Charitable organisations such as trusts, societies and NGOs play a vital role in social development. While many such organisations enjoy exemption under the Income-tax Act, 1961, GST operates on entirely different principles. An exemption under Income Tax does not automatically grant exemption under GST.
This article analyses the applicability of GST on various activities carried out by charitable organisations, including donations, concessional supplies, exemptions available, and input tax credit implications.
1. Whether Charitable Organisations Are “Persons” Under GST?
Yes. Under Section 2(84) of the CGST Act, 2017, the term “person” includes trusts, societies, associations, and other artificial juridical persons. Accordingly, charitable organisations are fully recognised as taxable persons under GST.
2. When Does GST Apply to Activities of Charitable Organisations?
For GST to apply, ALL the following conditions must be satisfied:
(A) Supply – A Wide Concept
Section 7 defines supply very broadly to include all forms of supply of goods or services such as sale, transfer, barter, exchange, license, rental, lease or disposal.
Most activities carried out by NGOs may fall within the scope of “supply” unless specifically excluded.
(B) Business – Profit Motive Is Irrelevant
Under Section 2(17), the term “business” includes any trade, commerce, profession or similar activity whether or not it is carried on for a pecuniary benefit. Thus, even welfare-oriented activities can be considered business for GST purposes
(C) Consideration
Consideration includes any payment made or to be made in money or otherwise. Even concessional pricing constitutes consideration.
For example: Sale of food items at concessional rates falls within the ambit of GST, as it constitutes a “supply” made for consideration, even if the price charged is nominal. However, if the same food items are distributed completely free of cost, there is no consideration involved and, accordingly, it would generally fall outside the ambit of GST (unless covered under deeming provisions such as supplies between related or distinct persons).
However, supplies between related parties or branches (distinct persons) are taxable even if there is no consideration, and tax must be paid on the open market value of such supply.
3. Exemptions Available to Charitable Organisations
GST law provides limited and specific exemptions to charitable organisations under Notification No. 12/2017 – Central Tax (Rate).
Mandatory Conditions to claim exemption are:
1. The organisation must be registered under Section 12AA / 12AB of the Income-tax Act, and
2. Services must qualify as “charitable activities” as defined in the notification
Meaning of “Charitable Activities”
Charitable activities include services relating to:
- Public health (diagnosis, treatment, care)
- Advancement of religion, spirituality or yoga
- Advancement of educational or skill development programmes specifically for:
- Abandoned, orphaned or homeless children
- Physically or mentally abused persons
- Prisoners
- Persons aged 65 years or above in rural areas
- Preservation of environment
4. Education and Training – A Common Area of Confusion
If the Charitable Trust runs an “Educational Institution” (School, College, or approved Vocational Course), its services to students, faculty, and staff are exempt, regardless of the “Charitable Activities” definition. This is super exemption Independent of 12AA registration.
Services received by such schools (like catering, security, or cleaning) are also exempt under specific conditions. [Notification 12/2017-CTR, Entry 66]
- However, Skill development or training for corporate employees, professionals, or general public, Private Tuitions, courses leading to unrecognised degrees offered by colleges remain taxable under GST.
5. Registration Requirement Under GST
A charitable organisation is required to obtain GST registration if:
- It supplies taxable goods or services exceeding the threshold limit (eg: 40 Lakh for Goods and 20 Lakh for Services in Assam)
- It makes inter-State taxable supplies, irrespective of turnover
- It is liable to pay tax under Reverse Charge Mechanism (RCM).
However, in cases where a person is exclusively engaged in making exempt outward supplies, Section 23 overrides Section 24 and such person is not required to obtain registration merely on account of reverse charge liability.
For threshold calculation, both exempt and taxable turnover are aggregated.
6. Concessional or Subsidised Supplies
If a trust supplies goods or services at concessional rates and such supplies are not covered under exemption, GST is applicable on the actual consideration received, subject to threshold limits.
Market value is irrelevant unless the transaction involves related parties.
If a charitable trust sells notebooks worth ₹100 at ₹20 to beneficiaries and the supply is not exempt, GST will apply on ₹20 (not ₹100).
7. Composite Supply
NGOs often provide bundled goods and services together, and understanding whether such bundled supplies qualify as a composite supply is crucial to determine the correct GST treatment and avoid unintended tax liability.
Example, If goods (like medicines) are supplied as part of a bundled healthcare service to an in-patient, they may be exempt as a ‘Composite Supply’ under Entry 74, even if a nominal price is charged.” Notification No. 12/2017-CTR.
8. Donations – When Are They Taxable?
The taxability of donations depends on whether the donor receives any benefit in return.
(A) Non-taxable Donations
- Pure donations without any obligation
- No branding, sponsorship, naming rights or services to donor
Example: Donation for free education of poor village children.
(B) Taxable Donations
Where donation involves quid-pro-quo, GST is applicable.
Examples:
- Training programmes conducted for donor’s employees
- Display of donor’s brand or logo
- Sponsorship arrangements
- Naming rights of buildings or events
Such receipts qualify as consideration for supply.
Sponsorship vs. “Gratitude”
The CBIC issued a very helpful Circular (No. 116/35/2019-GST) Dt: 11/10/2019 on this.
- The Rule: If a donor’s name is displayed as a mark of gratitude (e.g., “Donated by Mr. X” on a hospital room door) in a way that doesn’t promote their business, it is not taxable.
- The Pivot: If it says “Best tea provided by X Tea Co.” with a logo, it becomes Sponsorship (taxable). Your draft should clarify this “Gratitude vs. Advertising” line.
The same principle applies to CSR donations as well..
9. Input Tax Credit (ITC) Implications
Where a trust undertakes both:
- Exempt / non-taxable activities, and
- Taxable supplies
It is required to:
- Reverse ITC attributable to exempt supplies as per Section 17 read with Rules 42 & 43
ITC attributable to taxable supplies is allowed.
10. Reverse Charge Mechanism on Imports
Under Entry 10 of Notif. 9/2017-ITR, if an NGO (12AA/12AB) imports services for charitable activities from a person located outside India, it is exempt from IGST under RCM. However, If they import a service for administrative or commercial use (e.g., foreign software for accounting), they must pay GST under RCM. Also, online information and database access or retrieval services and Transportation of goods by a vessel from a place outside India remains taxable under RCM.
11. Rent
Exemption applies only to religious places meant for the general public, provided daily rent is below ₹1,000 for rooms, ₹10,000 for open areas, or monthly rent for shops is below ₹10,000
Conclusion
GST compliance for charitable organisations requires careful evaluation of activities rather than reliance on income-tax exemptions. Only specific charitable activities enjoy GST exemption, while many other receipts—such as training fees, sponsorships, concessional supplies and certain CSR arrangements—remain taxable.
Proper classification of activities, timely registration, and correct ITC reversal are essential to avoid litigation and interest exposure.
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“This article is for educational purposes only and does not constitute legal advice. Readers should consult a Professional and read the latest GST notifications and circulars.”
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