Educational services: Tax on coaching centres in India

Increase in competition and expectation of parents these days have increased the bank balances of coaching centres. Today, coaching centres are not just mere institutions, but a necessity for every age group starting from grades till high level of MBA, MBBS, IAS etc.

Since all incomes are taxable under Income Tax Act, the incomes of coaching centres are also covered under this act and are taxable under the head “Income from Business and Profession”.

How to compute Taxable Income

All coaching centres are required to keep registers containing student details, for example, name of the student, their contact details and amount of fees paid by them. All cash received from the coaching profession has to be deposited into a separate bank account periodically and all expenses are to be paid from the same bank account.

It will not only help in transparency but will also help in easy calculations of your profit from tuitions.

Compulsory Maintenance of Books of Accounts

Books of accounts have to be compulsorily maintained, where income exceeds Rs 2,50,000 or total sales, turnover, or gross receipts exceed Rs 25,00,000 in the previous three years. Books of Accounts are to be maintained for 6 years from the end of the relevant financial year.

Books of Accounts include:

  • Cash Book
  • Journal
  • Ledger
  • Copies of Bills/Receipts
  • Daily Cash Register
  • Trading Account
  • Profit & Loss Account
  • Balance Sheet

How to calculate tax for coaching institutes

  • If a person wants to adopt presumptive income under section 44 ADA, then his income will be taxable on presumptive basis @50% of total gross receipts.
  • However, if the person claims to have higher income than above 50%, then he has to maintain proper Books of Accounts, and tax has to be paid on Net Income i.e. Gross Receipts less all expenses relating to Business.

GST on Coaching Institutes
Since coaching centers are neither offering an acknowledged degree/diploma, nor complying with the particular academic curriculum therefore they are taxable @ 18% under GST Act. Only the supply of books is exempt. If the coaching institute is providing services like transportation, food, housekeeping services or stationery or any such other facilities, then all such facilities are taxable under GST.

For example: If a coaching centre raises a bill of Rs. 1,50,000, but also raises charges of Rs 50,000 for books, then GST @ 18% will only be charged on tuition fees, i.e. GST = 18% of 1,50,000 = 27,000

Maharashtra Authority of Advance Rulings

Since coaching centres do not provide any recognised qualification or adhere to a certain curriculum, they will no longer be exempted from GST and will be required to pay 9 % state GST in addition to 9 % central GST. AAR Authority ruled out a similar ruling towards another coaching business that provided training to prepare for examinations such as CA, CMA, and others. Furthermore, if the institute provides accommodation or food services to students, they would not benefit from any GST exemption.

In entry number 66 of the notification, it is mentioned that there will be an exemption to specific institutions, if those are offered by an educational institution, subject to specific conditions. The conditions are stated as follows:

  • The service offered is associated with education.
  • Education is offered as part of the academic curriculum.
  • Education is provided for acquiring a qualification identified by any law that is in effect for the time being.

The Central Board of Excise and Customs (CBEC) also affirmed that private coaching institutions will no longer be regarded as educational institutions. So, private coaching establishments can’t get any tax exemption. Additionally, the coaching imparted at those private establishments isn’t regarded as a recognized qualification.

Like any other taxpayer, coaching centres have to file GST returns in GSTR-1 and GSTR-3B either monthly or quarterly according to their total invoice amount. If they have opted for the Composition Scheme, then they have to pay tax in CMP-08 and file GSTR-4 once in a year.

It is a hardship for small coaching centres and ultimately for parents who have to bear the GST burden along with tuition fees. Coaching centres should be exempt from GST provisions similar to educational institutes, who are exempted from paying GST. Otherwise, this burden will impact a large number of students who cannot bear this increased cost.

(Ruchika Bhagat is the managing director (MD) of Neeraj Bhagat & Co. an ISO 9001: 2008 UKAS certified organization, founded in 1997. Ruchika graduated in 1996, a member of the Institute of Chartered Accountants of India (ICAI) since 1998. She specializes in Business Advisory, Tax, Regulatory and Risk Advisory. She is a strategic adviser in setting up businesses in India for foreign companies and taking care of its compliances.)

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