With the Introduction of Negative List Regime in the year 2012, all services becomes taxable except the services which are covered in Negative List or which are exempted by government through issue of any exemption notification.
Earlier to Finance Act, 2016, Following services of Educational Institutions were covered in Negative List Entry:
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.
The same entry has been omitted from Negative List by amendment made in the Finance Act of 2016.
However the same has been still exempted due to Entry No. 9 of Mega Exemption Notification No. 25/2012.
In Entry No. 9 of Mega Exemption, exemption has been granted to following services:
a. "by" an EDUCATIONAL INSTITUTION to its Students, Faculty, and Staff.
b. By any person "to" an EDUCATIONAL INSTITUTION, by way of:
- transportation of students, faculty and staff;
- catering, including any mid-day meals scheme sponsored by the Government;
- security or cleaning or house-keeping services performed in such educational institution;
- services relating to admission to, or conduct of examination by, such institution.
As Negative List Entry relating to Services provided by Educational Institutions has been deleted by Finance Act, 2016, the definition of "EDUCATIONAL INSTITUTION" has been amended in Notification No. 25/2012 to keep those Negative List services exempted.
As per the new definition, "Educational Institution" Means 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 recognised by any law for the time being in force;
- education as a part of an approved vocational education course.
Hence till now all those services of educational institutions which were Non-Taxable by Negative List entry were remain exempted by amending the Mega Exemption Notification.
A new Notification: Notification No. 10/2017-Service Tax dated 8th March, 2017 has been issued by Government so as to withdraw exemptions granted earlier to few specific Services provided "to" an Education Institutions.
As per the aforesaid notification,
"Nothing contained in clause (b) of aforesaid entry no.9 of Mega Exemption Notification No. 25/2012 shall apply 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".
The aforesaid amendment will be effective from 1st April, 2017.
Major Consequences of these amendments will be as follows:
1. Services of:
- Transportation of Students, Faculty, and Staff;
- Catering including mid-day meal sponsored by government;
- Security or cleaning or housekeeping services;
- Services relating to admission to or conduct of Examination by such institution;
If provided to an Educational Institution will remain exempted only if that education Institution is providing either Pre-school education or education up to higher secondary school or equivalent.
2. Aforementioned services of Transportation/ Catering/ Security/ Admission or conduct of Examination provided to any college/University providing degree courses beyond higher secondary level will be taxable.
3. Here it is pertinent to note that despite the scope of this exemption has been restricted to only pre-school education or education up to higher secondary school or equivalent, but some of these services may still cover in other Negative List Entries or other Mega Exemption Notification.
The intention of government is very much clear. The Government is setting roadmap for Introduction of GST which is expected to come into effect from 1st July, 2017. As exemption in GST regime will be minimal, the government wants to reduce existing exemption in steps.
Further, since Services provided by a Government by way of Education is specifically excluded from levy of GST through clause 3 of Schedule IV of Revised Model GST Law, there are some apprehensions that the services of Education provided by private players will not continue to be exempted in GST regime.
Disclaimer: This write up is based on the understanding and interpretation of author and the same is not intended to be a professional advice.
The author is a Chartered Accountant and can also be reached at email@example.com