12.04.2022: GST on Education Sector – A Case Study

GST on Education Sector – A Case Study

Taxing the Education Sector has always been a sensitive issue, as education is seen more as a social activity than a business one. The government has a constitutional obligation to provide free and compulsory elementary education to every child. Thus, to promote education, it would be beneficial if educational services are exempted from tax. However, commercialization of education is also a reality. The distinction between core and ancillary education is blurring and education is now an organized industry with huge revenues. 

Let us understand the same with a detailed Case Study.

Case Study

Vidya Ltd is engage in education services in Gurgaon, has three verticals of business, namely, School affiliated from CBSE, Online coaching classes and Pre-School operating on three floors in same building for which rent is paid Rs. 30,00,000 per month.

Following data and information is related for the month of November 2019

Particulars Online Coaching Classes CBSE School Pre School
HO Gurgaon Mumbai Chennai Gurgaon Gurgaon
Collection of Fees 28,00,000 35,00,000 21,00,000 25,00,000 22,00,000
Library Fees 90,000 15,000 10,000
Transport Fee 150,000 89,000 90,000 2,80,000 2,00,000
Judo & Music fee (after school hours) 5,00,000
Rent Received from sub-letting of rooms & halls 52,000 10,000 71,000 1,25,000
Annual Fee

(Proportion of total fee)

10,00,000
Boarding Fee 12,00,000
Canteen Receipts (own canteen) 30,000 7,000 15,000 2,00,000
Fee from prospective employers for campus interview 25,000 18,000 15,000
Sponsorship Receipts 50,000 70,000 20,000
Total Receipts 31,97,000 36,39,000 23,01,000 58,75,000 24,20,000
Salary to teachers 7,50,000 18,00,000 4,00,000
Salary to admin staff & others 2,00,000 3,00,000 2,50,000
Fee to faculties 40,00,000
Rent for Gurgaon building 30,00,000
Rent 50,000 40,000
Printing of Study material 750,000 2,00,000 3,50,000
Transportation Charges 75,000 1,00,000 70,000
Security Charges to outside agency 70,000
Electricity Expenses 15,000 12,000 15,000 40,000 32,000
Total Expenses 87,90,000 62,000 55,000 25,10,000 11,02,000

Questions:

  1. Discuss the applicability of GST provisions for above business.
  2. Is GST recoverable on transport charges recovered from students and staff?
  3. Vidya Ltd. is seeking to outsource its canteen facility to third party vendor rather than running itself. What is the GST implication in that scenario?
  4. What will be the consequences in case all fee is already received, and company cannot recover GST from its students?
  5. Is GST leviable on Judo and Music fee charged by the school as it is not covered in academics?
  6. Also clarify GST implication on boarding fee charged by school.
  7. During this month, Company has purchased two buses from TATA, one is exclusively used for CBSE school and Pre-school and another is used for coaching classes costing Rs. 18,00,000 each.
  8. In case of online classes from Gurgaon, all procurements and services of faculties received in Gurgaon only and no other major expenses borne in Mumbai and Chennai. If, in case, GST is applicable on online classes, can company distribute the credit of procurements made at Gurgaon to Mumbai and Chennai.
  9. Company organized annual function for which sponsorship fee received in following manner, half of the fee received from Ayush Ltd. and half from Sangeet Vidyalaya (sole proprietorship). What are the GST implications on fee received?
  10. Owner of Gurgaon building asking advice whether he will charge GST on rent?
  11. Is company liable to charge GST on rent for sub-letting the hall and rooms?
  12. Vidya Ltd. planning to offer Modular Employable Skill Course for 12th class students and for graduates. Is GST chargeable on that course also.
  13. Company is planning to recruit people for security services rather than outsourcing as given in above information. You are advised to GST consequences.
  14. One of the folk-dance artists wants to perform in school for which she will charge Rs. 1,21,000. Is GST applicable on this amount?

Solutions

1.Discuss the applicability of GST provisions for above business.

Solution: As per clause (a) Entry No. 66 of exemption Notification No. 12/2017 dated 28.06.2017, Services provided by an educational institution to its students, faculty and staff is exempt from GST.

As per the definition given at the end of notification, clause (y), “educational institution” means an institution providing 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 recognised by any law for the time being in force;

(iii)  education as a part of an approved vocational education course;

Hence, as per above entry, only online coaching classes are leviable to GST and services provided by school affiliated to CBSE and Pre-School are exempt from GST.

2. Is GST recoverable on transport charges recovered from students and staff?

Solution: As per clause (a) Entry No. 66 of exemption Notification No. 12/2017 dated 28.06.2017, any service provided by educational institution is exempt from GST. Hence, transportation charges recovered from students studying in CBSE school and Pre-school is exempt from GST.

Whereas, Vidya Ltd. is require to charge GST on transportation charges recovered from students taking classes online.

3. Vidya Ltd. is seeking to outsource its canteen facility to third party vendor rather than running itself. What is the GST implication in that scenario?

Solution: As per clause (b) Entry No. 66 of exemption Notification No. 12/2017 dated 28.06.2017, Services provided to an educational institution, by way of,-

  1. transportation of students, faculty and staff;
  2. catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory;
  3. security or cleaning or house-keeping services performed in such educational institution;
  4. services relating to admission to, or conduct of examination by, such institution; upto higher secondary:
  5. supply of online educational journals or periodicals

Provided that nothing contained in entry (b) of sub-items (i), (ii), (iii) 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.

Hence, as per item (iii) of above entry, catering services received by an educational institution is exempt from GST if it is received by CBSE school and Pre-school.

It is to be noted here that, canteen services provided in online coaching classes is GST leviable in both cases whether it is outsourced or in house.

4. What will be the consequences in case all fee is already received, and company cannot recover GST from its students?

Solution: As per solution 1, fee collected from students of CBSE school and Pre-school is exempt from GST. Further, GST is leviable in case of fee collected from students in case of online coaching classes. Furthermore, as per rule 35 of CGST rules,[

‘Where the value of supply is inclusive of integrated tax or, as the case may be, central tax, State tax, Union territory tax, the tax amount shall be determined in the following manner, namely, –

Tax amount = (Value inclusive of taxes X tax rate in % of IGST or, as the case may be, CGST, SGST or UTGST) ÷ (100+ sum of tax rates, as applicable, in %)’

5.Is GST leviable on Judo and Music fee charged by the school as it is not covered in academics?

Solution: As per Section 2(30), “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;

In the given case study, Judo and music activities are naturally bundled with principal supply of education services, supply of these activities is composite supply.

Further, as per Section 8(a), a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply

Hence, GST is not leviable on fee charged for Judo and Music activities conducted by school.

6. Also clarify GST implication on boarding fee charged by school.

Solution: As per Para 5(a) of Schedule II of CGST Act, 2017, renting of immovable property shall be treated as supply of services and leviable to GST.

But taking the premise of solution 5, supra, renting of immovable property (boarding fee here) is naturally bundled with principal supply of education services. 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 hence, entire consideration for the supply will be exempt from GST

7. During this month, Company has purchased two buses from TATA, one is exclusively used for CBSE school and Pre-school and another is used for coaching classes costing Rs. 18,00,000 each.

Solution: As discussed in solution 1, supra, only online coaching classes are GST leviable.

Further, as per Section 17(2) of CGST Act, 2017, where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the IGST Act, and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

Henceforth, credit is available only for GST paid on bus purchased for online coaching classes.

8. In case of online classes from Gurgaon, all procurements and services of faculties received in Gurgaon only and no other major expenses borne in Mumbai and Chennai. If, in case, GST is applicable on online classes, can company distribute the credit of procurements made at Gurgaon to Mumbai and Chennai.

Solution: As per Section 16(1) of CGST Act, 2017, Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of ‘input tax’ charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

As the online coaching classes are taxable service, Vidya Ltd. will get credit of GST paid on all procurements made for providing such service except on those goods and service or both which are not allowed as per Section 17(5).

As per Section 2(61), “Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office.

Referring, the above definition, Gurgaon office can distribute the credit of GST paid to it’s offices in Mumbai and Chennai.

Further, as per Proviso of rule 8(1) of CGST Rules, 2017 ‘every person being an Input Service Distributor shall make a separate application for registration as such Input Service Distributor.

 Section 20(2)(d), specifies the manner of distribution of credit among branches as follows,

‘the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period’

Further, as per Rule 39 of CGST Rules,2017, ‘Procedure for distribution of input tax credit by Input Service Distributor’,

Clause (d) provides the input tax credit that is required to be distributed in accordance with the provisions of clause (d) and (e) of sub-section (2) of section 20 to one of the recipients ‘R1’, whether registered or not, from amongst the total of all the recipients to whom input tax credit is attributable, including the recipient(s) who are engaged in making exempt supply, or are otherwise not registered for any reason, shall be the amount, ―C1‖, to be calculated by applying the following formula

C1 = (t1÷T) × C

where,

“C” is the amount of credit to be distributed,

“t1” is the turnover, as referred to in section 20, of person R1 during the relevant period, and

“T” is the aggregate of the turnover, during the relevant period, of all recipients to whom the input service is attributable in accordance with the provisions of section 20;

Clause (e) provides that the input tax credit on account of integrated tax shall be distributed as input tax credit of integrated tax to every recipient

Clause (f) provides the input tax credit on account of central tax and State tax or Union territory tax shall-

  1. in respect of a recipient located in the same State or Union territory in which the Input Service Distributor is located, be distributed as input tax credit of central tax and State tax or Union territory tax respectively
  2. in respect of a recipient located in a State or Union territory other than that of the Input Service Distributor, be distributed as integrated tax and the amount to be so distributed shall be equal to the aggregate of the amount of input tax credit of central tax and State tax or Union territory tax that qualifies for distribution to such recipient in accordance with clause (d) Clause (g) provides the Input Service Distributor shall issue an Input Service Distributor invoice, as prescribed in sub-rule (1) of rule 54, clearly indicating in such invoice that it is issued only for distribution of input tax credit;

Hence, Vidya Ltd. can distribute its GST credit among its branches.

9. Company organized annual function for which sponsorship fee received in following manner, half of the fee received from Ayush Ltd. and half from Sangeet Vidyalaya (sole proprietorship). What are the GST implications on fee received?

Solution: As per Section 9(3), The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

In this regard, Government has issued Notification No. 13/2017 dated 28.06.2017, which provides, inter alia, where Services provided by way of sponsorship to any body corporate or partnership firm then such Body Corporate or Partnership Firm located in the taxable territory is liable to pay

Hence, in instant case, GST on fee received for sponsorship is payable by Ayush Ltd. but where it is received from Sangeet Vidyalaya (sole proprietorship) then Vidya Ltd. is required to charge GST.

10. Owner of Gurgaon building asking advice whether he will charge GST on rent?

Solution: As per Para 5(a) of Schedule II of CGST Act, 2017, renting of immovable property shall be treated as supply of services and leviable to GST.

Further, as per clause (b) of Entry No. 66 of 12/2017 dated 28.06.2017, Service provided to an educational institution, by way of,-

  1. transportation of students, faculty and staff;
  2. catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory;
  3. security or cleaning or house-keeping services performed in such educational institution;
  4. services relating to admission to, or conduct of examination by, such institution; upto higher secondary:
  5. supply of online educational journals or periodicals are exempt from GST

Hence, only above-mentioned services provided to an educational institution are exempt from GST. Owner is required to charge GST on whole amount of rent.

11. Is company liable to charge GST on rent for sub-letting the hall and rooms?

Solution: As per Entry No. 66 of 12/2017 dated 28.06.2017, Service provided

  1. by an educational institution to its students, faculty and staff;
  2. by an educational institution by way of conduct of entrance examination against consideration in the form of entrance fee are exempt from GST

Hence, if sub-letting of hall and rooms by CBSE shool is for purpose other than clause (b) above then Vidya Ltd. is require to charge GST.

In case of online coaching classes, GST is required to be charge irrespective of its use.

12. Vidya Ltd. planning to offer Modular Employable Skill Course for 12th class students and for graduates. Is GST chargeable on that course also.

Solution: As per solution 1, supra, “educational institution” means an institution providing services by way of, inter alia, education as a part of an approved vocational education course.

As per clause (h) of definition of same notification, approved vocational education course” means, –

  1. a course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training or State Council for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961
  2. a Modular Employable Skill Course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Training, Ministry of Skill Development and Entrepreneurship

Hence, as per above definition, if such modular program as propose by company get approval from the National Council of Vocational Training, Ministry of Skill Development and Entrepreneurship then no GST is leviable on course.

13. Company is planning to recruit people for security services rather than outsourcing as given in above information. You are advised to GST consequences.

Solution: As per Para 1 of Schedule III of CGST Act, 2017, Services by an employee to the employer in the course of or in relation to his employment

Hence, if company is planning to recruit people for security services then will be no GST liability.

Further, it to be noted here that in reference of this question, that GST is not leviable on such services where these services are taken for CBSE school and Pre-School as per Entry 66 of N.No. 12/2017.

14. One of the folk-dance artists wants to perform in school for which she will charge Rs. 1,21,000. Is GST applicable on this amount?

Solution: As per Entry No. 78 of Exemption Notification No. 12/2017 dated 28.06.2017,  Services by an artist by way of a performance in folk or classical art forms of-

(a) music, or

(b) dance, or

(c) theatre,

if the consideration charged for such performance is not more than Rs. 1,50,000 is exempt from GST provided that the exemption shall not apply to service provided by such artist as a brand ambassador.

Hence, No GST is leviable on such performance.

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