New Delhi, 12 October 2021 – As per the Income Tax (IT) Act for 2021-22, all incomes of coaching centers are now taxable. Tuition centers will be chargeable for taxes as per the ‘Income from Business and Profession’ slab of the IT act and are liable to pay 9% state and 9% central GST (Goods & Services Tax) for their services. This development may bring additional monetary pressure on parents as they might be asked to pay for the taxes apart from the regular coaching fee.
Note: Apart from board-affiliated schools and registered colleges, GST is only levied on institutes that offer vocational and educational training. If the institution offers an academic curriculum (e.g, schools), provides a qualification recognized by law, or provides a recognized degree/diploma, it will be exempt from taxes.
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How Does Income Tax Policy 2021-22 Impact Parents?
Although the policy does not impact parents directly, they might inevitably bear the brunt. This is because most tuition centers will add the taxes to their existing fees. There may be a tax rebate on private tuition fees for parents; however, there is no official announcement regarding that yet. Even if there is an introduction of a rebate, 70% of Indian households do not earn over INR 5 lakh per annum. Hence, it would be beneficial only for a small proportion of the population in the form of income tax saving.
How Does Income Tax Policy 2021-22 Impact Tuition Centers?
Tuition centers will be required to keep registers that contain students’ details, including names, contact details, and fee amounts. This is compulsory if the income from the coaching service exceeds INR 2,50,000 or the total turnover exceeds INR 25,00,000 in the previous three years. Books of account can include a cash book, journal, ledger, copies of bills, cash register, trading account, balance sheet, and profit & loss account. These books must be maintained for 6 years from the end of the current financial year or from whichever year the business starts in the future.
Any income that comes from educational services must be deposited into a separate bank account, which must be updated periodically. Plus, any expense undertaken by the coaching center must be paid from this account only. This is done to gain transparency regarding income and profit calculation.
Note: Only the supply of books is exempt under the GST Act. If the institute is providing food, housing, transportation, stationery, or any other service, it is taxable under the policy.