The Goods and Services Tax (GST) department has sent notices to multiple schools across Gujarat, demanding payment of GST on affiliation fees paid to international boards, with retroactive effect from 2017. Schools are required to pay an 18% GST under the reverse charge mechanism (RCM), treating these affiliations as “imported services.” With potential liabilities amounting to lakhs, schools may pass on the cost to parents, leading to fears of significant fee increases.
Chartered accountant Karim Lakhani clarified that the import of services is classified as a supply and subject to GST to ensure parity with domestic services. Schools must pay 18% GST on affiliation fees to boards such as Cambridge, starting from July 1, 2017.
These notices follow a clarification issued by the GST Council at its 54th meeting in September.
The Council stated that affiliation services provided to schools by central educational boards, councils or similar bodies are taxable, regardless of their name. While education itself is exempt from GST, various services provided to schools, including affiliations, are subject to tax.
Under RCM, schools must pay 18% GST on these services without the benefit of input tax credit (ITC).
Lakhani further added that Yogesh Shridhar, trustee of Tu-lip International School, mentioned, “Our school is not affiliated with Cambridge; we only run an exam centre for the board, yet we’ve received a GST notice. We have informed the authorities that the tax does not apply to us.”
Tax experts pointed out that the notices demand payment of tax, interest and penalties, with liabilities reaching Rs 25-30 lakh per school since 2017-18. School authorities were shocked at the demands and indicated they seek legal advice. Many also raised concerns over alleged procedural errors by the GST department.
MP Chandran, chairman of JG International School, added, “We were not called for a hearing and the necessary adjudication process appears to have been ignored. Instead, GST recovery actions have been initiated retrospectively from the 2017-18 financial year, without following due procedure.”
School management has warned that the additional financial burden might eventually be passed on to parents. A trustee of another school said, “Schools cannot absorb such steep taxation, so the GST burden will ultimately be passed on to parents.”
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