GST on Education: A Detailed Guide for Educational Institutions
In 2017, India introduced the Goods and Services Tax (GST), an indirect tax system designed to simplify the taxation of goods and services. A single tax structure is created by combining several indirect taxes at the federal and state levels. The GST impacts the education sector, one of the major service industries. Before the GST, this industry was exempt from service tax; however, many services provided by educational institutions are now subject to the tax. This article examines how the GST affects education in India, including its rates, exemptions, classification problems, and the effects on the standard, cost, accessibility, and creativity of educational offerings. It assesses the contribution of GST to educational accessibility for marginalized groups, genders, and geographical areas. It also assesses how well GST rates match educational policies and offers suggestions for enhancements.
Table of content
Pre-GST Laws for Educational Institutions
Services that an educational institution provided to its faculty, staff, or students were exempt. (Mega Service Tax Exemption - 20 June 2012 Notification Number ST-25/2012) The exemption was later limited to specific services provided to educational institutions (those offering preschool education and education up to higher secondary school or equivalent) after the exemption was changed on April 1, 2014. These services included:
Staff, faculty, and student transportation
Catering, including any government-sponsored midday meal program; security services provided in such a school
Cleaning services provided in this type of educational setting
Housekeeping services offered in such educational establishments
Services associated with applying to or being examined by such an organization
Any additional services rendered to educational institutions beyond those listed above were subject to taxes. Additionally, all services rendered to organizations other than those that offered preschool, upper secondary, or comparable education were subject to taxes.
What is an Educational Institution Under GST
According to the GST, an "educational institution" is one that provides services by:
Education beginning in preschool and continuing through upper secondary school or its equivalent;
Education as a component of a program to earn a credential accepted by any currently enacted legislation;
Instruction as a component of a recognized course for vocational education;
Registration of Educational Institutions Under GST
If the educational institutions offer education as a service only, they are exempt from registration requirements and are subject to NIL fees.
Educational institutions require registration if they offer other services or supplies, such as books, shoes, uniforms, etc.
Educational Services and Their Taxability
A "taxable supply" is any supply of goods, services, or both subject to GST tax. The following services are exempt from GST taxation when rendered by educational institutions to their faculty, staff, and students.
Staff, faculty, and student transportation
Catering, including any program for midday meals by the Union territory, State governments, or the federal government These educational establishments provide housekeeping, cleaning, and security services.
Services associated with admission to or examinations administered by these institutions at the upper secondary level.
The GST does not apply to services rendered to educational institutions, but it does apply to services rendered by educational institutions. Only schools (from preschool to higher secondary school or its equivalent) are eligible for the GST exemption on purchases. Any service rendered to an organization that is not an educational institution (as previously defined) is, nevertheless, regarded as a taxable service. Private tutoring, coaching centres, and tuition do not fall under the legal definition of government-approved vocational education programs. They are subject to the 18% GST rate.
GST Rates for Educational Services
The following table shows an overview of GST rates levied on educational services. Before overviewing each of them in detail, let us get a quick view of the tax rates:
Service Type | Description | GST Rates | GST Exemption |
School education | Pre-school, primary, secondary schools | Exempt | Yes |
Higher education services | Colleges and universities | 18% | No |
E-learning | Exam Preparations, private tuitions | 18% | No |
Professional coaching | Skill development courses | 18% | No |
Vocational training | Online courses, digital education | 18% | No |
GST Rate on School Education
The majority of educational institutions are exempt from the GST rate. Non-profit organizations, government-run schools, and schools under local management are all exempt. Since education is an essential public service, these institutions are exempt from GST. But there are some exceptions. A private school run by a for-profit company might be liable to the 18% GST rate. Tuition and other educational services are subject to this GST. These schools can also deduct the GST they paid on their inputs by claiming the Input Tax Credit (ITC).
GST Rate on Higher Education
In India, higher education services are subject to an 18% GST rate. This holds for educational establishments such as colleges, universities, and professional programs. There are some exceptions, though:
Non-profit organizations: Government, municipal, and trust-run educational institutions are typically exempt from GST.
Programs that lead to accredited credentials: Programs that result in degrees or diplomas approved by government agencies such as the AICTE or UGC may be exempt.
Particular vocational courses: A few government-approved vocational courses might also be exempt.
It's important to remember that the exemption status can change based on requirements. Professional courses, coaching facilities, and private schools are typically subject to the 18% GST rate.
GST Rate on Educational Materials
Alongside their services, educational institutions frequently provide materials. These materials have different GST rates:
Stationery and essential textbooks: These products, which include notebooks, pens, pencils, and erasers, are eligible for a reduced GST rate of 5% to 12%.
Non-essential items: School uniforms, bags, and specific stationery may be subject to an additional 18% GST rate.
Printed materials: Items like question papers, answer sheets, and printed study guides, the GST rate normally falls between 12% and 18%.
It is important to remember that the classification and HSN code of educational materials determine their specific GST rate.
GST on Private Coaching Centres and Distance Education
Private educational institutions and coaching centres don't offer a set curriculum, administer tests, or grant degrees. Consequently, it is subject to the 18% GST rate.
Since distance learning is typically used for higher education, it is subject to the 18% GST rate.
For instance, M/s X Tutorials offers JEE/NEET exam preparation for students in classes 11 and 12 in subjects like math, physics, biology, and chemistry. When a student signs up for their Class 12 program and JEE/NEET coaching, the following charges are imposed:
Cost of tuition: Rs. 48,450
Books: 20,560 rupees
Rs. 5,000 is the maintenance fee.
Before taxes, the invoice's total value was Rs. 74,010.
Rs. 53,450 is the taxable value (Rs. 48,450 + Rs. 5,000).
CGST: 4,811 rupees
SGST: 4,811 rupees
Total amount of GST paid: Rs. 9,622
Rs. 83,632 is the total amount owed (Rs. 74,010 + Rs. 9,622).
Depending on their turnover and whether they choose to participate in the QRMP program, private tutors and coaching centres are required to file GST returns in GSTR-1 and GSTR-3B monthly or quarterly, just like any other taxpayer. They must file GSTR-4 once a year and pay taxes in CMP-08 if they have chosen to participate in the composition scheme for service providers.
GST Rate on Ancillary Services
GST applies to ancillary services schools, colleges, and universities offer, but the core educational services they provide are typically exempt or taxed at a reduced rate.
Transportation: Generally, services rendered to students and employees are subject to a 5% GST rate, with the possibility of an input tax credit (ITC).
Catering services: There is an 18% GST tax on services like midday meals given to students in educational institutions.
Services for rentals: The GST rate is 18% on rental income from immovable property, such as administrative buildings, dormitories, or classrooms.
GST Exemptions for Educational Institutions
If a charitable trust operates a school, college, or educational facility for abandoned, orphaned, or homeless children, physically or mentally abused individuals, prisoners, or people 65 years of age or older living in a rural area, the income from education is exempt from GST.
Since education is outside the purview of service supply, governments, local governments, and other governmental bodies that engage in this activity are exempt from GST. Government and municipal schools are two examples.
Education given by those below is also exempt from GST:
The Indian government established the National Skill Development
Corporation, which has authorized sector skill councils.
Assessment organizations authorized by the National Skill Development Corporation
The NSDC-approved national skill development initiatives National skill certification-approved vocational skill development program with a financial incentive system
Any program that NSDC runs in collaboration with training partners
Furthermore, the services provided by the IIM are exempt
Post Graduate Diploma in Management programs are two-year, full-time residential programs, with admission decided by the CAT exam.
Management fellowship programs
Programs in integrated management studies that last five years, except the Executive Development Program.
Impact of GST on the Education Industry
The education sector has been affected by the GST implementation in the following ways:
Education quality: Highly affordable private schools, vocational training facilities, and educational institutions have declined due to the GST's cost of ancillary services. Their capacity to invest in quality enhancements is thereby restricted. Increased tax income can be utilized to improve the quality of public education and vocational training programs.
Affordability of education: The GST levy on private coaching centres, vocational courses, and supplies like books and uniforms has increased the cost of education. Critics contend that this invalidates the Right to Education Act of India. Elementary, secondary, and undergraduate education is still exempt, though, which lessens the effect on school-level affordability.
Education accessibility: Students from lower socioeconomic backgrounds now have less access to professional and technical education due to the 18% GST on private coaching centres and higher education services. Critics claim that this could cause social divisions to grow. Increased tax income can help underprivileged populations gain better access if it is utilized to fortify public educational institutions. For these students, the impact of GST is mitigated by government funding for coaching.
Educational innovation: Most private educational institutions are exempt from GST, which reduces interference and frees up resources for pedagogical advancements. However, some private institutions alter their fee structures within the Rs 1 crore limit to avoid paying 18% GST because of classification ambiguities. It limits their capacity to use surplus funds for innovative educational initiatives.
GST impacts private institutions, particularly higher education, even though it increases tax revenue for public education funding. Strong education policies and appropriate classification free of exceptions and ambiguities are necessary to balance government revenue with accessibility, affordability, and quality enhancement.
GST Updates
The 49th GST Council meeting saw the introduction of a significant amendment that broadened the scope of educational institutions' GST exemption. Authorities, boards, or bodies established by the federal and state governments that administer entrance exams are no longer subject to GST. It includes companies administering competitive tests such as JEE and NEET. This exemption seeks to assist the education sector by lowering the tax burden on students taking these tests.
Conclusion
The GST has presented India's education sector with both opportunities and difficulties. Even though it streamlines tax procedures and increases revenue, taxing educational services is made more difficult. While exemptions help maintain access to essential education, GST may impact the quality and affordability of private institutions and ancillary services. Institutions must stay updated on GST regulations to manage these changes and fulfill their educational mission.
FAQ
Q1. What is the GST rate for online education?
The GST rate for online education services is 18%. Private online education providers typically charge 18% GST, while government-run platforms may offer some courses at different rates or without GST.
Q2. How much GST is on an educational grant?
Education grants given by governmental or nonprofit organizations expressly for educational purposes are typically exempt from GST.
Q3. Is GST charged on education loans?
The education loans are exempt from GST. Nonetheless, GST may be applied to the services that financial institutions provide in connection with processing these loans.
Q4. Is GST applicable on examination fees?
Generally speaking, if an examination fee is a component of the institution's core educational offerings, it is not subject to GST.
Q5. Are universities exempt from GST?
Universities operated by local governments, charitable trusts, or the government are exempt from GST on educational services. GST liability may apply to private universities depending on their revenue and services.
Q6. Which education services are exempt from GST?
GST does not apply to education services offered by government agencies, nonprofit organizations, and some approved programs, like those run by the National Skill Development Corporation (NSDC).
Q7. How is GST calculated on fees for hostel accommodation offered by educational institutions?
If the hostel accommodations are a component of the educational services, they are usually exempt from GST.
Q8. Is GST applicable to transportation services given by educational institutions?
With an input tax credit (ITC) available, educational institutions' transportation services are subject to 5% GST.
Q9. What is the GST rate on catering services offered by educational institutions?
Midday meals and other catering services offered by educational institutions are subject to 18% GST taxation without input tax credit (ITC).
Q10. Are books and stationery items sold by schools or colleges subject to GST?
While stationery items are subject to 5% to 12% GST, books are typically exempt from the tax.
Q11. Do PhD students need to pay GST on their fellowships or stipends?
No, stipends, PhD fellowships, and other types of funding for research are exempt from GST.
Q12. Is GST applicable on examination fees?
At its 49th meeting, the GST Council decided to allow any authority, board, or body established by the federal or state governments to administer entrance exams to benefit from the exemption granted to educational institutions and state and central educational boards. The National Testing Agency, which administers entrance exams for enrollment in institutions, is also included. As a result, examination fees are exempt from GST.
Q13. How much GST is on an educational grant?
Education grants given by the government or nonprofit organizations are free from GST.
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