GST Implication on Education Sector: A Complete Analysis

“Education” is not defined in the CGST Act but as per the Supreme Court decision in Loka Shikshana Trust v/s CIT”, education is the process of training and developing knowledge, skill and character of students by normal schooling.

Since education is viewed more as a social than a commercial activity, taxing the education sector has always been a touchy subject. Every child is entitled to a free, public elementary education as stipulated by the constitution. Therefore, it would be advantageous if educational services were tax-exempt in order to promote education. The commercialization of education is a reality as well, though. Core and ancillary education are becoming less distinct, and education is now a highly organised sector of the economy.

The GST Act seeks to maintain a delicate balance by exempting the core educational services that educational institutions provide and receive while seeking to impose a standard 18% GST on all other services.

Pre-GST laws for Educational Institutions

Mega exemption notification No. 25/2012-Service Tax

Services provided to or by an educational institution in respect of education exempted from service tax, by way of auxiliary educational services; or  renting of immovable property.

“Auxiliary Educational Services” means any services relating to imparting any skill, knowledge, education or development of course content or any other knowledge–enhancement activity, whether for the students or the faculty, or any other services which educational institutions ordinarily carry out themselves but may obtain as outsourced services from any other person, including services relating to admission to such institution, the conduct of examination, catering for the students under any mid-day meals scheme sponsored by Government, or transportation of students, faculty or staff of the such institution.

Post-GST laws for Educational Institutions

Educational Institution: Definition Under GST

Under GST, “educational institution” is defined as an institution providing services by way of:

  • Pre-school education and education up to higher secondary school or equivalent;
  • Education as a part of a 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.

Exemption Of Education Institutions From GST: Judicial Precedents 

  1. GST Not Applicable On Services Provided To Educational Institution

The Gujarat High Court in the case of M/S Educational Initiatives Pvt. vs. Union Of India on  February 18, 2022 has observed that the government cannot levy goods and services tax (GST) on services provided to educational institutions for conducting exams as “examination is an essential component of education”. 

The bench of Justice J B Pardiwala and Justice Nisha Thakore quashed a decision of the Gujarat Appellate Authority for Advance Ruling that services provided by a private firm, Educational Initiatives Pvt Ltd, in the form of Assessment of Scholastic Skill Through Educational Testing (ASSET) for schools were liable to be taxed under CGST laws.

The decision by West Bengal AAR in the case of Ashok Kumar Basu held that service to Educational Institution relating to conduct of examination, as described in 66(b) (v) of Noti. No. 12/2017- CT (Rate) dated 28.06.2017, includes supply of the service of printing question papers and is exempt under the GST Act. The Authority has passed their rulings with respect to eligibility of GST on supply of printing question paper to the educational institute with respect to conducting the examination recognized by the education Board. 

  1. Education provided by the private school from preschool to higher secondary is exempted under GST

GST Law recognises this and provides an exemption to educational institutions, providing education up to higher secondary school or equivalent, from the levy of GST. Auxiliary services received by educational institutions for the purpose of education up to the Higher Secondary level are also exempt from GST.

  1. Transportation of students, faculty and staff exempted under GST

The Madhya Pradesh AAR in the case of Bhavika Bhatia has observed that Services provided by the applicant for transportation of students and staff of the contracee’s Institute/college under contract carriage by non-air conditioned buses is exempt from GST as per clause (b) of SI. No. 15 of Notification No. 12/2017-Central Tax (Rate), dated 28.6.2017. However, the exemption will be valid only till the time the contract carriage fulfils the conditions laid down in the said notification.

There is no GST levied on the Canteen and the transportation services which are furnished by schools, said Maharashtra authority for advance ruling (AAR) in a ruling in the case of Rahul Ramchandran which provides relief to various schools all over India.

  1. Catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory.

The Maharashtra AAR in the case of Rahul Ramchandran has held that the schools are not liable to pay GST on the canteen and the transportation services that are furnished by schools.

The Karnataka AAR in the case of Mahalakshmi Mahila Sangh has ruled that the supply of services made by the applicant in the form of supply of food and drinks to the educational institutions is covered under entry no. 66 of Notification No.12/2017- Central Tax (Rate) dated 28.06.2017 and entry 66 of Notification (12/2017) No. FD 48 CSL 2017 dated 29.06.2017 and are hence exempted from CGST and SGST.

  1. Security or cleaning or house-keeping services performed in such educational institution

As per GST Law 2017, there is no GST payable on Services provided to an educational institution, by way of security or cleaning or house-keeping services performed in such educational institutions.   

According to Sl. No. 66 of Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 as amended Services provided to an educational institution, by way of security or cleaning or housekeeping services performed in such educational institution is chargeable to Nil rate of gst provided the exemption shall not applicable to an educational institution other than an institution providing services by way of pre-school education and education up to higher secondary school or equivalent.

  1. Entrance exam fee is exempted from the GST

The CBIC notified that fees paid by students to various central and state education boards, including the National Board of Examination (NBE), for tests are not subject to goods and services tax (GST). However, accreditation services provided by these boards to educational institutions are subject to tax.

The Uttar Pradesh AAR in the case of MEL Training and Assessment Limited has held that no GST shall be levied on services provided to educational institutions for conducting entrance examination.

The West Bengal AAR in the case of Management & Computer Consultants has held that GST is exempt on services relating to conduct of examination for Educational Boards.

  1. Income from education exempt from GST if a charitable trust is running a school, college or education institution

Income from education is wholly exempt from GST if a charitable trust is running a school, college or education institution for abandoned, orphans, homeless children, physically or mentally abused persons, prisoners or persons over the age of 65 years or above residing in a rural area.

Charitable Trusts running institutions conforming to the definition of Educational Institution as specified in the notification would be entitled to the exemptions discussed above. Apart from the general exemption available to all educational institutions, charitable activities of entities registered under Section 12AA of the Income Tax Act is also exempt. The term charitable activities are also defined in the notification.

Thus, if trusts are running schools, colleges or any other educational institutions or performing activities related to advancement of educational programmes specifically for abandoned, orphans, homeless children, physically or mentally abused persons, prisoners or persons over age of 65 years residing in a rural area, activities will be considered as charitable and income from such services will be wholly exempt from GST in terms of Notification No.12/2017- Central Tax (Rate) dated 28th June, 2017.

Circumstances Where GST Is Payable

  1. 18% GST Payable By Private Institutes

Private institutions and coaching centres do not have any specific curriculum and do not conduct any examination or award any qualification. Hence taxable at the GST rate of 18%. Distance Education is taken up generally for higher education and hence taxable at the GST rate of 18%.

  1. 5% GST payable Technical aids 

The GST at a rate of 5% is payable on technical aids for education, rehabilitation, vocational training and employment of the blind such as Braille typewriters, braille watches, teaching and learning aids, games and other instruments and vocational aids specifically adapted for use of the blind braille instruments, paper etc.

  1. 28% GST on Instruments, apparatus and models, designed for demonstrational purposes

The GST at rate of 18% is payable on Instruments, apparatus and models, designed for demonstrational purposes (for example, in education or exhibitions), unsuitable for other uses.

Conclusion 

Education is fundamental to the nation-building process. The right to Education is now a fundamental right of every child in India. GST Law recognises this and provides an exemption to educational institutions, providing education up to higher secondary school or equivalent, from the levy of GST. Auxiliary services received by such educational institutions for the purpose of education up to the Higher Secondary level are also exempt from GST.

Other services related to education, not covered by the exemption, would be taxed at a standard rate of 18% with full admissibility of ITC for such taxable services in cases where the output service is not exempt. In a nutshell, every attempt is made to ensure that the core educational services are fully exempt from GST.

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