In the upcoming Union budget 2023, edtech startups seek a lower tax slab on educational products and services. Edtech founders believe that the high tax slab they currently fall under acts as a barrier to democratising education at a time when the government is pushing for it.
“The government says that education is not for profit and we want to democratise education. The NEP (new education policy) says that we want to bring multimodal learning. But when you look at the GST (goods and services tax) we pay, the tax regime hasn't kept pace,” said Sumeet Mehta, co-founder and chief executive officer (CEO) of WestBridge-backed school edtech unicorn LEAD.
At present, educational services and products are in the 18 percent GST slab.
“Most educational services are charged at 18 percent. Others like learning hardware for schools are taxed even higher at 28 percent. But the schools can't charge parents, hence we can't charge schools. So, there is somewhere a mismatch between the education policy of the country and the GST regime for edtech,” Mehta told Moneycontrol.
In Budget 2022, Finance Minister Nirmala Sitharaman highlighted the government's focus on digital learning with its decision to expand the ‘One class, one TV channel’ programme and set up a digital university, among other efforts.
The NEP introduced by the government pre-pandemic also pushes tech integration in school education while underlining the need for pedagogy to become multimodal.
“If we want holistic, multimodal education, then we have to look at all components and remove the tax burden so that we can truly make education affordable,” added LEAD's Mehta.
Also Read: No credible competition in school edtech space: LEAD’s Sumeet Mehta
IEC weighs in
The newly formed self-governing industry body, the Indian Edtech Consortium (IEC), weighed in on the demand and said the government should consider shifting educational products and services to a tax slab of 5-12 percent.
“We also strongly recommend income tax benefits per annum for parents of up to Rs 15,000 for those spending on educational products and services,” said Mayank Kumar, chair of IEC.
IEC’s Kumar, who is also the co-founder and managing director of higher ed and upskilling unicorn upGrad, said the government in the next budget should consider reducing the cost associated with higher education and provide rebates and deductions in tax calculation for those who wish to upskill.
“Similar to how we have Section 80C to reduce the tax burden, the government should also introduce an additional tax provision to accelerate the acceptance of upskilling and online education,” said Kumar.
Kumar believes such tax deductions could encourage both private and government employees to upskill and acquaint them with evolving market trends. “Such learning aids will only strengthen India’s stature as the talent capital of the world and make us the talent superpower,” he added.
As part of his budget wish list, Kumar said that the government should also encourage offline universities to collaborate more with private players and technology service providers (TSPs).
“It will drive the popularity and acceptance of online degrees and online skill-based courses and lead to a more skilled nation with a higher employability quotient,” said Kumar.
Edtech in a mess
The budget wish list from edtech startups also comes at a time when many among them are fighting to survive and become profitable amid falling demand for online learning and a tough funding environment.
While many edtech unicorns and smaller startups have already undertaken mass layoffs to slash the wage bill, a major cost centre, they are also exploring ways to rationalise their advertising and marketing spends, with revenue growth slowing and external funding drying up.
Founders believe tax reductions and exemptions will help edtech firms by offering them a financial cushion during such tough times.
“Looking at the increasing cost of education in the country, long-term tax exemption, lowering GST on educational services and continued funding support will help edtech firms in exploring and investing in phygital learning formats and allow them time to rebound and attain profitability,” said Vivek Sunder, CEO of Alpha Wave-backed Cuemath.
Edtech players also expect support for creating the infrastructure needed to implement the NEP and funds to flow into areas such as digital learning, teacher training, and the development of research infrastructure.
Highlights from Budget 2022
On February 1, this year, Sitharaman kept aside a record Rs 1,04,277.72 crore for expenditure on education in her budget for the year, nearly 12 percent higher than the previous budget estimates.
Of the total allocation for FY23, she gave the lion’s share to school education of over Rs 63,449.37 crore, while the higher education segment received an outlay of over Rs 40,828 crore.
Apart from the above pointers, education experts will also keep an eye on whether the government has reduced the allocation in the revised estimate for 2022-23, and the path the government is envisioning for the sector in 2023-24.