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BW Businessworld

A Costly Proposition

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The MBA degree could cost you more, courtesy an order by the finance ministry. In July 2001, the ministry had issued a circular asking B-schools offering unaccredited business management programmes to pay 10.3 per cent service tax on tuition fees. With this, all unaccredited business management courses come under the category of commercial training under Section 65 (27) of the Indirect Taxes.

B-schools say the move is unjustified. They argue that most of their courses are not executive education programmes, but full-length courses. Take, for instance, Jamshedpur-based Xavier Labour Research Institute (XLRI). It has been running a popular one-year general management programme (GMP) for executives for many years. But the programme will now attract service tax, because it is not accredited by the AICTE.

XLRI has 120 students in its GMP and it charges Rs 14 lakh per student. The service tax burden at the rate of 10.3 per cent works out to Rs 1.44 lakh per student. XLRI has already started collecting the additional fee from students in tranches. "This is a specific directive announced by the finance ministry, and we are complying by it," says a spokesperson.

Other institutes such as the Indian School of Business (ISB) in Hyderabad will also be impacted, as they too run management programmes not approved by AICTE.

The new rule is contentious. For example, in XLRI's case, it is run by a private trust and has got not-for-profit status — which exempts it from paying income tax. Other prominent B-schools echo the same. "Our contention is that we are a not-for-profit entity and we should not be treated as a commercial enterprise whether our courses are AICTE-approved or not," says S. Sriram, executive director, Great Lakes Institute of Management in Chennai. Great Lakes is fighting a service tax case in the Customs, Excise and Service Tax Appellate Tribunal (CESAT). "Our one-year executive management programme got AICTE's approval last year. However, the service tax department has asked us to pay taxes for all the years prior to 2010," says Sriram.

ICFAI, which runs several B-schools across the country is another affected party. Though it refused to give details, ICFAI spokesperson admitted that its cases are pending for de-novo consideration, at the tribunal level.

Some people think the finance ministry's order may not get too far. "Since 99 per cent of private education in India is run by politicians, I see little scope for this law to be passed. The finance ministry has been trying to tax trusts for the last three years," says P.V. Ramana, chairman of Mumbai-based ITM Group.

While major B-schools in the country are busy opposing the finance ministry's order, it is the students who will have to bear the brunt — at least for the time being.

(This story was published in Businessworld Issue Dated 23-01-2012)