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Notification No. 12/2017-Central Tax (Rate)

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Know all about applicability of GST on Educational Services

Know all about applicability of GST on Educational Services

Introduction

GST is an indirect tax levied on all goods and services in India. With the Government aiming to provide education to every child, essential educational services have been kept out of the ambit of GST. The GST Act tries to maintain a fine balance whereby core educational services provided and received by educational institutions are exempt. However, certain educational courses and training programmes attract GST and are taxed at the standard rate of 18%.  Hence, the applicability of GST would depend on the type of course and its provider.

How is ‘education’ defined under GST?

The CGST Act does not expressly define the term education. However, as per Sole Trustee Loka Shikshana Turst vs Commissioner Of Income Tax (28 August, 1975) what education is the process of training and developing the knowledge, skill, mind and character of students by formal schooling.

How are education services classified under GST?

According to Notification No. 11/2017-Central Tax (Rate), education servicesare classified under Heading 9992.

What education services are exempt under GST?

According to Notification No. 12/2017-Central Tax (Rate), thebelow mentioned educational services are exempt under GST.

1.Services provided –

a. by an educational institution to its students, faculty and staff

b. to an educational institution, by way of,

i. transportation of students, faculty and staff

ii. catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory

iii. security or cleaning or housekeeping services performed in such educational institution

iv. services relating to admission to, or conduct of examination by, such institution; upto higher secondary

Provided that nothing contained in entry (b) 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

2. Services provided by the Indian Institutes of Management, as per the guidelines of the Central Government, to their students, by way of the following educational programmes, except Executive Development Programme

a. two year full time Post Graduate Programmes in Management for the Post Graduate Diploma in Management, to which admissions are made on the basis of Common Admission Test (CAT) conducted by the Indian Institute of Management

b. fellow programme in Management

c. five year integrated programme in Management

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What do you mean by an educational institution?

Educational institution means an institution providing services by way of

  1. pre-school education and education up to higher secondary school or equivalent
  2. education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force
  3. education as a part of an approved vocational education course

What do you mean by an approved vocational education course?

Are 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 exempt under GST?

No, in order to be exempt under GST a course should be recognized by an Indian law.

Are education services provided by private coaching institutes for obtaining a qualification recognised by any law exempt under GST?

Only those institutions, whose operations conform the definition of the term “Educational Institution”, would be treated as entitled to avail exemption under GST. Therefore, private coaching centres or other unrecognized institutions, though self-styled as educational institutions, would not be treated as educational institutions under GST and thus cannot avail exemptions available to an educational institution.

Are education services provided by educational institutions for Lower Secondary level exempt under GST?

Educational institutions up to Higher Secondary School are not liable to pay GST on output services. Therefore, education services provided by educational institutions for Lower Secondary level are exempt under GST.

Are hostel lodging services provided by educational institutions which are providing higher secondary education, exempt under GST?

Output services of lodging/boarding in hostels provided by such educational institutions which are providing:-

  1. pre-school education
  2. education up to higher secondary school or equivalent
  3. education leading to a qualification recognised by law

are fully exempt from GST.

Annual subscription/fees charged as lodging/ boarding charges by such educational institutions from its students for hostel accommodation shall not attract GST.

IIM Bangalore provides certain Executive Development Programs. Are these services exempt under GST?

Output services related to the specified courses provided by IIM’s would be exempt. Executive Development Programs run by the IIM’s are specifically excluded, hence such courses would be subject to GST.

Are placement services provided for securing job placements by colleges liable to GST?

  1. The supply of placement services provided to educational institutions for securing job placements for the students shall be liable to GST.
  2. 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 in relation to campus recruitments. Such services shall also be liable to GST.

Can a person who is providing exempt education services avail the benefit of Input Tax Credit (ITC)?

Regarding input services, it is to be noted that where output services are exempted, the Educational institutions may not be able to avail credit of input tax paid.

Who is liable to pay GST for educational services?

Education Services are liable to GST under forward charge. Therefore, GST shall be paid by the supplier of services.

What will be the Place of Supply of Educational Services?

Place of Supply can be determined in two situations:-

Where the location of supplier of services and the location of the recipient of services is in India

As per section 12(6) of the IGST Act, 2017, the place of supply of services provided by way of admission to an educational event or any other place and services ancillary thereto, shall be the place where the event is actually held or such other place is located. Thus, in general, the place of supply of education services by Indian institutions would be the place where the education institution is located.

As per section 12(7) of the IGST Act, 2017, the place of supply of services provided by way of:

a. organisation of an educational event including supply of services in relation to a conference, fair, exhibition, celebration or similar events; or

b. services ancillary to organisation of any educational events or services, or assigning of sponsorship to such events: –

i. To a registered person, shall be the location of such person

ii. To a person other than a registered person, shall be the place where the event is actually held and if the event is held outside India, the place of supply shall be the location of the recipient.

Where the location of the supplier of services or the location of the recipient of services is outside India

As per section 13(5) of the IGST Act, 2017, the place of supply of services supplied by way of admission to, or organisation of an educational and of services ancillary to such admission or organisation, shall be the place where the event is actually held.

What exemption will be available if an educational institution is run by a charitable organization?

Apart from the general exemption available to all educational institutions, charitable activities of entities registered under Section 12AA of the Income Tax Act is also exempt.

Therefore, if trusts are running schools, colleges or any other educational institutions or performing activities related to advancement of educational programmes specifically for abandoned, orphans, homeless children, physically or mentally abused persons, prisoners or persons over age of 65 years residing in a rural area, then these activities will be considered as charitable.

Income from such services will be wholly exempt from GST as per Notification No.12/2017- Central Tax (Rate).

Are services of lodging and providing food facilities by boarding schools exempt under GST?

  1. Boarding schools provide service of education coupled with other services like providing dwelling units for residence and food.
  2. Such services in the case of boarding schools are naturally bundled and supplied in the ordinary course of business (if the charges for education and lodging and boarding are inseparable).
  3. In this case since the predominant nature is determined by the service of education, the other service of providing residential dwelling will not be considered for the purpose of determining the tax liability and in this case the entire consideration for the supply will be exempt.

Are lodging services provided by a college which provides dual qualification out of which only one of which is recognized by law, taxable under GST?

  1. 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.
  2. 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 it shall be treated as a mixed supply. The taxability will be determined by the supply which attracts highest rate of GST.

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Interest on PPF, Savings, Loans to be included for calculating GST Registration threshold: AAR

Interest on PPF, Savings, Loans to be included for calculating GST registration threshold: AAR

The value of exempted income, like interest on PPF, savings bank account and loans given to family/friends, will be included along with taxable supplies while calculating the threshold limit for obtaining GST registration

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Introduction

GST is a tax leviable on the event of “supply”.According to Section 7 of the CGST Act, 2017 the expression “supply” includes

  1. all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business
  2. import of services for a consideration whether or not in the course or furtherance of business
  3. activities specified in Schedule I, made or agreed to be made without a consideration
  4. Activities to be treated as supply of goods or supply of services as referred to in Schedule II.

Under GST law, every supplier is required to get registered. However, the below mentioned small businesses have been provided relief of mandatory registration under GST law:-

In case of exclusive supply of goods, businesses having all India aggregate turnover below:-

  1. Rs 40 lakhs (for other than notified special category states)
  2. Rs 20 lakh (for Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura and Uttarakhand)

In case of supply of services or in case of mixed supplies

  1. Rs 20 lakhs (for other than notified special category states)
  2. Rs 10 lakh (for Manipur, Mizoram, Nagaland and Tripura)

The GST Council in its 32nd meeting gave an option to the hilly and north eastern states to choose either Rs. 20 lakhs or Rs. 40 lakhs as the turnover limit for GST exemption in case of supplier of goods.

What do you mean by aggregate turnover?

From reading the registration criteria, it is clear that computing nationwide aggregate turnover is essential in order to determine whether a person is required to get mandatory registration under GST.

Section 2(6) of the Central Goods & Services Tax Act, 2017 defines the term “aggregate turnover”.

‘Aggregate turnover’ means the aggregate value of all:-

  1. taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis)
  2. exempt supplies
  3. exports of goods, services or both
  4. inter-state supplies of persons having the same Permanent Account Number

Aggregate turnover is to be computed on an all-India basis. It excludes Central tax, State tax, Union territory tax, Integrated tax and cess.

Is exempted income, like interest on PPF, savings bank account and loans given to family/friends, to be included in aggregate turnover while calculating the threshold limit for obtaining GST registration?

The Gujarat Authority for Advance Ruling (AAR) recently passed a ruling for Shree Sawai Manoharlal Rathi on a similar situation, where the applicant had not engaged in any business and his only income was exempt under GST.

Facts of the Case

  1. The applicant is an individual having not engaged in any business.
  2. His receipts are only from savings, personal loans and advances and deposits, which are reflected in the Income Tax Returns.
  3. The applicant submitted that his estimated receipts for the F.Y. 2018-19 is likely to be totally Rs.20,12,000, which includes:

i. Rent receipts = Rs.9,84,000

ii. Bank interest = Rs.3,000

iii. Interest on PPF deposit = Rs.2,76,000

iv. Interest on Personal Loans and Advances = Rs.7,49,000

Issue Raised:

In this case, the point is to be decided as to whether interest received on deposit in Public Provident Fund (PPF), Personal Loans & Advances to family/friends and deposit in Saving Bank Accounts, would be considered for the purpose of calculating the threshold limit of Rs. 20 Lakh for registration under GST Law?

AAR Proceedings

1.“Aggregate Turnover” is relevant to a person to determine the threshold limit to obtain registration under the Act (supply of Services or goods and services both): Rs.20 Lakh (Rs.10 Lakh in case of supplies effected from special category states).

2. We find that the “aggregate turnover” is an all-encompassing term covering all the supplies effected by a person having the same PAN.

3. “Exempt supply” is defined under Section 2(47) of the CGST Act, 2017 as supply of any goods or services or both which attracts nil rated of tax or which may be wholly exempt under section 11, or under section 6 of the IGST Act, and includes Non- Taxable supply.

4. “Nil rated supply” is nowhere defined in GST Law. However, the basic difference between nil rated and exempt supply is that the tariff is higher than 0% in case of exempt supply. But there is no tax payable due to exemption notification. Whereas in case of NIL rated supply, the tariff is at NIL rate so there is no tax without the exemption notification.

5. Thus, the different kinds of supplies covered under the “aggregate turnover” are:

i. Taxable Supplies;

ii. Supplies that have a NIL rate of tax

iii. Supplies that are wholly exempted from SGST, UTGST, IGST or Cess

iv. Supplies that are not taxable under the Act

v. Export of goods or services or both, including zero-rated supplies.

6. We further find that under GST, Supply is considered a taxable event for charging tax. The liability to pay tax arises at the ‘time of supply of goods or services’. Thus, determining whether or not a transaction falls under the meaning of supply, is important to decide GST’s applicability.

7. Supply includes sale, transfer, exchange, barter, license, rental, lease and disposal. If a person undertakes either of these transactions during the course or furtherance of business for consideration, it will be covered under the meaning of Supply under GST. Supply has two important elements:

i. Supply is done for a consideration

ii. Supply is done in course of furtherance of business.

8. Notification No. 12/2017-Central Tax (Rate) and Notification No.9/2017-Integrated Tax (Rate), provides a list of services exempted from payment of Central Tax on intra-State supply and Integrated Tax on Inter-State supply.

9. Entry 27(a) of Notification No. 12/2017 and Entry 28(a) of the Notification No. 9/2017 relates to services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest.

10. The services regarding interest income are covered under the above Notification. Therefore, such services are exempted from payment of GST and the individual is not required to discharge GST on the activity of providing services by way of extending deposits, loans or advances where the consideration is represented by way of interest. Therefore, in given case GST is not leviable on Interest Income earned by the Applicant.

11. From the above, it is revealed that the applicant is an individual with an annual turnover of more than Rs 20 Lakh.

12. Since this income is interest-related, the turnover is exempt from GST.

13. However, the Applicant also supplies services of “Renting of immovable property” along with activity of providing services by way of extending deposits, loans or advances where the consideration is represented by way of interest.

14. His turnover from the rent income is Rs.9.84 Lakh and this transaction (Renting of immovable property) is chargeable to GST. However, his taxable turnover is only Rs.9.84 Lakh. Going by the definition of “aggregate turnover”, the Applicant is required to consider the value of both the taxable supply i.e. “Renting of immovable property” and exempted supply of service provided by way of extending deposits, loans or advances for which they earned interest income, to arrive at “Aggregate Turnover” to determine the threshold limit for the purpose of obtaining registration under the GST Act.

The AAR thus concluded that, the Applicant is required to aggregate the value of exempted interest income earned by way of extending deposits in PPF & Bank Saving accounts and loans and advances given to his family/friends along with the value of the taxable supply i.e. “Renting of immovable property” for the purpose of calculating the threshold limit of Rs.20 Lakh for obtaining registration under GST law.

Ruling may lead to homemakers, retired persons and freelancers may have to taking GST registration

Let us refer to the example given below to understand this better:-

SupplierStateNature of Taxable SupplyTaxable SuppliesExempt Income (interest , etc)LimitIs registration mandatory
AMaharashtraExclusive supply of goods35 lakhs6 lakh40 lakhsYes
BArunachal PradeshExclusive supply of goods15 lakhs8 lakhs20 lakhsYes
CTripuraSupply of servicesNil11 lakhs10 lakhsYes
DGujaratExclusive supply of goods20 lakhs1 lakh40 lakhsNo
EManipurSupply of services5 lakh3 lakhs10 lakhsNo
FKarnatakaMixed Supply15 lakhs7 lakhs20 lakhsYes

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