Big setback for coaching centres for entrance exams, AAR says they are liable to pay 18% GST

Coaching centres providing tuition to prepare students for entrance examination are liable to pay 18 per cent GST, according to the Authority for Advance Rulings (AAR). An application was filed before the Maharashtra bench of the AAR to seek advance ruling on whether the services related to providing the coaching for entrance examination will come under the ambit of the Goods and Services Tax (GST).  'Simmple Shukla Tutorials' is engaged in providing the service of teaching to the students of class XI and XII and helps the students prepare for entrance examinations related to MBBS, engineering and other science related examinations.

Hence, 'Simmple Shukla Tutorials' is "in no way covered" in the definition of educational institution, as has been notified under the GST laws, the AAR said. "The private institution does not have any specific curriculum and does not conduct any examination or award any qualification or award any qualification recognised by any law ... We find that the education service provided in the case is taxable at the rate of 9 per cent under CGST Act and 9 per cent under SGST Act," the AAR said.

Under the Goods and Services Tax (GST) regime, the tax is shared equally between the Centre and the states. Hence the total GST on the services provided by tuition or coaching classes for entrance examination would be liable to 18 per cent GST.

The applicant had argued that the coaching centres too are educational institution and hence are exempt from GST. Under GST, services provided by an educational institution to its students, faculty, staff are exempt from the levy. 

The GST law defines educational institutions as those imparting pre-school or education up to higher secondary level or those which are part of an approved vocational education course. The definition also includes those which provides education as a part of a curriculum for obtaining a qualification recognised by any law.

AMRG & Associates Partner Rajat Mohan said the ruling has made it clear that exemption from indirect taxes was neither available under erstwhile tax regime nor would be available under GST regime to private institutions rendering coaching classes for entrance examination. 

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"Private coaching classes were earlier taxable at 15 per cent (service tax) and now would be taxable at 18 per cent (GST), but this does not mean an increase in cost for students, such institutions are eligible for much higher input tax credit which should be passed on to students so as to keep the total fee same," Mohan said.