India's premier technology and business schools like IIMs and IITs, which charge placement fee from companies for campus recruitment, will now have to shell out service tax from May this year, a CBEC circular said on Wednesday.

Should placement tax be imposed on IITs, IIMs?

The circular said these services rendered by the premier institutes are liable for service tax at 12.2 per cent.

Educational institutes like IITs and IIMs charge a fee from prospective employers like corporate houses or MNCs, who come to these institutes for recruiting candidates through campus interviews, it said.

Earlier, there was a confusion whether these educational institutes fall in the category of manpower recruitment supply agency and accordingly, whether service tax can be levied on the placement fee.

Clarifying the exact position, the CBEC circular stated that the service tax was leviable for the activity of manpower recruitment or supply agency only if undertaken by a commercial concern.

Given that most educational institutes do not have profit as their primary motive, they were not covered earlier under the taxable service definition till the amendment was done in this year's budget.

With the enactment of Finance Act 2006, the expression "commercial concern" was replaced with "any person" engaged in the recruitment or supply of the manpower even without commercial concern now comes under the tax net.