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Service tax on skill development companies rolled back
September, 26th 2013

In a big relief for youth pursuing vocational training courses to land a job, Finance Minister P Chidambaram has rolled back the 12.36% service tax on skill development and training firms imposed in the Finance Bill of 2013-14.

Experts had warned that the service tax introduced this year on all training firms working in tandem with the National Skills Development Corporation (NSDC) could jeopardise the government's ambitious goal of training 500 million people by 2022 by raising the effective fees payable by students. The NSDC, set up by the finance ministry as a public private partnership , has been assigned the task of fostering and funding private sector skill development initiatives to 150 million people.

Though the government had put training firms in the negative list of activities attracting service tax last year, this year's Budget fine print explicitly omitted NSDC-affiliated training providers, from that list - making over 100 such firms liable to pay service tax.

The government has set a target of skilling 9 million youth this year. The finance minister, who had addressed the National Skills Development Corporation board in June, personally ensured that a fresh notification was issued earlier this month to correct the anomaly. As per the new notification, service tax is not payable on any services provided by the National Skills Development Corporation or any training institutes, assessment agencies and sector skill councils approved by it.

"This has resolved the uncertainty about service tax being levied on the course fees charged by our training partners for skill development programmes and related activities," Dilip Chenoy, chief executive officer and managing director of NSDC, told ET.

NSDC partners are relieved about the service tax withdrawal, but believe that the government needs a fresh approach to skill development in order to meet its lofty goals. "Skilling can't be considered a forprofit business as it doesn't have a business model, but it is a model business," said professor Mukti Mishra, chairman of Gram Tarang Employability Training Services, which has trained over 35,000 people in Naxalaffected areas and aims to scale up its capacity to 1 lakh trainees a year by 2022.

"The government must exempt training initiatives from all taxes, including income tax for five to ten years, offer incentives to create skill institutions and focus on their outcomes and impact," said Mishra, stressing that skill development is not just critical for school dropouts, but also for the formally educated who acquire no employable skills from their exambased degrees.

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