India holds an important place in the global education industry. Under various articles of the Indian Constitution, free and compulsory education is provided as a fundamental right to children. The Government always remains liberal when it comes to the Educational Sector. India has one of the largest higher education systems in the world. Education sector has seen a host of reforms and improved financial outlays in recent years that could possibly transform the country into a knowledge heaven.
Various government initiatives are being adopted to boost the growth and depth of education, the Government has given Service Tax Exemptions related to education by virtue of Entry No. 9 of Mega Exemption Notification No. 25/2012. As per entry No. 9(b) of the said notification, if following four services have been provided to an Educational Institution by any person the same are exempted. (i) Transportation of Students, Faculty, and Staff (ii) Catering including mid-day meal sponsored by government; (iii) Security or cleaning or housekeeping services and (iv) services relating to admission to or conduct of Examination by such institution. This exemption is limited to the “educational institution” which are (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.
However, by virtue of Notification No. 10/2017-ST, the Government has curtailed the above mentioned exemption available to an Educational Institution. As per the recent notification, with effect from 01.04.2017, the exemption given under entry no. 9(b) of the Notification, the exemption shall be available to an educational institution providing services by way of pre-school education and education up to higher secondary school or equivalent. Thus, it means that the exemption shall not apply to services provided to any college/University providing degree courses beyond higher secondary level.
The services like transport, security, cleaning, housekeeping, etc. if provided to colleges or to institutes conducting higher studies then providers of such type of services shall charge service tax on their invoices with effect from 1.4.2017. It implies that cost of such services will go up by 15 percent. It will make a huge impact on the cost of an Education Institution as there is service of teaching is not taxable the costs will become burden to them which in turn will result in hike of fees.
In many states pre-college (higher secondary) and college is run by a single institution with common infrastructure. How to draw a line in such a scenario, what if a same faculty is teaching pre-college and college students, what if there is common accounting staff for pre-college and college, whether transporting such faculty, staff will attract service tax? The government has inserted unnecessary ambiguity in already complex Service Tax provisions.
It was announced in the Budget that because of the GST, no major changes are proposed in Indirect Tax regime, especially in Service Tax, however, within a month of the same Budget, this exemption has been withdrawn. Thus, one question arises in mind that, how much revenue will be generated by the Government by withdrawing the same exemption when GST is proposed to be enforced from 1st July, 2017. Is it beginning of a phase where the Government wants to tax even the basic facilities like an Education or it is an indicator that in GST all will be taxed.
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