Since all income is taxable under the Income Tax Act, coaching center income is also covered by this law and is taxable under “Business and Professional Income”.
How to calculate taxable income
All coaching centers are required to keep records containing the details of the student, for example, the student’s name, contact details and the amount of fees paid by him. All money received from the coaching profession should be deposited periodically into a separate bank account and all expenses should be paid from the same bank account.
This will not only help transparency, but also help to easily calculate your tuition fee profit.
Mandatory keeping of account books
Account books must be kept, when the income exceeds Rs 2,50,000 or the total sales, turnover or gross receipts exceed Rs 25,000,000 during the previous three years. The books of account must be kept for 6 years from the end of the financial year concerned.
Account books include:
- Cash book
- Copies of invoices / receipts
- Daily cash register
- A trade account
- Income statement
- Balance sheet
How to calculate the tax for coaching institutes
- If a person wishes to adopt a deemed income under Article 44 of the ADA, then his income will be taxable on a lump sum basis at 50% of the total gross receipts.
- However, if the person claims to have an income above 50%, then they must keep proper accounting books and tax must be paid on the net income i.e. gross receipts minus all expenses related to the business.
TPS on coaching institutes
Since coaching centers do not offer a recognized diploma / diploma, nor do they conform to the particular academic program, they are therefore 18% taxable under the GST law. Only the supply of books is exempt. If the coaching institute provides services like transportation, food, housekeeping services or stationery or any other facility, then all of these establishments are taxable under the GST.
For example: if a coaching center raises an invoice of Rs. 150,000, but also raises a fee of Rs 50,000 for books, then the GST @ 18% will only be charged on the tuition fee, i.e. i.e. GST = 18% of 1 50,000 = 27,000
Maharashtra Advance Rulings Authority
Since coaching centers do not provide any recognized qualifications or adhere to any study program, they will no longer be exempt from GST and will be required to pay 9% state GST in addition to 9% central GST. The AAR authority ruled out a similar decision regarding another coaching company that offered training to prepare for exams such as CA, CMA and others. In addition, if the institute provides accommodation or food services to students, they will not benefit from any GST exemption.
In entry number 66 of the notification, it is mentioned that there will be an exemption for specific institutions, if these are offered by an educational institution, subject to specific conditions. The conditions are stated as follows:
- The service offered is associated with education.
- Teaching is offered as part of the school program.
- Education is intended for the acquisition of a qualification identified by any law in force at the time.
The Central Board of Excise and Customs (CBEC) has also affirmed that private training institutions will no longer be considered educational institutions. Thus, private coaching establishments cannot benefit from any tax exemption. In addition, the coaching provided in these private establishments is not considered a recognized qualification.
Like any other taxpayer, coaching centers must file GST returns in GSTR-1 and GSTR-3B monthly or quarterly depending on the total amount of their invoice. If they have opted for the compounding scheme, then they have to pay tax in CMP-08 and file GSTR-4 once a year.
It is a hardship for small training centers and ultimately for parents who have to bear the burden of the GST in addition to tuition fees. Training centers should be exempt from GST provisions in the same way as educational institutions, which are exempt from paying GST. Otherwise, this burden will impact a large number of students who cannot afford this increased cost.
(Ruchika Bhagat is Managing Director (MD) of Neeraj Bhagat & Co., an ISO 9001: 2008 UKAS certified organization, founded in 1997. Ruchika graduated in 1996, Fellow of the Institute of Chartered Accountants of India (ICAI) since 1998. She specializes in business consulting, tax, regulation and risk. She is a strategic advisor in setting up businesses in India for foreign companies and ensuring compliance.)