Last updated: February 13th, 2020 4:45 PM

Procedure for Starting a Preschool in India

Preschools have become a bourgeoning business in India. You will be able to locate a preschool with daycare, crèche, playschool with after school activities so on and so forth in every nook and corner. Preschools have yielded high income and indeed are a lucrative business to invest in. Though preschools yield a high income it is also important to note that many preschools have failed to meet several ethical criteria along with key factors that would otherwise contribute towards a successful preschool business. The criteria to start a preschool in advanced cities will vary compared to the minor cities.

Business Plan

If you are planning to start a preschool or playschool, it is first recommended that a business plan be prepared. The business plan for a preschool should comprise of the details:

• How many children you will cater to
• Business Mode: Daycare, preschool, playschool with afterschool activities, crèche etc
• How many teaching, admin and support staff you need to hire
• Funds required for renting, leasing, vehicles, salaries, equipment etc
• Location and space
• Infrastructure
• The indoor and outdoor area
• If the business will be full time or part-time

Registrations & Licenses

State Government have enacted laws like the “Private School Education Acts” which regulate the operations of a school. Therefore, prior to starting a preschool or school, it is important for the Promoters to know about the State Education Act and play to obtain the relevant registrations.

Preschools can be set up as a for-profit or not-for-profit enterprise. If the promoters wish to operate the preschool as a for-profit enterprise, then it is advisable to incorporate a private limited company or a Limited Liability Partnership. In case the promoters wish to operate the preschool as a not-for-profit enterprise, then a Section 8 Company or a Trust can be registered.

Loan for Starting Preschool

Arranging for funds to invest in your preschool business is crucial. Depending on how big or small your preschool is going to be you will need to arrange for funds accordingly. Banks are favourable for lending to establish a preschool, with Banks such as Bharatiya Mahila Bank operating a special scheme for funding of Day Care Centers.

Bharatiya Mahila Bank: Parvarish - Loan For Day Care Centre:

• To assist women to establish Child daycare centre, for purchase of utensils, equipment etc
• Collateral Free to be covered under CGTMSE
• Loan repayment in 5 years
• Age of applicant min 21 years and max 55 years
• 12% Rate of Interest

Banks would typically provide loans for creations of items such as building, interior, furniture or equipment. Banks cannot fund operational expenditure such as staff salary, maintenance, rental, utility bill, etc., Therefore, it is important that the promoters draw out a cash flow statement for at least one year and syndicate bank loan for investment in long-term assets (building, furniture, etc.,), which can be funded by the Bank. Any shortfall in operational expenditure would have to be supported by equity funds of the promoters.

Choosing the Right Location & Infrastructure

It is very important to invest time in looking out for the right location and adequate space to set up the preschool business. The preschool should be located in a child-friendly area and space should be adequate to set up infrastructure accordingly. For a school, cleanliness and hygiene are very important, so ensure that the location is well maintained and does not possess any health risk.

Also, in case the location where the preschool is setup is not an own premise, enter into a long-term lease or rental with the landlord to ensure that the investment in terms of infrastructure and business development is not jeopardized.

Service Tax Applicability for Schools

Once the school begins operations, compliance with tax regulations must be maintained. Each year, income tax on the profits of the preschool may be applicable based on the type of entity established by the promoters (viz., for-profit or not for profit).

However, service tax is not applicable for a school as it is included in the negative list. The following items are a part of the service tax negative list and thus exempt from service tax:

1. Pre-school education and education upto higher secondary school or equivalent;
2. Education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force;
3. Education as a part of an approved vocational education course;”.

For help starting a preschool, visit IndiaFilings.com to get a free consultation from an IndiaFilings Business Advisor.