GST ISSUES ON COACHING INSTITUTIONS

Dr. Sanjiv Agarwal

FCA, FCS

 

While 'education' continues to be of utmost importance for the country's economic growth, it also has been a priority for the government in extending tax benefits and other concessions to boost education (both primary and professional / technical) in the country.

 

The much thoughtful leaders of India have spared the education sector all alone from levy of taxes considering the importance of the same for the country. If a country wants to grow manifold than building infrastructure for education and educated infrastructure (people of the country) is a prerequisite.

 

Education / coaching / training is a primary activity imparting skill in a particular discipline and is a process of development of personality of body, mind and intellect. The scope of education is broad but training or coaching is in a particular field. All three are very important today without which nobody could achieve anything.

 

The compulsion of the Government to raise resources has spared none and in the current times , when "education" has opened up flood gates to bountiful riches and capturing seats of power , both at school as well as professional level . At this juncture, it must be mentioned that it is not "teaching" but "coaching" which has ensured rags to riches for many who in the guise of service have plundered the student community to accumulate riches far beyond they could have earned from their regular activity.

 

It is, however, important to bring out the taxation difference between education and coaching or training as what is not taxable is only ‘education' and ‘commercial coaching' shall be liable to Service Tax. For example, if a student is studying for graduate course in commerce (B.com) in a college and also simultaneously pursuing coaching for law entrance exam, while his B.com education shall be exempt from Service Tax, his law related coaching would attract Service Tax @ 14 per cent.

 

Not only this, coaching is placed in such a situation where its inflow and outflow both are under the negative list or exempt and it is only the coaching part of entire education which is subject to levy of Service Tax.

 

It may be necessary at this point to bring in the relevance of coaching in our education system. Why do we need coaching today ? What is the purpose it serves ? What if coaching is not available ? In fact coaching bridges the gap of quality between the input (student coming for coaching) and the output (quality /skills required for further technical or professional courses). No coaching would be required if the education system of the country takes care of the desired levels of quality of education at all stages of education/career of a student. Since it is not there, the gap is filled by the coaching institutes.

 

The importance of education has been considered in Service Tax law. Under the negative list following education services were exempt pursuant to section 66 (l) (d) which stipulates as under:

 

L. Services by way of-

(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;

 

Such educational services are exempt from the levy of Service Tax and are in Negative List which are related to delivery of education as ‘a part' of the curriculum that has been prescribed for obtaining a qualification prescribed by law. Conduct of degree courses by colleges, universities or institutions which lead to grant of qualifications recognized by law would be covered. Training given by private coaching institutes would, however, not be covered as such training does not lead to grant of a recognized qualification.

 

So, it is an irony that 'education' has been excluded from the scope of service whereas 'coaching' has been taxed. The Government need to understand that coaching only supplements the education and is an aid to complete the education. Coaching and education both go together and in the present system, one cannot think of education without coaching. Infact many schools and colleges also provide coaching to the students appreciating the fact that it cannot be done away with.

 

All parents want to provide the best educational opportunities for their children and coaching has become indispensable and irreplaceable to reinforce learning. More parents are becoming career-oriented and professional and they can't pay adequate attention to their children's education. Also, admittedly, many parents are not well-educated and knowledgeable enough in the academic field where their children need assistance. The benefits afforded by coaching institutions are enormous. Realistically it is already an integral part of a student education.

 

With the ever increasing emphasis of getting excellent exam results at all levels, it is a difficult task for students to assimilate and grasp all the lessons taught in schools and clear the entrance exams of various professional degrees  and achieve better results without attending coachings. Moreover, these are the best option for moderate and weaker students to get the much needed coaching and teaching to understand and grasp the knowledge in a much easier way. Even if a student is performing well , it is likely that some coachings will give him/her an edge over their peers.

 

As such, treating coaching and education at a different platform is not desirable.  Moreover, both involve commerce as neither coaching nor education are for free.

 

The erstwhile definition of commercial coaching in section 65(27) of the Finance Act, 1994 also confirms this as it defined 'commercial coaching institute'  to mean any institute or establishment providing commercial training or  coaching for imparting skill or knowledge, or lessons as any subject or fields other than sports, with or without issuance of a certificate ....

 

Today coaching is a major feeding industry to the main stream education sector and given this fact, it is more than justified that it be considered at par with education and spared from all types of taxation by way of exemptions, concessions and inclusion in negative list for the purpose of Service Tax.

 

This argument becomes important at this juncture when India is embarking into an era of largest ever indirect tax reforms in the country with the introduction of Goods and Service Tax (GST) in near future. The other arguments could be many some of which, inter alia are discussed here, besides the main aspect of considering coaching at par with education itself.

 

  • The subject of coaching, i.e., students to whom coaching is imparted come from an exempt environ (pre-school / school education) and post imparting of coaching, again enter the education field which is excluded from the scope of Service Tax. Why to tax only this part of education system ? Rather, steps should be taken to improve quality of education so much so that coaching and education are intervened and no separate coaching is required.

 

  • Most of the goods and services which are consumed by coaching providers are not considered as inputs or input services and as such are not eligible for input tax credit which is an example of distortion in the tax system itself.

 

  • For example, no credit is allowed of construction and works contract as in the definition of input services as defined in 2(l) of CENVAT Credit Rules, 2004, specific exclusion is there in definition of input services which states :

 

"but excludes :

(A)      service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for -

 

a)   construction or execution of works contract of a building or a civil structure or a part thereof; or

 

b)   laying of foundation or making of structures for support of capital goods, except for the provision of one or more   of the specified services; or

 

(B)   services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods "

 

  • In absence of significant amount of tax credit not being allowed, it adds to the cost of providing coaching (educations) which again is not desirable.

 

  • Coaching section also suffers from high completion leading to increased costs in terms of advertisements, fee concessions and discount etc which are not allowed as credits or are disputed (without any sustainable grounds) leading to tax disputes / litigation. This also ought to be sorted out and settled.

 

  • Today (w.e.f. 1.6.2015), rate of Service Tax is 14% (prior to 1.6.2015, it was 12.36% including education cesses). This itself is considered to be a very high rate of taxation / an indirect tax) which adds to the total cost to be paid by / recovered from the students.

 

  • In GST regime, talked about likely rates of taxation is in the range of 16-27 percent with suggested revenue neutral rage (RNR) of 27 percent. If such high rates of GST are introduced, it is going to be a blow to the coaching / education sector which will have far reaching impact on the quality of education, duly reflected in economic growth and quality of people, over a period.

 

  • Education / coaching is a pure service industry where seamless cenvat credit is not allowed across the supply chain. In such a case, taxing coaching in GST regime is not desirable.

 

In fact, migrating to GST is a time to revinict the taxation and remove the anomalies. Almost 4% of the GDP is spent for educating India's hidden talent out of which 50% of the amount spent is for primary education.

 

Undeniably, coaching institutions play an important role in fulfilling the objectives of various students as well as parents, thus should be zero-rated and be exempted from Goods and Services Tax to lessen the financial burden on parents as well as students. Coaching institutes are only an instrument to impart coaching or training. Doing so will not only help improve the quality of education, students and life but also facilitate India to leap frog in the trajectory of top economic powers of the world as India is poised to be so by 2030, given its demographic strength.

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