Service tax levy in Budget may singe schools’ outsourced activities

Parents already reeling under the burden of high school fees may now have to bear the brunt of an unkind cut delivered by the recent Union Budget.

The Budget has brought under the ambit of service tax the rent that schools pay for hired buildings as well as a host of outsourced services that schools avail of, from sports instructors to health check-ups for students and career counselling to music teachers – all services provided by them will now be levied a service tax which works out effectively to 12.36 per cent.

Schools say this service tax will have to be borne ultimately by parents as this tax will be passed on to them. They estimate that the impact will be between ₹4,000 to 12,000 a year depending on what the activity is.

What the Budget exempts from service tax is transport facilities of students, faculty and staff; catering services; security or cleaning or house-keeping services performed in educational institutions and services relating to admission or conduct of an examination by, an institution.

The principal of a Chennai-based school pointed out that children need to be taught today’s life skills. “However, schools don’t have enough in-house expertise to teach all of these and some are provided to students by experts from outside the school system.”

Many schools hire a host of instructors for a variety of activities ranging from trainers for students to crack competitive exams to fine arts and even self-defence classes like karate. Their services to a school will now fall in the ambit of service tax.

The Senior Principal of a prominent Chennai-based school, which follows the CBSE curriculum, who however did not wish to be named, says his school hires experts for a variety of activities ranging from chess to archery and skating and even coaches for quiz programmes.

“Our teachers are not specialists, so we have to outsource to people who are experts.” He says his school pays out almost ₹80 lakh annually for these outsourced services for various activities, which parents pay for ultimately. Now they will have to fork out service tax as well.

Ajit Prasad Jain of Bhavan’s Rajaji Vidyashram, another prominent Chennai school, says schools plan all their activities for the year well in advance before the academic year starts in April.

To be hit midway by service tax issues will be detrimental as parents, who opt for various activities for their children, may rethink if they have to pay even more. The purpose of the curriculum to have a continuous comprehensive evaluation which gives weightage to extra curricular activities may be defeated, he says.

Schools in Chennai have now represented to the Finance Minister seeking exemption from service tax for outsourced activities. This service tax levy will impact all colleges and educational institutions as well.

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