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Union Budget 2014 – 15: Key Highlights in Education and Changes in Foreign Direct Investment

The Union Budget 2014-15 was presented by Finance Minister Arun Jaitley in the Parliament on July 10, 2014. Here are some of the key highlights of the Budget relating to the education sector and to foreign direct investments in India:

Education – Waiver of Service Tax Exemption:

The Mega Exemption Notification No. 25/2012-ST that exempted levy of service tax on services provided to or by educational institutions by way of inter alia  “auxiliary educational services” and “renting of immovable property”, has now been amended vide Notification No. 06/2014-ST dated July 11, 2014 (“Amendment Notification”), as under:

  • Blanket exemption from levy of service tax exemption on services provided to or by educational institutions by way of inter alia “auxiliary educational services” or “renting of immovable property”, as aforesaid, has been withdrawn, and now, only the following services when provided to educational institutions would be exempted from the levy of service tax:

(i)   transportation of students, faculty and staff;

(ii)  catering service including any mid-day meals scheme sponsored by the Government;

(iii) security or cleaning or house-keeping services performed in such institutions; and

(iv) services relating to admission to, or conduct of examination by, such institutions.

  • In addition, the Amendment Notification has reconfirmed the exemption from levy of service tax on any services provided by an educational institution to its students, faculty and staff.

Foreign Direct Investment (“FDI”)

India today is the largest buyer of defence equipment in the world, but its domestic manufacturing capacities are still at the nascent stage. There is a concern that India is buying a substantial part of its defence requirements from foreign players (controlled by foreign governments and private companies) at a considerable outflow of foreign exchange. Similarly, India’s insurance sector is investment starved and needs extensive expansion. To provide impetus to foreign investments, the policy on FDI in the “Defence” and “Insurance” sectors has been liberalised, as under:

  • FDI in the defence manufacturing and insurance sectors will be increased from the existing 26% (twenty-six percent), to 49% (forty-nine percent).
  • All FDI in these sectors will continue to be covered under the government approval route.
  • All FDI in these sectors will be subject to the condition that the management and control of the investee Indian entity remains with Indian residents/partners.

We await the Department of Industrial Policy and Promotion’s formal notification on the above aspects, to assess if the liberalisation of FDI in these sectors will be subject to any additional conditions.