Library / Goods and Services Tax: The Professional's Master Guide

32. Education, Healthcare, Charities, Grants and Government

Much of this sector is exempt, but exemptions are read strictly. Disputes arise on the taxable fringe.

32.1 Education

Services by an educational institution to its students, faculty and staff are exempt. An educational institution means one providing school education up to higher secondary, education for a qualification recognised by law, or an approved vocational course. Transport, catering, security and housekeeping services received by schools, and examination services received by any educational institution, are also exempt. Private coaching and ed-tech courses not leading to a recognised qualification are taxable at 18%.

32.2 Healthcare

Health care services by a clinical establishment, an authorised medical practitioner or paramedics are exempt. Medicines and consumables supplied to in-patients during treatment are part of this exempt composite supply. From 18 July 2022, a hospital room (other than ICU, CCU, ICCU or NICU) with a charge above Rs. 5,000 per day is taxed at 5% without ITC. Cosmetic surgery, other than reconstructive, is taxable.

Illustration 167: Hospital room rent above Rs. 5,000

Mrs. Rao is admitted to Sunrise Hospital for 6 days: 2 days in ICU at Rs. 12,000 a day and 4 days in a private room at Rs. 6,000 a day. Treatment and medicines cost Rs. 1,50,000.

Step 1: ICU charges Rs. 24,000: exempt, whatever the rate.

Step 2: Private room Rs. 24,000: above Rs. 5,000 a day and not ICU, so 5% = Rs. 1,200 (CGST Rs. 600 + SGST Rs. 600).

Step 3: Treatment and medicines Rs. 1,50,000: exempt health care.

Step 4: Total bill = Rs. 1,99,200. The hospital gets no ITC on the room service and must apportion common credit, which in practice is small.

32.3 Charities, religious places, grants and sponsorship

Services by an entity registered under section 12AB of the Income-tax Act, 1961 (and its successor in the Income-tax Act, 2025) by way of charitable activities are exempt. Charitable activities are defined narrowly: public health and welfare, advancement of religion, spirituality or yoga, advancement of educational programmes relating to abandoned children, prisoners and older persons in rural areas, and preservation of the environment. Renting of rooms in the precincts of a religious place run by such an entity is exempt where the charge is Rs. 1,000 or less per day; shops at Rs. 10,000 or less per month and community halls at Rs. 10,000 or less per day are also exempt.

A grant or donation given without any service in return is not consideration. The test is quid pro quo: if the donor gets publicity, naming rights or specific deliverables, it is sponsorship or a service. Sponsorship services supplied to a body corporate or partnership firm are taxed under reverse charge. Subsidies from the Central and State Governments are excluded from value under section 15(2)(e), while subsidies from others that are directly linked to price are included.

CSR spending has its own block. Section 17(5)(fa), from 1 October 2023, disallows ITC on goods or services used to fulfil obligations under section 135 of the Companies Act, 2013.

32.4 Incubators

A business incubator (often a section 8 company) usually has three kinds of receipts: Government grants for running programmes, incubation fees from startups, and equity or a share of revenue taken for services. The grant, without quid pro quo, is not a supply. Incubation fees for space, mentoring and support are taxable at 18%. Equity taken for services is non-monetary consideration, and the service is valued under section 15 and rule 27.

Illustration 168: Incubation fees and equity for services

Sabarmati Startup Foundation, a section 8 incubator in Ahmedabad, receives a Government grant of Rs. 50,00,000 for a programme with no deliverables to the grantor. It charges a startup Rs. 40,000 a month for space and mentoring, and takes 2% equity for a 12-month acceleration programme. The shares were valued at Rs. 6,00,000 on the basis of the startup's latest funding round.

Step 1: Grant: no supply, no GST. ITC on inputs used for the grant-funded programme should be examined; where it is used for non-business activity, it is reversed.

Step 2: Incubation fees: 12 x Rs. 40,000 = Rs. 4,80,000; GST at 18% = Rs. 86,400.

Step 3: Equity for services: the value is the money value of the non-monetary consideration, Rs. 6,00,000, supported by the valuation report. GST at 18% = Rs. 1,08,000, borne by the incubator from its own funds because the startup pays nothing in money.

Result: total output tax = Rs. 1,94,400. The startup can take ITC of both if it is registered.

32.5 Government, local authorities, RWAs and clubs

Pure services (and composite supplies where goods are up to 25% of the value) supplied to Central and State Governments, Union territories and local authorities in relation to functions entrusted to panchayats and municipalities under Articles 243G and 243W are exempt. Services by Government to business entities are generally under reverse charge, and notified Government bodies deduct TDS at 2% under section 51.

Supply of services by a resident welfare association to its members is exempt where the contribution is up to Rs. 7,500 per member per month for common use of the society. If the contribution exceeds Rs. 7,500, the whole amount is taxable at 18%, not only the excess. An RWA with turnover within Rs. 20 lakh need not register.

Illustration 169: RWA maintenance charges

Shanti Co-operative Housing Society collects maintenance of Rs. 6,500 a month from owners of 2 BHK flats and Rs. 9,000 a month from owners of penthouses. Its annual collection is Rs. 60 lakh.

Step 1: 2 BHK members: Rs. 6,500 is within Rs. 7,500, exempt.

Step 2: Penthouse members: Rs. 9,000 exceeds Rs. 7,500, so GST at 18% on the whole amount = Rs. 1,620 a month per member (CGST Rs. 810 + SGST Rs. 810).

Step 3: Turnover exceeds Rs. 20 lakh, so the society must register. Property tax, water charges and electricity collected on behalf of the municipality or utility are excluded from the Rs. 7,500 limit.

Clubs and associations raise the question of mutuality. Section 7(1)(aa), inserted by the Finance Act, 2021 with effect from 1 July 2017, treats activities of a club or association for its members as a supply.

Judicial view: Clubs and the principle of mutuality

State of West Bengal v. Calcutta Club Ltd. (Supreme Court, 2019): a members' club supplying food and services to its members does not make a sale or a taxable service, because the club and the members are not distinct persons (principle of mutuality). This was decided under the sales tax and service tax laws.

Indian Medical Association v. Union of India (Kerala High Court, 2025): a Division Bench held section 7(1)(aa) and section 2(17)(e) of the CGST Act unconstitutional, because the legislature cannot deem a transaction between a club and its members to be a supply without the constitutional definition supporting it. The ruling binds authorities in Kerala. The Union has appealed: the Supreme Court issued notice in July 2025 and directed that no recovery steps be taken against the Association, without staying the judgment, so check the current status. Clubs elsewhere should continue to pay tax or keep the issue open in their correspondence with the department.

Chapter summary

• School and recognised education are exempt; private coaching and ed-tech courses are 18%.

• Health care is exempt; non-ICU rooms above Rs. 5,000 a day are 5% without ITC.

• Grants without quid pro quo are not supplies; sponsorship to companies is under reverse charge; CSR inputs are blocked under section 17(5)(fa).

• Incubation fees are 18%; equity for services is non-monetary consideration taxable at its money value.

• RWA contributions above Rs. 7,500 per member per month are taxable in full; section 7(1)(aa) on clubs was struck down by the Kerala High Court in 2025, and the Union's appeal is pending in the Supreme Court.