GST Exemption to new age schools: Available?
- Oct 30, 2023
- 8 min read
Education plays a significant and remedial role in balancing the socio-economic fabric of the country and India has made great strides in improving access to quality education, increasing elementary school enrolment and reducing the number of out-of-school children. Under local and central laws, educational institutions in most cases have to be set up as charitable organisations, i.e., without any profit motive and hence, how the Government chooses to tax them plays a significant role in their overall development. Under the Income Tax Act, 1961 certain exemptions have been provided for charitable organisation set up for charitable purposes. Similarly, under the indirect tax side, certain exemptions have been provided under the Goods and Services Tax (GST) laws. However, while these exemptions are generally available to traditional educational institutions, whether these exemptions will be available to new aged alternate schools or online school remains to be answered. We have attempted to answer this question by deep diving into the GST exemptions.
Rate of GST for education services
While the rate of GST for education services has been set at 18%, education services provided by an ‘educational institution’ to its students, faculty and staff are exempt from the applicability of GST. Further, certain other services[1] provided to ‘educational institutions’ have also been provided exemption from GST. ‘Educational institution’ has been defined to mean:
i. pre-school education and education up to higher secondary school or equivalent (“First Limb”);
ii. education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force (“Second Limb”);
Accordingly, institutions providing pre-school education and education up to higher secondary school have been provided with a clear GST exemption. The Authority for Advance Ruling has held that a school which was only providing pre-school education is to be exempt from GST[3] and therefore, it may be possible to state that it is not necessary for the same (pre) school to also provide education up to higher secondary in order to avail of the exemption provided. Interestingly, while the GST exemption does not provide for any condition that the educational institution must be registered in order for it to claim the exemption, a reasonable assumption may be made to say that to fall within the First Limb of the definition, the institution should be registered / comply with the relevant state laws and central laws. This interpretation gains more weight due to the Second Limb of the definition which provides exemption to institutions providing education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force. If all educational institutions (registered or not) were to be included within the First Limb, there would not be a requirement to have the Second Limb. Accordingly, it becomes relevant to analyse what falls within the meaning of ‘education as a part of a curriculum for obtaining a qualification recognised by any law’.
Notably, the Central Board for Indirect Taxes and Customs (CBIC) in its endeavour to explain various provisions of the GST laws has come out with a leaflet that pertains to ‘Education Services’. The leaflet provides that exemption is provided to those educational institutions which are related to ‘delivery of education as ‘a part’ of their curriculum that has been prescribed for obtaining a qualification prescribed by law. It is important to understand that to be in the negative list, the service should be delivered as part of the curriculum. Conduct of degree courses by colleges, universities or institutions which lead grant of qualifications recognized by law would be covered. Training given by private coaching institutes would not be covered as such training does not lead to the grant of a recognized qualification.’ However, since the leaflet does not form part of the law, it can at best be used for guidance purposes and cannot be considered as law.
The Second Limb of the definition consists of two parts: (i) provision of education services; and (ii) it being part of a curriculum for obtaining a qualification recognised by any law for the time being in force. An explanation of each of the parts is provided below.
Provision of education services
There is no definition of ‘education’ that has been provided under GST laws. The Supreme Court (SC) in the case of in P.A. Inamdar v. State of Maharashtra[4] has observed that:
81. "Education" according to Chambers Dictionary is "bringing up or training:.... strengthening of the powers of body or mind; culture".
82. In Advance Law Lexicon (P. Ramanathan Aiyar, 3rd Edn., 2005, Vol.2 "education" is defined in very wide terms. It is stated:
"Education is the bringing up: the process of developing and training the powers and capabilities of human beings. In its broadest sense the word comprehends not merely the instruction received at school or college but the whole course of training moral, intellectual and physical; is not limited to the ordinary instruction of the child in the pursuits of literature. It also comprehends a proper attention to the moral and religious sentiments of the child, and it is sometimes used as synonymous with 'learning'.
83. In Sales Trustee, Lok Shikshana Trust v. CIT (1976) (1 SCC 264) the term "education" was held to mean (SCCp.262, para 5).
"the systematic instruction, schooling or training given to the young in preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received What education connotes......... is the process of students by formal schooling".
88. Education is:
".... Continual growth of personality, steady development of character, and the qualitative improvement of life. A trained mind has the capacity to draw spiritual nourishment from every experience, be it defeat or victory, sorrow or joy. Education is training the mind and not stuffing the brain."
(See Eternal Values for A changing Society, Vol.III - Education for Human Excellence, published by Bharatiya Vidhya Bhavan, Bombay at p. 19).
"We want that education by which character is formed, strength of mind is increased, the intellect is expanded, and by which one can stand on one's own feet.... The end of all education all training, should be man-making. The end and aim of all training is to make the man grow. The training by which the current and expression of will are brought under control and become fruitful is called education". (Swami Vivekanand as quoted ibid., at p. 20).”
Further, in the case of Educational Initiatives Pvt. Ltd. v. Union of India[5], the Court held that 'education' cannot be given a natural meaning by restricting it to the actual imparting of education to the students but should be given a wider meaning which would take within its sweep all the matters relating to imparting and controlling education. In the case of Sahitya Mudranalaya Private Limited v. Additional Director General[6], the court held that "education" should have a broad interpretation, encompassing all aspects of imparting and overseeing education. Examinations are integral to education, serving as a crucial tool to assess skills and knowledge across various levels and types of exams. Further, in the case of Gujarat State Co-Operative Union v. CIT[7], referring to the decision of the Supreme Court in Sole Trustee, Loka Shikshana Trust v. CIT, the Court held that the meaning of ‘education’ is not to be narrowly construed. It stated that:
“the observations of the Supreme Court do not confine the word "education" only to scholastic instructions but other forms of education also are included in the word "education". As noticed above, the word "schooling" also means instructing or educating. It, therefore, cannot be said that the word "education" has been given an unduly restricted meaning by the Supreme Court in the said decision. Though, in the context of the provision of section 10(22), the concept of education need not be given any wide or extended meaning, it surely would encompass systematic dissemination of knowledge and training in specialised subjects as is done by the assessee. The changing times and the ever widening horizons of knowledge may bring in changes in the methodology of teaching and a shift for the better in the institutional setup. Advancement of knowledge brings within its fold suitable methods of its dissemination and though the primary method of sitting in a classroom may remain ideal for most of the initial education, it may become necessary to have a different outlook for further education. It is not necessary to nail down the concept of education to a particular formula or to flow it only through a defined channel. Its progress lies in the acceptance of new ideas and development of appropriate means to reach them to the recipients.”
The second part of the expression is self-explanatory and requires that the educational institution provide education which is part of a curriculum for obtaining a qualification recognised by any law for the time being in force.
Which institutions are qualified to avail of the exemption?
As discussed above, institutions which have been registered under /comply with their respective state laws and central laws (typical brick and mortar K12 schools) should be able to claim the exemption under the First Limb of the definition. However, whether new aged schools such as online schools or schools following alternative teaching methodology (such as Waldorf principles) and training to impart education to children, or other forms of pedagogy will be eligible to claim the exemption, provided above remains to be answered. This is particularly relevant as schools following alternate teaching models / pedagogy / online schools generally face practical challenges when it comes to registering with the relevant state authorities. In this context, it should be noted that the Kerala Authority for Advance Ruling held that a coaching centre that offers specialized training or coaching services do not meet the criteria for being considered an “educational institution” for the purposes of claiming a GST exemption[8].
In such new age schools, education is generally imparted through play, activities, the arts, music and movement and not through passive instruction and standardized classrooms. As noted above, judicial precedents have held that the term ‘education’ should be considered of wide import and cannot be restricted to necessity of holding regular classes or wholesome educational activities but also should include the whole course of training of the moral, intellectual and physical-self. Further, schooling is not the only method of providing education, and any kind of systematic training given to the students should also fall within the meaning of “education”. Therefore, to the extent they are able to fall within the meaning of education as discussed above, they should be able to fulfil the first part of the definition.
Further, most of such alternative and new age schools generally prepare the students to take the NIOS exam or the Cambridge board exam, which are recognised under Indian laws. Therefore, the education given in these alternate schools is such that they follow a curriculum which allows the students to take these exams. Accordingly, it may be possible to take the view that such alternative schools are carrying out education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force and hence, may qualify as a ‘educational institution’ and claim exemption from applicability of GST on the services provided by them and to them as noted above.
Conclusion
While the law does not provide for a 100% clarity on whether alternate schools should be able to claim exemption from GST, there is definitely room for argument. However, with the gaining popularity of these new age schools, it may be a good time for the legislature to revisit the exemptions that have been provided and streamline some of them so that institutions which are furthering the cause of education in the country are able to survive with more certainty and able to deliver education services promptly and efficiently. Clarity in this regard would be much appreciated and would act as a shot in arm for such institutions.
[1] Services in the nature of:
i. transportation of students, faculty and staff;
ii. catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory;
iii. security or cleaning or housekeeping services performed in such educational institution;
iv. services relating to admission to, or conduct of examination by, such institution; upto higher secondary.
[2] “approved vocational education course” means, - (i) 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 (52 of 1961); or (ii) 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;
[3] Rahul Ramchandran (Inspire Academy), In re [2022] 93 GST 90 (AAR - MAHARASHTRA).
[4] [2005] 6 SCC 537
[5] [2022 [63] G.S.T.L. 45]
[6] [2021 [46] G.S.T.L. 245]
[7] [1992] 195 ITR 279 (Guj)
[8] In Re., M/s. Tutor Camp Infotech India Private Limit
