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Negative impact on Education sector

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NO INPUT CREDIT AVAILABLE FOR SERVICES TAKEN UNDER GST

The GST Council’s decision to exempt services provided by educational institutions to its students is a step in the right direction. However, services to higher educational institutions are not GST free.

Services in the nature of transportation, catering, housekeeping, admissions or examination conduct if provided to higher educational institutions were subject to service tax and now will also be taxed under GST. The GST exemption on procurements is available only to schools (from pre-school up to higher secondary school or its equivalent). Thus, the ‘input’ or supply of services such as transportation, catering, housekeeping, services relating to admission or conduct of examination to higher educational institutions will bear a GST levy. This will have to be borne by the higher educational institution.

As the ‘output’ (service of providing education to students) is tax free, no input credit would be available. This partly defeats the purpose of exempting educational services from GST.

ADDITIONAL BURDEN OF REVERSE CHARGE MECHANISM

The impact of non-eligibility of input tax credit is even more pinching due to the mandatory reverse charge mechanism if the goods or services are procured from unregistered dealers. Educational institutions typically obtain services from freelancers such as supervisors, research assistants, paper setters et all.

Payments to such individuals would attract GST under reverse charge — it is the educational institution which would pay this tax and also comply with formalities of uploading documents on the Goods and Services Tax Network (GSTN) portal. This dilutes the objective of keeping education outside the GST ambit.

INCREASE IN COMPETITION

It is gradually becoming evident that the education from nursery to Higher Secondary Examination will gain from the GST policy as it is excluded from the tax category in the current scenario. Secondly, all Governmental activities/ services/ initiatives for educational purposes will also receive tax relief. However, this also implies:

  • Higher education in all universities/ colleges the private sector will become more expensive 
  • Competition for admissions in Government schools/colleges/institutions will increase.

— Vivek Jain, Founder at CAclubindia, an interactive platform for the finance professionals 

 
 
 
 
 

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