GST law defines services that are exempted from GST and those which come under the ambit of GST. Private coaching institutions impart training to students preparing to write entrance examinations. The tax law states that educational institutions are exempted from taxes. Private coaching institutions also offer education to the students. Does that imply that they are exempted from GST? Let us discover in this article whether the private coaching institutions in India pay tax or not. And the reasons behind this.
Do Coaching Institutions Pay Tax?
Coaching institutions are not exempt from the GST (Goods and Service Tax) in India. However, educational services do not need to pay tax as per the Indian government. The institution's fee also includes 18% GST as confirmed by the Maharashtra Authority of Advance Rulings.
How did this rule come into the picture?
This rule came into existence when a coaching institute in Mumbai moved to AAR to clarify whether GST should be included with fees because the services provided by educational institutions come under the 'nil' rate. But AAR confirmed that GST is applicable to the services provided by coaching institutions. This is because the only institutions that come under the umbrella of educational institutions offer vocational training, pre-school education, and higher secondary education.
Also, as confirmed by the Central Board of Excise and Customs, private coaching institutions would not be considered as educational institutions. Therefore, private coaching institutions cannot get exempted. Also, the training given at these private institutions is not considered as recognised qualifications.
In addition,, the educational institutions are also GST exempted for only core education services they provide. In contrast, they come under GST for other education services and other facilities such as repair, canteen, and maintenance.
How has GST defined Educational Institutions?
According to the GST laws, the educational institutes are those institutes that offer pre-school education or higher secondary education.
The institutes which are approved by the government and that offer vocational courses also come under the category of educational institutions.
The educational institutes also cover those institutes, which provide education to qualify for a degree approved by Indian law.
The ruling of AAR Authority:
Therefore, the AAR Authority ruled the Mumbai-based coaching institution saying that it is a private institution that does not come under the educational institute defined by the GST law. This is because they are neither providing any recognised qualification nor follow a specific curriculum. So, the coaching institutes will not come under the GST exemption and pay 9% tax for state GST and 9% tax for central GST. AAR Authority obtained a similar ruling against another coaching institution that gives coaching to prepare the exams such as CA, CMA, etc.
Why Do Coaching Institutions Pay Tax?
As per the tax experts, India's private coaching institutions have a turn-over of around 20 lac or even more annually. So, they need to register themselves under GST. As they get 18% GST on fees from the students, this tax should be collected by the state and the centre from these coaching institutions. Also, the GST burden is borne not only by the students' parents but also by the coaching institutes.
According to the Maharashtra class owner association, after the GST is implemented in India, the coaching institutions' fees have increased significantly. So, the coaching institutions should also bear the tax burden.
Rules and Regulation for coaching classes in India
The coaching institutions need to follow certain rules for smooth functioning. These rules are required to run the institutes with discipline and peacefully. The government regulates these rules, so if you plan to open a coaching institution or already have one, then make sure that you follow these rules and regulations. The rules may vary from one state to another. Below are the rules:
1. The government will create a council for the coaching class to regulate the authority.
2. The coaching institutes have to register themselves initially and update their information every year.
3. The coaching institutions need to renew their registration after every three years.
4. The complete process of the registration, renewal, and information update can be done online.
5. The government has nothing to do with the fees these coaching institutes charge, but the coaching institutions need to inform the government about their fees.
6. The coaching institutions cannot employ a person who is already working as a teacher in school or college.
7. The coaching institutions have to pay for development funds, which is 1% of their total income.
8. A batch should not contain more than 120 students. However, if an institute has the infrastructure to accommodate this many students in a batch, then they can create such batches.
Therefore, it is clear that there is no exemption from the GST for private institutions as per the current tax laws. They were not exempted from the tax according to the earlier tax regime followed.
Earlier, they were charged at 15% tax, which has become 18% according to the GST laws. This is because; these are the private institutes that do not come under the definition of the educational institutions defined by tax laws in India. They are neither providing a recognised degree nor following the specific school curriculum.
Q. What is a coaching institute, and how is it different from an educational institute?
Ans. A coaching institution is an institute that offers coaching or commercial training to help students gain knowledge of any educational subject. For this, the coaching institutions conduct classes, which are not pre-school coaching or training. These institutions do not offer any qualification or degree as part of the training they offer. According to the Section 65(26) Act, the training given by these private coaching institutions is called commercial training.
Educational institutes are the government approved institutes which offer the degree recognised by the government, offers government-approved vocational training, or offers high secondary or pre-school education.
Q. How can I register my coaching institution?
Ans. You must register your coaching institution and pay the service tax if the institutions' profit exceeds nine lakhs. The structure you would like to employ in these institutes will be based on which kind of registration process is required. You need a different registration process if the coaching institution is of proprietorship. Similarly, company based institutes have different registration criteria. So there is another type of registration for different kinds of coaching institutes. But all of them have one thing in common and that is, all need a shop and entertainment license. This license is issued by the area inspector, where the institute is going to lie.
Q. How to obtain the license for my coaching institution?
Ans. There is no need for a license if anyone opens a small coaching institution. If you want to open a large scale coaching institution, you need a trade license and have to pay tax for the revenue generated through these coaching centres. You need to provide an identification document and pay a processing fee of an amount ranging from Rs. 125 to Rs. 12500. The amount varies according to the count of the employees and other manpower. Once the process is complete, you will assign the license instantly.
Q. What documents are required for obtaining the license for a coaching institution?
Ans. Below documents are required for the registration as per the shops and establishment act:
1. Pan Card
2. Fee Payment Challan
3. Commercial Address Proof
4. Identity Proof