GST on School Bus Services Paid by Parents: What the AAAR Ruled
The Tamil Nadu Appellate Authority for Advance Ruling (AAAR) recently clarified that school bus transport services are taxable under GST when the fee is paid directly by parents to transport operators. This blog explains the key aspects of this decision, who it affects, and what action schools and vendors should take.
What Was the Dispute About?
The applicant — M/s Aathi Bus Services — provided transportation services to school children. Instead of billing the school, they collected charges directly from parents. They argued that such services should be exempt under Notification No. 12/2017-Central Tax (Rate), which exempts “transportation of students, faculty and staff to and from an educational institution.”
The Tamil Nadu AAR denied the exemption, stating that the service must be contracted by the school, not parents. On appeal, the Tamil Nadu AAAR upheld this decision.
Key Ruling by Tamil Nadu AAAR
Here’s what the authority clarified:
| Issue | AAAR View |
|---|---|
| Who pays for transport | Parents directly |
| Is there a contract with school? | No |
| GST applicable? | Yes – not exempt under Notification No. 12/2017 |
| Exemption applies if… | The school engages and pays for the service directly |
Focus keyphrase: GST on school bus services
What the Notification Says
Under Entry 66(b)(i) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017:
“Services provided to an educational institution by way of transportation of students, faculty and staff” are exempt.
But as per CBIC Circular No. 177/09/2022-GST dated 03.08.2022, this exemption requires a direct link between the school and the service provider. If parents independently hire the service, it becomes a taxable B2C (Business to Consumer) transaction.
Practical Implications
For Schools:
- If you want the exemption to apply, enter into direct contracts with bus operators.
- Pay them from school funds and recover costs from parents through school fees.
For Transport Operators:
- If you’re collecting fees from parents, charge 5% or 12% GST depending on input tax credit eligibility.
- Register under GST if aggregate turnover exceeds ₹20 lakh (₹10 lakh in special category states).
For Parents:
- Be aware that school bus charges may now include GST if not routed through the school.
Expert View
According to senior tax consultants, “the structure of payment and contract determines the GST applicability. To avail exemption, schools must formalise the relationship with transporters.”
Comparison: Exempt vs Taxable School Transport
| Particulars | Exempt | Taxable |
|---|---|---|
| Who hires bus? | School | Parents |
| Payment mode | Paid by school | Paid by parents |
| Contract | School ↔ Bus Operator | Parents ↔ Bus Operator |
| GST Impact | Not Applicable | GST @ 5% or 12% Applicable |
FAQs on GST on School Bus Services
Q1. Is GST applicable if parents pay the school and the school pays the transporter?
A: No. That falls under the exemption if the school is the actual service recipient.
Q2. Can transporters claim input tax credit (ITC)?
A: Only if they charge 12% GST. At 5%, ITC is not allowed as per GST Rate Notification No. 11/2017.
Q3. Is GST registration required if turnover is below ₹20 lakh?
A: No. But if turnover exceeds the threshold, registration becomes mandatory.
Final Takeaway
The Tamil Nadu AAAR ruling has made it clear — GST on school bus services is applicable when parents directly pay. Schools and vendors must re-evaluate their agreements if they want to legally avoid GST and remain compliant.
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Summary
The Tamil Nadu AAAR ruled that GST applies on school bus services if paid directly by parents, not by the school. For exemption under Notification 12/2017, the transport must be contracted by the school. Schools and vendors should restructure billing to stay GST-compliant.