GST to make higher education costlier in private institutions; here's how

Pre-primary and higher secondary educational services to remain tax-free

The Narendra Modi government will bring the Goods and Services Tax (GST) Bill for discussion in the Rajya Sabha on Wednesday, taking another step towards the rollout of the ambitious indirect tax regime from July 1 this year. How will this tax reform, arguably the biggest for India in recent times, affect the education scene in the country?

It is expected that higher education in private colleges will get costlier as soon as GST kicks in. Education services provided by the government will, however, remain tax-free. Here is an explainer on how education becomes taxable and how GST will impact it.

Education is considered a service, and most services are taxable. However, a ‘Negative List’ was introduced in 2012 under which certain services, including education, were kept out of the tax ambit. 

In 2016, the Finance Act removed education from the ‘negative list’, but this did not make all education services taxable. Through the mega exemption notification, some topics were still kept non-taxable. 

Simply put, the notification says that services provided by pre-schools or higher secondary educational institutes, private or government, shall remain tax-free. For example, transportation, catering (including mid-day meal), housekeeping, security, examination will remain free. Any other education and training services are currently liable to service tax at 15 per cent.

All these services, when provided by universities and higher education colleges, however, are taxable.

According to Nimish Goel, expert member at CAclubindia, “no exemption is provided to education services. However, through GST meeting updates, it is currently being discussed that existing exemptions should continue under the GST regime as well. If such exemptions are not provided, it leads to an apprehension that such services shall be taxed at about 18 per cent.” 

What will this mean?

Though the introduction of GST will not have any impact on lower and higher secondary education, higher education will get costlier by about three per cent for private players. The GST Council, headed by Finance Minister Arun Jaitley and comprising representatives of all states, is scheduled to meet in Srinagar on May 18-19 to decide on rates at which various good and services will be charged in the new indirect tax regime.

Any form of service provided by a higher educational institute or by a person to a higher educational institute will be taxed. The tax rate remains to be disclosed, but it is going to hit the purse of the common man.

With GST expected to be rolled out on July 1, it is a ‘wait and watch’ for the students. A fresh batch of students is waiting to enter the colleges and universities, as various higher entrance exams are currently underway. It is going to cost them more than what they might be expecting. Regardless of the tax rates decided for these services, two things seem clear. One, the competition to enter a government college is going to get tougher; and two, higher education from private institutions is going to burn a bigger hole in your pocket.