More than half of the population of the nation is younger than 25 years of age. This is the group yearning for education the most and having most potential of creating jobs in various fields including robotics and artificial intelligence. This data makes education sector one of the most important sectors in the country, not to mention, largely contributes to the economy as well. Hence, impact of GST on the sector holds a lot more importance.
The GST council has confirmed the decision of leaving services provided by educational institutions to the students out for all the right reasons. Although, the same isn’t the case of the higher educational institutions. Higher educational institutions will have to pay GST when availing of a wide range of services. This subsidizes the objective of keeping education outside the GST arena.
Back in the day, educational service providers gave out services under ‘business auxiliary services’ and hence, did not attract tax. Later, the tax-exempted services were restricted to four.
Bipin Sapra, who is the indirect tax partner at EY India, explains: “The first step to distinguish between services provided to educational institutions v/s higher educational institutions, was taken in March, much before the GST bills were passed in the Parliament”. Transportation, housekeeping, catering, admissions and examination conduct in higher educational institutions were subjected to service tax.”Unfortunately, the GST Council, has continued with this. Given the importance of higher education, in a country like ours, there is an urgent need to revisit this,” says Sapra.
The procurement of services available at schools, i.e., from pre-school up to higher secondary school or its equivalent, is exempted from GST. Thus, the supply of services such as transportation, catering, housekeeping, services relating to admission and conduct of examination to higher educational institutions will have to bear the whirlwind of GST.
As the ‘output’ (service of providing education to students) is tax free, no input credit would be available. This partly defeats the objective with which educational services are exempted from GST.
To think thoroughly, the sprawling campus of higher educational institutions, especially if they have hostlers, are likely to incur heavy expenditure on some of the earlier mentioned items – such as security, housekeeping or catering, as compared to schools. For instance, maintenance of laptops provided to students, or maintenance of a swimming pool or basketball court.
With all of this stirring, there is an additional issue. “The impact of non-eligibility of input tax credit, is even more pinching due to the mandatory reverse charge mechanism if the goods or services are procured from unregistered dealers. Educational institutions typically obtain services from freelancers such as supervisors, research assistants, paper setters etc. Payments to such individuals would attract GST under reverse charge – it is the educational institution which would pay this tax and also comply with formalities of uploading documents on the GSTN portal,” explains Sunil Gabhawalla, chartered account and indirect tax specialist.
Not only does the implementation of GST on higher education makes a quick reflex at the higher education in the country among state’s students, it also affects the foreign correspondents coming to study in India.
Statistics drawn from the All India Survey on Higher Education conducted by the Ministry of Human Resource Development show that 45,424 students enrolled in India in 2015-16. While these students came from 165 countries, bulk of the students were from our neighbouring countries – Nepal (21%), followed by Afghanistan (10%) and Bhutan (6%). Compared with the outflow of students from India, overseas – largely to USA, this seems an insignificant figure. However, it denotes a rise of 31% as compared with numbers two years earlier.
Many institutes have tied up with foreign counterparts for various courses, such as Bennett University’s tie up with Georgia Tech or with Johnson Cornell. BML Munjal has a tie up with Imperial College London. SPJIMR partners with ESB Business School of Reutlingen University, Germany. These tie-ups are also in to feel the impact of the new tax-reform.
“Lower tax costs would enable the educational institutions, who as non-profits earn small margins, to upgrade their infrastructure and also reduce costs for students,” explains Sapra. The already built infrastructure of higher education in India is capable of attracting a lot of foreign participation in terms of studying, fellowship and tie-ups, along with being fully-able to cater to the requirements of the nation’s kids, but in order to turn this prospect into reality, it is necessary for the government to start thinking like a business partner.
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