Whilst most educational institutes were lucky to escape the
service tax net when the Finance Act, 2010 sought to rest the
raging controversy surrounding imposition of service tax on renting
of immovable property for commercial purposes in favour of the
Revenue, their luck has finally run out.
Renting of immovable property to educational institutes will no
longer be a service tax exempt service. The Finance Act, 2012
("FA 2012"), which has received Presidential assent on
May 28, 2012, seeks to overhaul the entire service tax regime by
widening the ambit of India's service tax laws.
A paradigm shift is envisaged in the way services are proposed
to be taxed in future. Taxation will be based on what is popularly
known as a "Negative List of Services", i.e., if an
activity meets the characteristics of a "service", it is
taxable unless specified in the Negative List (which comprises of
17 heads listed in Section 66D of the FA2012) or otherwise exempted
by a notification issued under the Finance Act, 1994. Most of the
88 exemptions available at present, will be either rescinded, or
modified in some manner, or merged in a mega notification.
On and from the effective date of notification of the relevant
provisions of the FA2012, any activity carried out by a person for
another for consideration, including 'declared services'
but excepting those specified in the 'Negative List' or
exempted vide a specific notification (such as No.12/2012 dated
March 17, 2012), shall be a 'service' and hence subject to
service tax. The Government is expected to come out with ten such
exemption notifications including the one cited above. A gist of
the proposed exemptions has been provided in D. O. F. No
334/1/2012-TRU dated March 16, 2012 issued by Department of
Revenue, Ministry of Finance.
The exclusion granted to renting of immovable property to
educational institutes imparting skill or knowledge or lessons on
any subject or field (other than commercial training or coaching
centre) under Section 65(90a) of the Finance Act, 1994, does not
find mention, either under the 'Negative List' or under the
proposed exemption notifications referred to above.
In fact, what is interesting is that the Government, likely
having learned from its previous harrowing experience in defending
the taxability of 'renting of immovable property', has
included such services within the definition of 'declared
services' under Section 66E of the FA2012. 'Declared
services' are specifically included within the new all
encompassing definition of 'service', to nip in the bud,
any controversies with respect to the taxability of such
The only breather likely to be available is the threshold level
exemption upto Rs. 10 lacs (which is anyway available
vis-à-vis most services) and, possibly, deduction of
property tax from the gross amount charged for renting of immovably
Consequently, from the effective date of notification of the
relevant provisions of the FA2012 relating to service tax, all
not-for-profit organizations such as a trust, society or a section
25 company, running educational institutions will
have to cough up their share of service tax on
leases/licenses/permissions obtained by them from real estate
entities (which are sometimes related parties and/or affiliates)
for using immovable property.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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