Private education could cost 2-3 percent more if taxed at the lowest slab of 5 percent under the Goods and Services Tax (GST), according to our analysis of the bill's provisions.
The GST bill passed by the Lok Sabha (lower house of Parliament) on 29 March 2017, carries a provision that says certain services provided by the government or local authority would not be liable to tax.
Financial experts believe that the provision was inserted to exempt education and health services, in addition to a list of other services, when provided by the government or the local authority.
The provision could be extrapolated to mean that private education in India would be liable to tax once GST becomes law.
Tax exemptions have been granted to both public and private institutions engaged in providing education. Extending exemption benefits to private schools, considering their commercial success, has not always been an idea that found mass support.
"Charitable purpose", as defined by law, includes relief to poor, education, medical relief, and the advancement of any other object of general public utility. The words "not involving the carrying on of any activity of profit" were omitted by the Finance Act, 1983.
Continuing in the same vein, a circular was issued by the Central Board of Direct Taxes in 2008, clarifying that an institution providing relief to the poor, education and medical facilities, would be allowed exemption even when it has incidental commercial activities.
The GST regime is now set to disrupt the status-quo, including educational activities.
GST is an indirect tax – a tax on consumption of goods and services. An inherent feature of indirect tax is that the burden of the tax, rather than being borne by the industry (ie, the manufacturers or traders or service providers), is passed to the consumers.
So, GST on private education, if it is implemented, would be borne by those looking to avail education services. Therefore, the issue of whether education is the place for disruptions, which might otherwise be a good thing, merits consideration.
Education, once viewed largely as a philanthropic activity, has now metamorphosed into a $100 billion (Rs 6.5 lakh crore) industry, with the private sector balancing investor returns and social responsibility, while the public sector is struggling with inadequate faculty and outdated curriculum.
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