Govt looking to curb cash transactions in entrance coaching industry

The government is looking to curb unaccounted cash transactions in a largely overlooked and unregulated sector—the multibillion dollar test-prep or coaching industry.

The human resource development (HRD) ministry has initiated talks with the revenue department and the corporate affairs ministry to explore and develop a possible mechanism to curb cash transactions, higher education secretary V.S. Oberoi said.

The initiative is in continuation of the ministry’s attempts to rein in the booming coaching sector, which is largely unregulated and therefore considered by many academicians and experts as harmful to the formal education sector.

Equally, some experts and industry insiders believe that the industry itself—students are coached at every level, from admission to high school to medical and engineering institutes to civil services—is an outcome of the poor formal education system in the country.

Oberoi said the government is “exploring ways to curb cash transactions” and that the minister has spoken with these departments recently. He said since private coaching centres or test-prep chains operate as companies or limited liability partnerships, the HRD ministry cannot do much by itself. “Hence, our ministry is in touch with related departments for a possible action plan,” he added.

A government official, who declined to be named, said that the test-prep industry is much bigger than estimated by the industry or rating agencies. The official said that more than 90% of the transactions in this sector are cash transactions.

“This is where the doubt comes in and the doubt is about tax evasion and about unregulated financial transactions. That’s why the HRD ministry along with other relevant ministries is looking to explore a mechanism,” the official said.

India’s coaching industry was worth Rs.40,000 crore in 2011 as per a report by rating agency Crisil. Though its current size is not available, industry insiders peg it in excess ofRs.50,000 crore.

Separately, the Ashok Mishra committee set up by the HRD ministry in 2015 for reforming the joint entrance exam (JEE) of the Indian Institutes of Technology (IITs) had mentioned that the coaching industry catering to the higher education sector has an annual turnover of Rs.24,000 crore. The committee had suggested regulating the sector by setting up a body for the purpose, but it did not mention the cash transaction part.

The National Democratic Alliance government feels that curbing cash transactions can reduce tax evasion to some extent in the test-prep sector, the official said, adding that while some of the test-prep players are organized, the sector is largely fragmented and that’s a “challenge for the authorities”.

The official said that the move is in keeping with two government objectives—reducing the influence of the coaching industry at the education level and pushing cashless transactions to curb tax evasion and black money at the level of the economy.

A.R.K.S. Srinivas, chief executive of Vistamind, a Bengaluru-based test-prep company running a chain of centres in several cities, supported regulation of the coaching industry.

“There is a need to regulate cash transactions in the coaching sector, because there are many cases of both service tax and income tax evasion. In a way, the sector has black money,” said Srinivas.

He said any attempt to regulate the sector will mean formal acceptance of the value of the sector. “On the one hand, you realize that the test-prep industry adds value to the education system, and on the other hand, you put it down. The moment you regulate, it will give the sector respectability,” he added.

The Union government has announced several measures in the past one year to promote cashless transactions. On 24 February, the cabinet approved a plan to promote payments through cards and other electronic means to check tax evasion and transition towards a cashless economy without giving out any specific details, Mint reported on 25 February.

In the past couple of months, the finance ministry has come out with notifications saying that cash transactions of more than Rs.2 lakh on items such as jewellery will invite 1% tax collection at source or TCS.

On 8 June, the income tax department said that from now on, car sellers will have to collect a 1% tax from buyers if the value of the vehicle exceeds Rs.10 lakh.

The second government official quoted earlier said that the finer details of the plan shall be hammered out soon.

While the government believes that such a move is needed, experts and industry insiders believe that to achieve the purpose, the industry will need to be regulated, which will not be easy.

“It’s an old but fragmented sector. The buyer and seller deals in this sector will be tough to track and regulate. While you can track the big players, the smaller ones will not be easy,” said Anindya Mallick, partner at consulting firm Deloitte Touche Tohmatsu India.