KNOWLEDGE Vs TAXES

Someone has rightly said, "Knowledge is an eye for the blind, ears for the deaf, strength for the weak and all in all it is a boon for the mankind”. It is argued that a person who is blind is weak only in one sense but the one who is uneducated is weak by all senses.”

“Education” is not defined in the CGST Act but as per Apex Court decision in “Loka Shikshana Trust v/s CIT”, education is the process of training and developing knowledge, skill and character of students by normal schooling. Taxing the Education Sector has always been a sensitive issue, as education is seen more as a social activity than a business one. Although, commercialization of education is also a reality, the government has a constitutional obligation to provide free and compulsory elementary education to every child. [Source: Flyer prepared by National Academy of Customs, Indirect Taxes & Narcotics]

For every benefit received, there is a cost which could be in form of tax also. Perhaps this seemed never so real than today in the Indian context. The much thoughtful leaders of India have spared the education sector all along from levy of taxes considering the importance of the same for the country.

Services provided by an educational institution to its students, faculty and staff and the Services provided by the Indian Institutes of Management (IIMs), as per the guidelines of the Central Government, to their students, by way of certain specified educational programmes have been kept out of ambit of GST.

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.

In the present scenario, the Private Institutions providing training or professional courses that help students grow and improve their career and Coaching centres, which do not have any specific recognized curriculum, which do not lead to grant of a recognized qualification  and do not conduct any official examination or award any qualification are chargeable to GST at a rigorous rate of 18%. These coaching classes and institutes offer value-added courses that help students prepare for various competitive examinations like engineering (JEE), medical entrance (NEET), Chartered accountancy (CA) exams etc.  Same is the issue with Distance Education which is taken up generally for higher education, it is also taxable under GST.

The importance of education in India can’t be undermined due to the majority of the population below 25 years of age. Due to the parallel growth of population and poverty, Education is indispensable and should be available at an affordable cost. Those who can afford, move to Metropolitan and Tier 1 cities, for Tuition / training for the competitive exams, but the larger chunk is left out, who are no less-smarter and intelligent than the others. There are Ed-tech startups today which are trying to solve this problem and ensure that education reaches to all at an affordable cost with flexibility and comfort. However, Implementation of GST has led to rise in the cost of education. Due to the higher taxation rates in the new regime, the coaching institutes across India (including online education) have enhanced their fees. This has an impact on the students preparing for competitive examination and on working professionals who opt for professional courses to enhance certain skill sets.

As per CBSE official data, around 10 to 12 lakh students generally apply for JEE Mains every year. More than one lakh students join the Chartered Accountancy course every year, and approximately, there are 12 Lakhs+ students enrolled, which is a huge and considerable part of the student population.

Education being a necessity and not a luxury, ideally should not be taxed at 18 per cent. To make our respected Prime Minister's dream of "Make in India" come true, we need to first educate India. In order to compete with the world, we need the young generation to be well equipped with professional courses and knowledge. There are tremendous career and growth opportunities for the students, but with higher taxation, the students  have to pay more for good-quality education and students from economically weaker sections of the society feel the pinch.

The more knowledgeable the human capital of a country is, more are its chances of development. Imposition of this tax at such a harsh rate  is a virtual indirect denial of education to many students coming from socially and economically weaker sections. Education is the basic requirement that allows an individual to improve his standard of living. It is a bare necessity and not a luxury, hence either it should be completely exempted from GST or should be at a minimum possible slab, say 5 percent."

It is a prayer to the GST Council to review the 18 percent GST rates on private tuition and coaching fees (especially Ed-tech sector) and ensure that either it is exempted or considered under the minimum tax slab of GST.

Please spread the knowledge of Tax, but don’t Tax the knowledge !

About the Author:

Rahul Saria is a Chartered Accountant and presently heads finance for an Ed-Tech startup ‘VEDANTU’, a pioneer in live online classes for students of Class VI to XII including competitive exam preps like KVPY, JEE and NEET etc. backed by marquee Investors Accel, Omidyar, Tiger Global and others

He is an All India Rank holder in CA & CS, a Public speaker and a GST faculty of ICAI. He is also a Ph.D. Research Scholar. He has headed finance for various startups in the past (Near.co; Rentomojo.com etc.). Rahul can be reached out at [email protected]