Understanding service tax in education sector

[Meenu Garg]

Many may feel the Budget 2012-13 is positive for the education sector, with good amounts allocated to higher education and school education exempted from service tax.

It is a rather positive budget as enhanced allocations have been made to the higher education, skills and vocational training. Besides the school education has been exempted from service tax, and for school and university courses, as also approved vocational studies, have been exempted.

The focus and allocations made to higher education and the skill development programme.

The following services relating to education are specified in the negative list –

(1) pre-school education and education up to higher secondary school or equivalent

(2) education as a part of a prescribed curriculum for obtaining a qualification recognized by law for the time being in force.

(3) education as a part of an approved vocational education course and thus there is no Service Tax on these services.

This exclusion from service tax under Negative List is not a blanket exemption from Service Tax.

‘Education as a part of curriculum for obtaining a qualification recognized by law’ implies that only such educational services are in the negative list as are related to delivery of education as ‘a part’ of the curriculum that has been prescribed for obtaining a qualification prescribed by law. For a service to be in negative list under this entry the service should be delivered as part of curriculum. Conduct of degree courses by colleges, universities or institutions which lead grant of qualifications recognized by law would be covered. taxmanagementindia.com

Training given by private coaching institutes would not be covered in this entry as such training does not lead to grant of a recognized qualification and hence will be liable to Service Tax. However, they can avail the benefit of threshold exemption.

Boarding schools provide service of education coupled with other services like providing dwelling units for residence and food.  If the charge for education and lodging and boarding are inseparable then it will be a case of bundled services. Thus their taxability will be determined as per terms mentioned under section 66F of the Act. Hence hereby the bundle of services will be treated as consisting entirely of such service which determines the dominant nature of such a bundle. In this case since dominant nature is determined by the service of education other dominant service of providing residential dwelling is also covered in a separate entry of the negative list, the entire bundle would be treated as a negative list service.

For a services provided by way of education as a part of a prescribed curriculum for obtaining a qualification recognized by Indian law , .i.e. if it is recognized by law of a foreign country then it won’t be covered in this negative list entry.

Services provided by international schools giving certifications like IB by way of education up to higher secondary school or equivalent are covered in this entry.

A course in a college which leads to dual qualification out of which only one is recognized by law would be treated as two separate services. Provision of dual qualifications is in the nature of two separate services as the curriculum and fees for each of such qualifications are prescribed separately. Service in respect of each qualification would, therefore, be assessed separately. If an artificial bundle of service is created by clubbing two courses together, only one of which leads to a qualification recognized by law, then under the principles of bundled services it will attract service tax.

services of conducting admission tests for admission to colleges in case the educational institutions are providing qualification recognized by law for the time being in force are covered under this entry, hence exempt from service tax.

Placement services provided to educational institutions for securing job placements for the students not covered in this negative list entry, hence taxable.

Even the services provided by educational institutions to prospective employers like corporate houses/ MNCs, who come to the institutes for recruiting candidates through campus interviews are liable to service tax on the fees charged by as such services are not covered in the negative list.

Now the question arises what are courses that would qualify as an Approved vocational education courses, they have been specified in section 65B of the Act. These are –

• a course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training, offering courses in designated trades as notified under the Apprentices Act, 1961(52 of 1961)

• a Modular Employable Skill Course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Employment and Training, Ministry of Labour and Employment, Government of India;

• a course run by an institute affiliated to the National Skill Development Corporation set up by the Government of India..

Likewise, auxiliary educational services and renting of immovable property by educational institutions in respect of education will not be taxed. However, coaching classes and training institutions will be taxed.