Computer training is no vocational training. Or so the finance ministry has ruled. Computer training centres that have a turnover upwards of Rs 4 lakh in a financial year will have to pay 10.2% service tax.

The government has said that institutes or centres offering coaching or training in software or hardware cannot claim exemption from the service tax levy claiming that they are providing vocational training. A clarification to this effect was issued by the finance ministry yesterday.

Coaching and training institutes were brought into the tax net in 2003-04 by the then finance minister Jaswant Singh. However, a subsequent notification issued in June 2003 exempted the vocational training and the recreational training institutes as well as computer training institutes from the levy of service tax for that financial year. The exemption was extended for a another three months till June '04.

Subsequently in September 2004, the government issued a fresh notification exempting the vocational training and the recreational training institutes from the levy of service tax. This notification also defined vocational training institute as a commercial training or coaching centre that imparts skills to a trainee to seek employment or be self employed directly after the training.

The notification was silent on computer training institutes and several computer training institutes, including the big daddies in the business, had interpreted this notification to assume exemption was available to them too.

The computer training industry as well as Nasscom had been lobbying with the government since the lapse of the June 2003 notification for further extension of the exemption. The clarification by the revenue department, has put to rest this misinterpretation. And in any case, institutes will have to register with the service tax authorities within 30 days of crossing the Rs 3 lakh turnover mark in a financial year.