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Service tax might push school fees up
September, 17th 2014

School fees are likely to rise further if the institutions pass on the 12.36% service tax burden charged by third parties that provide content aids to schools.

The Union Budget has brought such services under the ambit of service tax. "Today, many schools engage with various providers who give content that enriches the overall learning experience. That is a key part which is still not exempt from service tax," K Vaitheeswaran, advocate and tax consultant said.

Not only that. Even certain extracurricular activities conducted on the school premises during afterhours are expected to come under the ambit of service tax.

"There is service tax exemption for training and coaching in recreational activities relating to arts, culture and sports. While outsourced PT, cricket, football and dance and music activities can claim this exemption, it is still not clear whether chess, judo or karate (other popular extracurricular activities) conducted on some school premises will qualify for the exemption," Vaitheeswaran said.

On their part, schools are studying the proposal closely. "A lot of extracurricular activities like chess and karate are conducted on our school campuses in the afterhours. Around 80 to 100 children are enrolled in each of these programmes. On an average, each students pays Rs 3,000 every six months for such activities conducted on the school campus. We are part of the Chennai Sahodaya of the CBSE cluster which has given a draft to schools seeking exemption of service tax to the finance ministry. We are studying this draft and our managing committee is expected to decide on the matter later this month," said a school principal of a leading institution in the city who did not wish to be identified.

Moreover, such outsourced activities sought by schools come at a time when the academic year is midway and school budgets have already been frozen. Third parties that provide content enrichment matter or those who conduct extracurricular activities on the school premises normally enter into service contracts with school at the beginning of the year with schools making them a lump-sum payment at regular intervals after collecting the same from parents.

Content providers who partner with schools to enrich learning experience of children in various spheres say that implementing the service tax will be a tough proposition. "This is a tax that has to be given to the department. Already, it's middle of the year and schools normally like an all-inclusive price for such outsourced activities. We may also have to break up the activity fee and service tax component," Venkatesh Varadachari, cofounder and director of personal finance training company, Money Wizards, said.

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