GST problem for schools, colleges that conduct online classes

MUMBAI: Schools and colleges that conducted online classes due to Covid pandemic now have a problem under Goods and Services Tax (GST) framework.
For many educational institutes that invested in information technology and other infrastructure will now have to absorb the cost of GST. This is mainly because GST is not applicable on primary, secondary and college education—as this is an essential service– and so the tax cannot be passed on to students.

Many educational institutes have seen their input tax credit pile up over the months and are unable to set it off. Under GST framework the tax can be passed on to consumers or whosoever is buying goods or services from a company or an institute. This—input tax credit—can then be set off against future GST liabilities.

In last few months institutes had to invest heavily in software, IT infrastructure, servers and data protection so that they can conduct classes and examination online. Many of these institutes have now reached out to the government.

“In the virtual world, the use of information technology and new systems is imperative but these come with the additional GST cost and these costs are leaving a tax cascading effect for suppliers such as education services institutes“, said Abhishek a Rastogi, partner at Khaitan & Co, a law firm.

Many of these institutes are exploring to approach the courts in this regard. The problem, say experts is more for institutes that have more branches.

“The problem is that the inverted duty structure refund is restricted to only taxable supplies and the moot point remains whether the judicial review is necessary to extend the benefit to the exempted category“, added Rastogi.
For many educational institutes accumulated tax credit would run into crores. Tax experts say that there could be some ways around this, but it would require a government nod.

“One of the ways of mitigating the GST cost on procurements for educational institutions is to provide for a system of end-use based exemptions. Since the GST regime was set up with the objective of minimum exemptions and considering the fact that end-use exemptions have been misused by certain other sectors in the past, there would be a reluctance to consider the same,” said MS Mani, partner, Deloitte India.

The issue is similar for several hospitals as well. Though hospitals have had this issue for some time now and Covid only made it worse. So, GST is levied only on certain cosmetic surgeries and not on certain procedures and operations that are deemed essential.

During Covid, many hospitals too had to invest in IT infrastructure and they do not know how to pass it on. As GST cannot be passed on to patients taking online consultations or services that are outside the gamut of the indirect tax.

For educational institutes such as Indian Institute of Management and Indian Institute of Technology this was an issue. GST is applicable on some of the executive programmes that institutes such as IIMs and IITs run. These institutes have been passing on GST to students on these programmes.

During Covid though, even the flagship programmes – MBA and B.Tech—have been partially or fully delivered online. Institutes that invested in new IT infrastructure and paid GST on that would not be able to pass it on to students, as the course in itself is exempt from the indirect tax.