No more mistakes in understanding Taxation of Educational Institutions

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GST on Educational InstitutionsThe tax on the income of educational institutions often remains the most controversial topic. The nature of educational institutions such as top educational institutions providing modern and equipped learning aids, offering air-conditioned buses and classrooms, and maintaining the highest standard of hygiene is involved in activities that are charitable or commercial. Connect and talk with our professionals to know more about the taxation regime followed for the Taxation of Educational Institutions. We ensure efficient tax planning, registration, application procedure, and assistance at every stage through devoted professionals. So let us have a look at the Taxation of Educational Institutions.

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Pre-GST laws laid down for educational institutions

Services provided by an educational institution to its students, teachers, or employees were exempt from tax. (Mega exemption – notification number ST-25/2012 of 20 June 2012)

Later, with effect from 1 April 2014, the exemption to services provided to educational institutions was amended and the scope of the exemption for services provided to educational institutions (institutions providing pre-school education and education up to upper secondary school or similar facilities) was limited to some specific services viz

  • Transportation of students, teachers, and employees
  • Meals, including any government-sponsored midday meal program;
  • Security services performed in such an educational facility
  • Cleaning services performed in such an educational facility
  • Cleaning services are provided at this educational institution
  • Services relating to admission to such institution or the conduct of examinations by such institution

Any other service provided to educational institutions other than those mentioned above (pre-primary education and higher secondary education institution or equivalent) was taxable Also, any service provided to an institution other than pre-primary education and higher secondary education institution or equivalent was taxable.

What is an educational institution under GST?

Under GST, an “educational institution” is defined as an institution providing services through:

  • Pre-school education and education up to upper secondary school or equivalent;
  • Education as part of a curriculum to obtain a qualification recognized by law currently in force;
  • An approved vocational training course.

Applying income tax to an educational institution

All educational institutions that claim to be exempted from section 10(23C) would be required to file an income tax return in cases where their income exceeds the maximum amount that is not chargeable to income tax. Earlier, under the Income Tax Act, any receipts of Indian or foreign institutions incorporated only for educational purposes and not for other purposes such as profit generation were exempted. Currently, institutions whose annual income exceeds one million crowns must submit a declaration.
According to Section 10(23C)-

Government Educational Institution

Income generated by any educational institute or any university solely for education and not for profit and which is largely or wholly funded by the Government is fully exempt from income tax under Article 10(23C)(iiiab). So it is clear that an educational institution is fully exempt from income tax until and unless it is for profit.

Non-Government Educational Institution

The exemption for a private or non-governmental institution will depend solely on the annual income of the educational institution or university.

Should educational institutions be registered under GST?

If an educational institution provides only education as a service, such fees are charged at the rate of NIL and such educational institutions need not be registered.

If educational institutions also provide other necessities or other services, i.e. they provide students with books, shoes or uniforms, etc., in such cases, these institutions are required to register.

Are books or stationery distributed to students subject to GST?

The supply of books is exempt from GST. However, uniforms, stationery, and other non-academic supplies are taxable under GST. Supplies provided by third parties such as musical instruments, computers, sports equipment, and extracurricular activities offered directly by third parties are also taxable.

Levy of GST on Private Coaching Centers and Distance Education

Private institutions and coaching centers do not have any specific curriculum and do not conduct any examinations or award any qualifications. Taxable at 18% GST.

Distance learning is generally accepted for higher education and is therefore taxable at a GST rate of 18%.

Applicability of GST in Higher Educational Institutes

Services provided to higher education institutions are subject to tax. While services provided by an educational institution are outside the purview of GST, the same is not the case with services provided to an educational institution. GST exemption for public procurement is available only to schools (pre-primary to senior secondary or equivalent).

Therefore, ‘entry’ or provision of services such as transport, catering, housekeeping, and services related to admission or examination for higher education institutions will be subject to GST. The college will have to bear that.

Applicability of GST on training programs, camps, yoga programs, and other events

Training programs, camps, yoga programs, and other events would be considered commercial activities subject to GST.

ITR Filing for Society & TrustFinal words

All the main provisions relating to income tax of educational institutions are summarized in section 10 (23C) clause (vi) of the Act. However, it should be noted that all educational institutions or any foreign university not located in India are eligible for exemption under Section 10(23) (vi) of the Act. All universities and educational institutions must decide on their functioning according to the above discussion to fall within the purview of Section 10(23C) (vi) of the Act.

We hope that we have successfully delivered the taxation regime of Educational Institutions. For further guidance and information, you can reach out to our steadfast team which ensures hassle-free assistance through expert guidance. Rely on us for end-to-end support.

CA Pulkit Goyal, is a fellow member of the Institute of Chartered Accountants of India (ICAI) having 10 years of experience in the profession of Chartered Accountancy and thorough understanding of the corporate as well as non-corporate entities taxation system. His core area of practice is foreign company taxation which has given him an edge in analytical thinking & executing assignments with a unique perspective. He has worked as a consultant with professionally managed corporates. He has experience of writing in different areas and keep at pace with the latest changes and analyze the different implications of various provisions of the act.

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