The positive list scheme of the service act under the Finance Act of 1994 incorporates a specific entry under Section 66D. This is called the Negative List, put in place to exempt educational institutions from service tax deductions. Besides this tax exemption benefit available to the educational institutions under the negative List, there are other specific services offered by the educational institutions also exempted under Mega Exemption Notification No: 25/2012 dated 20.06.2012. In this service tax education guide, we will get to know about services provided to educational institutions exempt from service tax under Clause (a) of Notification Number ST-25/2012 up to 11.07.2014 and services provided by educational institutions exempt from service tax under Clause (a) of Notification Number ST-25/2012 dated 20.06.2012.
Modification of the Scheme of Exemption for Services Provided to Educational Institutions
In this education guide service tax, we will also learn that the exemption from service tax for services offered to educational institutions was modified from 11.07.2014. The scope of service tax exemption to educational institutions was partially reduced to only a few specified services, like:
- Catering, including government-sponsored mid-day meals;
- Transportation of staff, faculty and students;
- Cleaning services offered in educational institutions;
- Security services offered in educational institutions;
- Services related to the examination by or admission to such educational institutions.
- Housekeeping services offered in such educational institutions
Not all but only the six services mentioned above come under service tax exemption with effect from 11.07.2014, provided they are offered to an educational institution.
However, before understanding the provisions related to GST exemption for educational institutions notification and the law pertaining to education tax in India, it will be useful to understand the real meaning of education as defined in the Finance Act, 1994 for exemption of service tax.
Definition of Education and Education Institution
As per online resources, education is a type of learning where a group of individuals' skills, habits and knowledge are transferred from one generation to the other through research, training, teaching or auto-didacticism. This generally occurs through any form of experience that has a formative influence on the way individual acts, thinks or feels.
The new service-tax laws levy tax on education in different fields except those services to educational institutions under GST specifically covered under the negative List and otherwise exempted from tax on education in India through notification.
The definition clause (oa) of notification number ST-25/2012 dated 20.06.2012 as modified by Notification Number ST-09/2016 dated 01.03.2016 defined educational institutions as:
- Pre-School Education
- Education as part of a curriculum for achieving a qualification duly recognised by any law in force for that particular time
- Education up to higher secondary or equivalent
- Education as part of an approved vocational education course
Pre-School Education
This includes day nursery, crèche, pre-kindergarten, daycare centre, nursery school, play school, playgroup and reception class. These forms of education are liable for exemption under service tax as per the negative List.
Education up to Higher Secondary or Equivalent
Education up to secondary or Class XIIth also comes under the service tax exemption limit. Further, education considered equivalent to higher secondary is also exempt from service tax. This means education considered equivalent to higher secondary offered by any international institute providing international certificates is also exempt from the payment of service tax.
Education as Part of a Curriculum for Receiving Qualification Recognised by Law in Force
This covers only those educational services being delivered as part of the curriculum specifically prescribed for receiving a qualification as prescribed by law. To be a part of the negative List, any educational service must be offered as part of a curriculum. Degree courses offered by universities, institutions or colleges that lead to qualifications duly recognised by law are covered. Nevertheless, training imparted by private coaching centres is not covered as it does not lead to the grant of any kind of recognised qualification.
Education as Part of an Approved VEC or Vocational Education Course
The meaning of approved vocational education course as per Clause (11) of Section 65B of Finance Act, 1994 is:
- A course offered by an industrial training centre or institute affiliated to the State Council for Vocational Training or National Council for Vocational Training providing courses in certain designated trades under the notification of the Apprentices Act, 1961; or
- A course offered by an institute affiliated with the National Skill Development Corporation founded by the Indian Government; or
- A Modular Employable Skill Course that the National Council for Vocational Training has approved. It is operated by an individual registered with the Directorate General of Employment and Training, Union Ministry of Labour and Employment
As per the Finance Act 2013, the courses provided by the State Council for Vocation Training also come under the scheme of service tax exemption for educational institutions. Nevertheless, about the Finance Act 2013, educational institution GST exemption is withdrawn regarding a course operated by an institute affiliated to the NSDC or National Skill Development Corporation set by the Indian Government.
Frequently Asked Questions
Is there any GST for educational institutions?
Coaching centres and private institutions do not have any kind of curriculum, conduct any form of examination or offer any qualification. Therefore, the tax on educational institutions in India falling under this category is charged at the GST rate of 18%. Also, distance education taken up for higher education is taxable at the GST rate of 18%.
Are educational institutions exempt from income tax?
Yes, educational institutions are exempt from income tax provided they fulfil the following conditions: the institutions solely exist to render education and not for profit purposes. The educational institution is not substantially or wholly financed by the Indian Government.
Is education GST-free or exempt?
Education offered by a college, school or any other educational institution for orphans, abandoned, mentally or physically abused individuals, people above 65 years of age, prisoners, homeless kids or any of the above living in a rural region is completely exempt from GST provided a charitable trust runs it.
Which educational institutions are exempt from service tax?
Pre-schools; educational institutes offering higher secondary education or equivalent; those offering coaching or training with diploma, degree or certificate and those offering education recognised by law are exempt from service tax.
What are the three types of educational institutions under the Tax Code?
The three types of educational institutions under the Tax Code are:
- Pre-school education or education up to higher secondary school or equivalent;
- Education as part of any approved vocational education course; and
- Education is part of a curriculum for getting a qualification recognised by law enforced for the time being.
What is education tax?
The education tax is the payment for school or college tuition under Section 80C. On that note, other elements of education fees, like transport and development fees, are not liable for deduction as education tax under Section 80C.
Who should pay education tax?
Parents of wards or wards receiving education in schools and colleges must pay education tax.
Do educational institutions pay VAT?
Yes, educational institutions need to pay VAT, but only those that offer educational materials and educational services listed in Schedule 1 as zero-stated.