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Tax on auxiliary services to make education dearer
August, 03rd 2013

Back-to-school shopping and tuition fee deadlines may be behind parents for this term, but it looks like they may have to cough up more money for schooling and college.

The cost of education across the country is likely to go up by 3,000 for school students and 5,000 for college goers if educational institutions pass on the burden of paying service tax for additional services onto parents. And, preliminary inquiries reveal that they will.

Schools across the state have received a notification from the commissioner of central excise asking them to register for all auxiliary educational services and pay service tax on the amount collected by them for the services. This could mean that schools will have to pay service tax for food, transportation, extra-curricular activities, conduct of special examinations like Olympiads, and field trips.

Schools to approach finance minister for review

When education was categorised under the negative list in the 2012 Budget, a finance ministry notification issued on June 20, 2012, read: "Services provided to or by an educational institution in respect of education exempted from service tax, by way of (a) auxiliary educational services or (b) renting of immoveable property" are exempted from service tax. However, another notification issued on Budget Day replaces "services provided to or by" with "services provided to".

While some academics who believe that the change in wording is an error have been trying to get it clarified by the finance ministry, the excise department has gone ahead and asked schools to pay up. "The intent to levy service tax on services rendered by educational institutions to outsiders is right. But, the finance ministry notification seems to indicate the contrary. I appeal to the FM to exempt auxiliary services and renting of hostels provided by educational institutions to its own students from service tax," said S Vaidhyasubramaniam, dean of planning and development, Sastra University.

School heads argue that what the government calls auxiliary services are now part of mainstream education. With the implementation of the continuous and comprehensive evaluation system of education, co-curricular education is now an integral part of schooling and not a choice, they said.

The excise department considers services relating to imparting any skill, knowledge or education; development of course content, knowledge enhancement activity for students or faculty, transportation for students and staff, and other services that educational institutions may outsource including those related to admission, conduct of examination and catering for students including the government's mid-day meal scheme as auxillary services.

Schools have planned to approach MPs to present their case in Parliament, and have decided to make a representation to the finance ministry to withdraw this clause. Private school associations have planned to meet soon to discuss the course of action to be pursued.

Parents associations are also disturbed by the threat of increase in fees. "The fee fixed this year is higher than we expected. If parents are burdened more, they will not take it lying down. There will be agitations, and if needed, we will go to court over this," said S Arumainathan, president, Federation of TN Students Parents Welfare Association.

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