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U.S. Colleges Face New 2% Tax for Online Learning Programs in India

Kegler Brown Global Business News

Smart Summary

  • India has levied a new 2% tax on U.S. colleges offering online programs in India
  • Taxable programs will include online-only offerings, hybrid programs, professional programs for Indian corporations, and many courses with online modules or digital resources
  • There is an annual revenue threshold of approximately $270,000 that must be surpassed to trigger the tax

For colleges and universities everywhere, offering online learning in India just got more expensive.

Institutions providing online educational programs to students on the subcontinent, including those that serve both traditional undergraduate students and professionals through executive, graduate or certificate programs, are now subject to India’s new “Equalisation Levy” tax.

Similar to legislation enacted in the U.K., Italy, France and other countries, India is now taxing most cross-border digital transactions. The tax is payable at 2% of the consideration received or receivable by an “e-commerce operator” from “e-commerce supplies or services” to “specified payers” and became effective on April 1, 2020.

Is My Institution an “E-Commerce Operator?”

An e-commerce operator is defined as a non-resident who owns, operates or manages digital or e-commerce facilities or platforms for the online sale of goods or online provision of services or both. Our interpretation of this legislation is that any college or university who offers online learning experiences to Indian students would be considered an e-commerce operator and would be subject to the new 2% tax.

Which Programs Qualify as “E-Commerce Services?”

The tax targets various non-resident businesses that are currently exempt from taxation under the existing laws. The scope of the tax is extremely broad, and would apply to the following types of programs:

  • Distance education and online-only programs
  • Primarily online programs with some physical interface conducted in India or the U.S.
  • Online programs provided to a corporation’s employees in India
  • Programs and courses undertaken at the U.S. university with online modules and digital resources.

Which Students Count as “Specified Payers?”

The tax applies to any services that are provided to an Indian resident or person who buys goods or services (or both) using an IP address located in India.

Is There a Revenue Threshold to Trigger the Tax?

Yes. The tax will not apply to any college or university with gross receipts of less than 20,000,000 Indian rupees (approximately $270,000) during the tax year.

The Simple Eligibility Test

Given this information, we are advising colleges and universities to ask themselves three key questions:

  1. Do you charge fees/tuition for online educational programs for students or corporate professionals in India?
  2. Are those paying students or professionals residents of India or accessing the program from an Indian IP address?
  3. Did your gross revenue from these programs exceed 20,000,000 Indian rupees during the tax year?

If an institution might answer “Yes” to all three of those questions, then it should assume it now has a new tax liability.

What Are My Next Steps?

If you believe your institution may be subject to the new Equalisation Levy, your first step should be to review the criteria and your unique situation with a qualified professional. Our global education attorneys are already working with our clients to review the implications of this new tax on their operating models in India and to monitor compliance obligations. 

Vinita Mehra is a director and chair of Kegler Brown’s Global Education practice, where she works with colleges and universities on their international operations, regulatory compliance, market entry and program modeling. She can be reached directly at [email protected] or (614) 255-5508.

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