it will be taxable.
Point of Taxation:
POT will be the date when fee becomes due as per the agreement or rules and regulations of education institute. If fee is taken in advance, then POT will be the date on which such advance is being received. Tax will be paid on or before 6th from the end of the month or the quarter as the case may be and 31st March for the month of March.
Whether following will be taxable or not:
|Private tuitions and coaching||Taxable|
|Placement Services and campus recruitment service||Taxable|
|Schooling + lodging and boarding (boarding school)||As per principle laid down under section 66F. If essential characteristic is education, then will be covered under negative list and accordingly not taxable.|
|In case of two qualification where one is recognized by law but other is not||Separately assessable if separation is possible. But if separation is not possible, then as per principle laid down under section 66(F).|
|Admission test for admission in college||Not Taxable|
|Exam Fees||Not Taxable|
|Service provided TO educational institution (if not specifically covered under Mega Exemption)||Taxable|