As discussed previously, a service is exempt from service tax if it is
(a) part of negative list, (b) covered under mega exemption, (c) covered by specific exemption or (d) rendered in non-taxable territory.
Read more about services exempt, negative list and mega exemption
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Exemption under Negative List:
The education being part of the negative list under clause(l) of section 66D of the Finance Act, does not form a taxable service.
The entryas per clause (l) of section 66D list the following services:
pre-school education and education up to higher secondary schoolor equivalent;
education as a part of a curriculum for obtaining a qualificationrecognised by any law for
the time inbeing force;
educationas a part of an approved vocational education course;
Exemption under Mega Exemption Notification:
Earlier,the mega exemption notification 25/2012
dated 20-06-2012 had exempted auxiliary educational services and renting of immovable property "to or by" educational institutions.
The entry at clause 9 of the mega exemption notification read that services provided to or by an educational institution in respect of education exempted from servicetax, by way of,-
auxiliary educational services; or
renting of immovable property;
Whereas there was no doubt on the exemption to educational institutions from service tax, the use of the terms "to or by" in mega exemption notification, gave the impression that renting of a immovable property by an educational institutions even for a commercial purposes was out of service tax ambit.
To set this anomaly right, Government vide its
Notification no 3/2013
dated 1stMarch, 2013, replaced the term "provided to or by an educational institution"by "provided to an educational institution". This made the renting of immovable properties by an educational institutions as taxable with effect from 1st April, 2013.
The intention of the law was to make renting of immovable property only as subject to service tax. However, many Educational institutes were in a fix over the amendments and started making representation to CBEC for clarifying the matteras to whether after the removal of the term they are required to pay service-tax on auxiliary educational services provided by them to students.
The major confusion of these institutions were that w.e.f.1.4.2013, all the other services except the regular curriculum provided to the students by the schools with an intention to improve the overall quality of the education as well as the holistic character of the students are also madeliable to levy of Service Tax.
Read the representation to Ministers and MPs
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Responding to the representation, CBEC vide its circular no 172/7/2013 dated 19-09-2013, clarified that all services relating to education are exempt from service tax. It further clarified that auxiliary educational services means services provided to an educational institute.
Mega Exemption sought to exempt such services provided to educational institutes which educational institutions ordinarily carry out themselves but may obtain as outsourced services from any other person. For example, if a school hires a bus from a transport operator in order to ferry students to and from school, the transport services provided by the transport operator to the school are exempt by virtue of the exemption notification. Thus apart from auxiliary educational services which were defined in mega exemption notification, other example of auxiliary educational services not subject to service tax covered "hostels, house-keeping, security services, canteen, etc."
As per Mega Exemption Notification 25/2012, auxiliary educational services were defined as under:
"auxiliary educational services" means any services relating to imparting any skill, knowledge, education or development of course content or any other knowledge - enhancement activity, whether for the students or the faculty, or any other services which educational institutions ordinarily carry out themselves but may obtain as outsourced services from anyother person, including services relating to admission to such institution,conduct of examination, catering for the students under any mid-day meals scheme sponsored by Government, or transportation of students, faculty or staff of such institution.”
Thus CBEC had clarified beyond any doubt that all services relating to education are exempt from service tax whether provided by institution themselves or by any other person to these educational institutes.
Changes made by Union Budget 2014-15
As per Budget Speech, in the words of the finance minster, “
Certain changes are also proposed for bringing about greater clarity and for reducing litigation regarding the scope of exemptions. These include functions ordinarily entrusted to a municipality and services in relation to education.”
Notification 06/2014 dated 11-07-2014 has substituted the entry at clause 9 of the mega exemption notification related to exemption to
exemption to educational institutions from service tax.
It can be seen that the new entry is quite onthe line of finance minister’s objective of bringing greater clarity and reducing litigation.
The exemptions available after the substituted entry are as under:
Services provided by an educational institution
All the services provided by educational institution to its students, faculty and staff have been exempted
Services provided to an educational institution:
The term “auxiliary educational services” has been dispensed with and replaced by an exhaustive list of following four services provided to an educational institution which shall be out of service tax net.
(i) transportation of students, faculty and staff;
(ii) catering, including any mid-day meals scheme sponsored by the Government;
(iii) security or cleaning or house-keeping services performed in such educational institution;
(iv) services relating to admission to, or conduct of examination by, such institution.
Renting of immovable Property provided to an educational institution
Taxable. However renting of immovable property (say city hall, or a building) in relation to admission to, or conduct of examination can still be claimed as exempt unless a contrary view is taken by the CBEC