Services by way of education and related taxability provision under service tax

By | November 22, 2013

Services by way of education and related taxability provision under service tax

Services by way of education are covered under negative list entry. And this entry provides exemption to activities which can be defined in following three categories-

1)      Pre-school education and education up to higher secondary school or equivalent,

2)      Education as a part of curriculum for obtaining a qualification recognized by law,

3)      Education as a part of an approved vocational education course

Pre-school education and education up to higher secondary school or equivalent

In this category exemption has been provided to the activity of pre – school education and education up to higher secondary school or equivalent irrespective of status of service provider or service recipient. Services provided by international schools giving certifications like IB are also covered in this entry

Education as a part of curriculum for obtaining a qualification recognized by law

It means that only such educational services are in the negative list which is related to delivery of education as ‘a part’ of the curriculum that has been prescribed for obtaining a qualification prescribed by law.

It is important to understand that to be in the negative list 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. Training given by private coaching institutes would not be covered as such training does not lead to grant of a recognized qualification.

Approved vocational education courses

Meaning of term ‘Approved vocational education courses’ 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.

In this category exemption has been provided to activities / services which forms part of such approved education course.

Some departmental clarification regarding the services by way of education

  • Boarding schools provide service of education coupled with other services like providing dwelling units for residence and food. This may be a case of bundled services if the charges for education and lodging and boarding are inseparable. Their taxability will be determined in terms of the principles laid down in section 66F of the Act. Such services in the case of boarding schools are bundled in the ordinary course of business. Therefore 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.
  • Services provided to educational institutions are not covered under the negative list entry. However certain services provided to or by educational institutions are separately exempted under the mega–notification. These are services provided to or by an educational institution in respect of education exempted from service tax, by way of,-

i)        Auxiliary educational services; or

ii)       Renting of immovable property

 ‘Auxiliary educational services’ are defined in the mega notification. In term of the definition, the following activities are auxiliary educational services:

v  Any services relating to imparting any skill, knowledge or education, or

v  Development of course content, or

v  Any other knowledge – enhancement activity, whether for the students or the faculty, or

v  Any other services which educational institutions ordinarily carry out themselves but may obtain as outsourced services from any other person, including following services relating to:

  • Admission to such institution
  • Conduct of examination
  • Catering for the students under any mid-day meals scheme sponsored by Government Transportation of students, faculty or staff of such institution.

Exemption is available for services to or by educational institutions in respect of education exempted from service tax. Therefore, service tax is chargeable on such auxiliary educational services which are in respect of education chargeable to service tax.

  • Private tutors are not covered under this entry however they can avail the benefit of threshold exemption.
  • Services provided by way of education as a part of a prescribed curriculum for obtaining a qualification recognized by a law of a foreign country would be covered in the negative list entry only when course is recognized by an Indian law.
  • If a course in a college leads to dual qualification only one of which is recognized by law then in such case 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 by application of the rule of determination of taxability of a service which is not bundled in the ordinary course of business contained in section 66F of the Act it is liable to be treated as a course which attracts the highest liability of service tax.

However incidental auxiliary courses provided by way of hobby classes or extra-curricular activities in furtherance of overall well being will be an example of naturally bundled course. One relevant consideration in such cases will be the amount of extra billing being done for the unrecognized component viz-a-viz the recognized course.

  • Placement services provided to educational institutions for securing job placements for the students do not fall in this negative list entry
  • Educational institutes such as IITs, IIMs charge a fee from prospective employers like corporate houses/ MNCs, who come to the institutes for recruiting candidates through campus interviews. And these services provided by such institutions are taxable under service tax because such services are not covered in the negative list.
  • Services of conducting admission tests for admission to colleges are exempt in case the educational institutions are providing qualification recognized by law for the time being in force

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