How to Start an Educational Institution – Procedural and Legal Analysis

Last Updated at: Dec 16, 2020
Start an Educational Institution

The educational sector is the most promising and growing industry in the Indian market. The Indian education sector is the biggest and fast-growing business model. However, running an educational institution is a task and has been a challenge in itself. Additionally, the sector which was considered largely to be charitable trust has now turned into an industry. Moreover, starting a new venture in this sector can be a profitable one if a systematic procedure is followed.  

Educational institutions mean a preschool, a public or private elementary or secondary school, an institution of undergraduate higher education; moreover, an institution of graduate higher education, or an institution of professional education, or an institution of vocational education, that operates a program of scholarly research.

About the industry

Educational institutions are organisations that enter into various contracts ranging from employment contracts to licensing Intellectual Property Rights. Further, the government’s initiatives like the National Accreditation Regulatory Authority Bill for higher education and the Foreign Educational Institutional Bill were the first steps of policy formation for promoting higher education and for attracting Foreign Direct Investment (FDI) in India. Additionally, 100% FDI through an automatic route has been allowed in education since 2002.

  • The K-12 segment and the higher education segment have become a major model of attraction for potential private equity investors although it should be in a charitable segment.
  • Moreover, with the increase in affordability and the need for quality education, international schools (schools affiliated with international boards) are also gaining popularity in urban areas.
  • Further, Foreign/international education providers have shown a lot of interest in education in India as it is open to FDI and this sector needs to have more reforms comparatively.
Moreover, education is a subject matter of both central and state governments. Additionally, being in the concurrent list of the 7th Schedule both centre and state government can make rules and policies governing this sector.
  • Similarly, primary education in India is regulated by the board a school is affiliated to, like the Central Board of Secondary Education, Indian Certificate of Secondary Education, or any of the state boards.
  • Further, the Tertiary level of education is regulated by the University Grant Commission, All India Council for Technical Education, Medical Council of India and Bar Council of India

Further, the Major laws governing this sector are given below:- (only educational laws are covered)

University Grants Commission Act, 1956

  • Additionally, makes provisions for the co-ordination and determination of standards in universities through the University Grants Commission, which Commission’s mandate includes determining and maintaining standards of teaching, examination, additionally, research in universities; and framing regulations on minimum standards of education

University Grants Commission (Institutions Deemed to be Universities) Regulation, 2010

  • Further, prescribes certain requirements to qualify for the grant of status as a deemed university

University Grants Commission (Establishment of and Maintenance of Standards in Private Universities) Regulations, 2003 and separate State Acts

  • Similarly, Govern the setting up of private universities (each State may have a separate Act/policy governing the setting up of private universities)
  • Additionally, prescribe conditions and requirements to be fulfilled for setting up as well as maintaining a private university
Further, the University Grants Commission (Promotion and Maintenance of Standards of Academic Collaboration between Indian and Foreign Educational Institutions) Regulations, 2016
  • Initially, it Regulates twinning programmes for non-technical courses in India
  • Further, mandates Indian and foreign universities to comply with several pre-conditions for collaboration

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All India Council for Technical Education Regulations for Entry and Operations (Grant of Approvals for Technical Institutions) Regulations, 2011

  • Moreover, regulates the setting up of technical institutions and prescribes conditions to be observed and satisfied by such institutions
  • Applies to foreign universities/institutions interested in imparting technical education in India leading to the award of diplomas, degrees, etc., further, even facilitates/regulates collaborations and partnerships between Indian and foreign universities/institutions.
Similarly, the Central Board of Secondary Education Affiliation Bye-laws/Council for the Indian School Certificate Examinations Guidelines for Affiliation. Further, separate State Acts, Rules, Regulations, etc.
  • Likewise, prescribes conditions and requirements to be fulfilled for setting up schools/for being affiliated with the Central Board of Secondary Education. Additionally, the Council for the Indian School Certificate Examinations. Further, State Board (each State may have a separate Act/Board governing the setting up/affiliation of schools)
  • Further, international schools would have to fulfil the criteria set out by the concerned international board.

Exchange Control Regulations

  • The Foreign Exchange Management Act, 1999 (FEMA) governs the transfer of foreign exchange into and out of India. Further, the FEMA confers on the Reserve Bank of India the power to frame detailed regulations about various aspects of exchange control.
University Grants Commission (Online Courses or Programmes1) Regulations, 2018
  • Higher Educational Institutions can offer Certificate, Diploma and Degree Programmes in full-fledged online mode in only those disciplines in which it has already been offering the same or similar Programmes. Further, Courses at graduation level in regular mode (of classroom teaching) or in Open and Distance Learning mode and from which at least one batch has been graduated and approved by the statutory councils, as applicable.
  • Additionally, online Programmes requiring Practical/ Laboratory Courses as a curricular requirement shall not be permitted.
  • Moreover, the Examinations shall be conducted in proctored mode and conformity with any norms for such examinations stipulated by the commission.

Procedure for Registration of Educational Institution

To start an Educational Institution (Schools/ Colleges) can be a long, tiring, expensive, and gruesome process in India. Further, there are several licenses, permissions, and registrations one needs to take care of before venturing into this domain.

1. Registration of School/College Institution

The first and important step in the establishment of an educational institution is the registration of the institution. Likewise, as per the Constitution of India, education institutions have to be registered under the name of Trust or Society only. However, private institutions can also set up the institution under section 8 of the Companies Act, 2013.

Registration of Land/Premises

  1. Further, if an individual has landed in his/her name, then NOC from the State Education Department should be obtained.
  2. Further, if any land has to be purchased from the Government for an established Educational institution then a no-objection certificate is referred to as the Essentiality Certificate (EC) from the concerned state’s Department of Education. Likewise, society will require a Letter of Sponsorship as well from DOE( Department of Education). Moreover, which has to be sent to the e land-owning agencies, like the Municipal corporation of the area. Additionally, the land is sold at subsidized rates by the land-owning agency
  3. List of Documents required for registration of an educational institution:

  • The application for EC a fee of Rs. 500
  • Memorandum of Association,
  • Moreover, Affidavit regarding the relationship of society members,
  • Further, copy of Reserve Fund for Rs. 2 lakhs from the bank,
  • Additionally, an affidavit from management regarding the proper operation of the school, as per Delhi School Education Rules, 1973,
  • Additionally, undertaking regarding fees and other charges,
  • List of members of society with full particulars,
  • Moreover, details of land and building,
  • Similarly, Project report of the proposed school,
  • Further, the experience of society/members in the field of education,
  • Scheme of Management,
  • Further, documents regarding the ownership of land allotted to school,
  • Auditor’s statement of account(s),
  • Additionally, Staff statement as Performa,
  • Further, Rates of fee and other fund charges,
  • Likewise, Enrolment of students.

4. Licenses to be obtained for starting an educational institution:

  • Registration Certificate of Society – Societies Recognition Act, 1860,
  • Essentiality Certificate DoE,
  • Further, Certificate of Recognition MCD/ DoE,
  • Moreover, Certificate of Upgradation DoE,
  • Further, Certificate of Affiliation CBSE,
  • Certificate of MCD
  • Similarly, Certificate from UGC
  • Likewise, an affidavit regarding the proper purchase of land and no violation of master plan in the land used,
  • Further, the MCD/Development Authority of the Concerned State,
  • Similarly, Site Plan of the Building/Sanctioned Building Plan approved by MCD/DDA,
  • Additionally, building Fitness Certificate MCD,
  • Additionally, Health Certificate MCD,
  • Further, water Testing Report The water board of the concerned state,
  • Additionally, completion Certificate DDA,
  • Similarly, duly approved Scheme of Management DoE,
  • Further, no Loan Certificate against FD issued by the bank Bank,
  • Hence, Land Use Permitted Certificate (in case of rented land) Landlord.

Various business models in the education sector

Business models Investment Compliances
Traditional schools/ universities (classroom learning)   The procedure given above has to be followed.
Coaching centres – offline   1.      Registration of the institute

2.      Obtain trade license

3.      Moreover, open a current account

4.      Shop and establishment license

Edtech startups – online courses/ tutorials/ coaching classes   1.      Registration of Start-up

2.      GST compliances

3.      domain name registration

4.      Further, IPR registrations

5.      enter into agreements – non-disclosure, IP agreements, service agreements

6.   Further, payment compliances


Taxation Regimes under the Income-tax Act, 1961

Type of registration Taxation guidelines
Charitable trust Additionally, the trust must apply for a PAN card as it is a must for income tax registration with the income tax department, Government of India.

Moreover, after the trust has received the income tax certificate under section 12A, it can apply for various tax exemptions for donors as well. Additionally, it can be under Sec 80G for 100% subject to conditions.

Society under Societies Act, 1860 As per the provision of sec 12A of the income tax act, the income of an organization is exempted if an NGO has 12A registration. further, if the registration under section 12 A is not done, the NGO or organization must pay income tax on the surplus income during the year. Additionally, this registration under section 12A is a one-time registration.
The Company under Section 8 of the Companies Act, 2013 The taxation system is the same as trust and society.
Sole proprietorship In this case, taxation is done on the name of the individual in whose name the institution is registered.
Government Institutions Those educational Institutes which are wholly or substantially financed by the Government (either Union or State) are exempted from payment of taxes under section 10(23C) subclause iii(ab) of the Income Tax 
Service tax registration The Indian government requires service tax if it expects that the turnover would be more than 9 lakhs.


Taxation system under the GST regime

  • Where the educational institution is providing only education as a service then such fees are chargeable at NIL rate and such educational institutions are not required to be registered.
  • Additionally, where educational institutions providing other supplies or other services, i.e., providing books to students, providing shoes or uniforms, etc to students than in such cases such institutions liable to get themselves for registration.
  • Further, services that provide to higher education institutions will be taxable. While services by an educational institution is out of the GST ambit, the same is not the case with services to an educational institution.
Description of service Rate of GST
Education Services 18% ( 9% Central Tax + 9% State Tax 
Technical aids for education, rehabilitation, vocational training, and employment of the blind such as Braille typewriters, braille watches, teaching and learning aids, games and other instruments and vocational aids specifically adapted for use of the blind Braille instruments, paper, etc. 5%
Instruments, apparatus, and models, designed for demonstrational purposes (for example, in education or exhibitions), unsuitable for other uses. 28%


This article is written by Vandhana