Some exemptions need to be reinstated for education to remain affordable

Hailed as a 'sunrise sector', the education sector is hopeful of a continued increase in Budget outlay with specific focus on higher education as well as measures for enhancing 'gross enrolment ratios' in educational institutions. For India to achieve a GDP growth of over 8 per cent, the importance of a skilled, trained and educated workforce cannot be over emphasised. In the backdrop of several policy as well as tax reforms being expected, here is a look at key expectations on the service tax front.

Being a core service, this sector has historically enjoyed service tax exemption. Specifically, service tax is not applicable on pre-school, school, college - including vocational education - when the same lead to an educational qualification that is recognised by laws in India.

Pertinently, the past few years have seen a shift from 'status' based to 'activity' based exemption. Essentially, this means, exemption is based on the activity undertaken and not necessarily linked to the service provider qualifying as an 'educational institution'.

However, disputes and debates continue on this front. Emerging trends in the sector suggest the activity of course curriculum development as well as delivery being outsourced for direct access by students through learning centres; and e-learning modules delivered by education service providers in collaboration with universities. Clarity by way of a positive affirmation on the eligibility to exemption through a policy circular should help address this issue and mitigate service tax costs being incurred by educational service providers / institutions.

With a view to mitigate service tax costs for educational institutions, essential input services typically procured by them have been historically exempt from service tax levy. Prior to amendments made in the Union Budget 2014, 'auxiliary educational services' was defined in a broad manner to include a host of essential as well as outsourced services typically received by educational institutions.

The current list of exemptions on the input side, apart from being pruned to a few services, has missed important services such as renting of immovable property, acquisition of content, services pertaining to training of teachers etc. for the benefit of exemption. This has substantially increased the incidence of tax on service procurements by educational institutions, which cannot be claimed back as tax credits. This is in addition to VAT costs incurred by this sector in procuring assets used to deliver education services.

It is hoped that there will be a rethink with these exemptions being reinstated as otherwise their costs shall get built into the tuition fee rendering education expensive for the student community.

Amid hopes for these exemptions to be extended, the sector being mindful of the fact that exemptions are likely to be minimal as we move towards GST, awaits the Union Budget announcements with cautious optimism.

The author is Partner, BMR & Associates LLP