CA Neha Somani

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)

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13 responses to “Taxation of Coaching Services: Now And For Future ?”

  1. Jaspreet says:

    I have started my coaching centre 3months ago and I have managed to earn 35000 pm and I also have 3 teacher. Do I need to register if yes than how much tax I have to pay

  2. Lakshman says:

    i am going to start a cricket coaching centre and I am going to register that as well.
    will that need to be taxed for the students who are joining the academy

  3. Sathish says:

    I am planning to start soccer academy. How can I start with gst?

  4. Pooja says:

    Hi, I am running a recreational sports coaching center for children. This center is licensed through franchise format. Please let me know if service tax is applicable on coaching fees charged to students. thanks

  5. Rajesh says:

    Dear sir
    I am running MBA , BANK-PO coaching in Patna My yearly transaction is Rs. 13 lakhs and office expenditure about Rs. 7 lakhs. How much service tax will be charged by Govt., please tell me in approx in percent and explain it also

  6. shobhit johri says:

    hello
    i m going to start a competition coaching for ssc & bank exams.
    so which tax i have to pay?
    and is any amount limit that after i have to pay tax?
    pls revert me.

  7. Amit Bhilare says:

    What are the taxes applicable on sale of online education courses for 12th ?

  8. CA Jai Kishan says:

    What I feel is that the provisions of Section 65 of the Finance Act, 1994 are not applicable w.e.f. 01.07.2012 in view of Notification No. 20/2012-ST dated 05.06.2012. Therefore the definitions of commercial coaching can not be the part of law.

    Now if wee see sub clause (ii) of clause (l) of Section 66D of the Finance Act, it says that education as a part of curriculum for obtaining a recognized qualification will not be a taxable service.

    Now suppose a coaching institute teaches as per the syllabus of CA course (a recognized course), will it not be treated as a non taxable service?

    Please let us know your comments.

    with Regards,
    CA. Jai Kishan

  9. Saket Agarwal says:

    We have to be more careful in using words like exeption and negative list. Both don’t mean the same and are not interchangeable.

  10. Dr. Arun Draviam says:

    It is time our law makers bring higher (college level) education into tax ambit. Most of the MPs/ MLs run educational institutions and they are not keen education should attract tax. This cannot go on for ever. We are in the 69th year of Independence and we have a fairly good talent pool.

  11. Nikhil says:

    I think this forum should be used to share knowledge and not to lobby for a industry and group.

  12. Anup Gupta says:

    Very True……

    In present scenario it can be seen that even after Graduation from colleges, our country graduate can not do much (except some reputed and well named college student).

    We found more IQ level in a 12th pass student than in a graduate……

    If such kind of education is exempt from service tax then its better to provide exemption to commercial coaching centre….. Yes…… commercial coaching centre are more efficient than schools…… Not all but still most of them…..

    Thanks to the author for writing such a wonderful article……

    CA Anup Gupta

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