Impact of GST on Charitable and Religious Trusts

Impact of GST on Charitable and Religious Trusts:

Today I will discuss GST on Charitable and Religious trusts in very simplified manner ….

• Now, All services provided by Charitable and Religious trusts /institutions are not exempt.We all know that main object of every charitable and religious institutions is to promote education, public health, religious activities and social welfare etc but incidental to main object they will be earning revenue directly or indirectly.
• GST applicable on type of services such entity undertakes.
• Taxable event under GST –‘Supply of goods or services’.
• General meaning of supply –make available to someone what he/she needed.
• In GST also -There must be supplier of services and recipient of services –Give and take relationship. In short, we have to check whether activity supply or not-

√ In course of business or not

√ Consideration

√ Two persons involved

• Section 2(17) defines business –very wide term But we will discuss only relevant to our discussion-
• business” includes––

(a) Any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

• Under Section 2(17) of CGST Act clearly states that for an activity to be considered as business, profit making is not a required condition. So any activity without profit motive will also be considered as business transaction. Further, supply made even without consideration but for business purpose then liable for GST.

For example- Donor donates blankets with its logo printed on it to an NPO to be distributed in its educational programmes treated as supply and become subject to GST.

• Section 7 of the CGST Act was amended to include a new clause under the definition of supply. Activities or transactions involving the supply of goods or services by any person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.

So from above discussion it is clear that Charitable Institutions/trusts/NGO liable for GST on supply of goods or services for a consideration or not ,even without profit motive but only if that entity crosses threshold exemption limit of Rs 20 lacs as prescribed in Section 22 CGST ACT, 2017 but there is master exemption available …

Master exemption-

Charitable & Religious Trusts are provided with some exemptions from GST through Notification issued by the government.

Notification No 12/2017 – Central Tax (Rates) dated 28th June 2017, at Entry No 1 which is specified as below:

Chapter 99 -Services by an entity registered under section 12AA of the Income-tax Act, 1961 (43 of 1961) by way of charitable activities.

Exemption to Charitable & Religious Trusts is available only if below conditions are satisfied:

1. Trust is registered under Section 12AA of Income Tax Act, 1961

2. Services provided by Trusts are falling within the meaning charitable activities.

But meaning of charitable activities needed to be understood-

Charitable activities” means activities relating to –

I. public health by way of,-

A. care or counseling of

i. terminally ill persons or persons with severe physical or mental disability;

ii. persons afflicted with HIV or AIDS;

iii. persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or

B. public awareness of preventive health, family planning or prevention of HIV infection;

ii. advancement of religion, spirituality or yoga;

iii. advancement of educational programmes or skill development relating to,-

A. abandoned, orphaned or homeless children;

B. physically or mentally abused and traumatized persons;

C. prisoners; or

D. persons over the age of 65 years residing in a rural area;

iv. preservation of environment including watershed, forests and wildlife;

So, what it means exemption available only if entity provided above stated services only.

One more point charitable purpose as defined in income tax act is wider term as compared to above as in income tax charitable purpose means relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility- so various activities are included which are not considered in GST.

Note- Master Exemption available only for services not for goods.

Now, let us discuss various GST Impact on receipts received by Charitable and Religious trusts –

1. General Donations- Donations received by Non-Profit organisations does not constitute taxable event under GST. As receipt of donations will not satisfy business definition under GST Act and there is no element of supply of services embedded in it. These donations will not be liable for GST.

2. Interest Income : Interest Income received by organisation under saving/fixed/recurring deposits will be exempted under GST (Notification no. 12/2017 dated 28/06/2017)

3. Renting services- For renting services- Exemption available for renting services only if entity registered as a charitable or religious trust under section 12AA of the Income-tax Act, 1961—further exemption shall apply to

♦ Renting of rooms where charges are one thousand rupees or more per day;

♦ Renting of premises, community halls, kalyan mandapam or open area, and the like where charges are ten thousand rupees or more per day;

♦ Renting of shops or other spaces for business or commerce where charges are ten thousand rupees or more per month.

4. Educational Services :

Entry 66 of Mega Exemption Notification-Following Activities are exempted provided by institution to its-

> its students, faculty and staff,

> Students entrance examination against consideration in the form of entrance fee,

> an educational institution, by way of:

> Transportation of students, faculty and staff;

> Catering, including any mid-day meals,

> Security or cleaning or house-keeping services performed in such educational institution,

> Services relating to admission to, or conduct of examination by, such institution,

> Supply of online educational journals or periodicals

5. Importation Services: In case of charitable trusts registered under Section 12AA of Income-tax Act receives any services from provider of services located in non-taxable territory, for charitable purposes, then such services received by trust are not chargeable to GST under the reverse charge mechanism.

6. Sale of publications- Sale of publications will attract provisions of supply u/s 7 but books ,periodicals, newspapers,monthly journals attract ‘’nil’’ rate of tax but yearly printed calenders attract 12 percent gst rate.

7. Various Services of Charitable Trusts : In case if trusts are providing residential or non-residential yoga camps by receiving donation or other charges from the participants, these will liable for GST But if registered under Section 12AA of Income Tax Act, 1961 exempted.

Further, No GST will be applicable if charitable trusts are running public libraries and lend books or other publications or knowledge enhancing material from their libraries

To sum up-

1. In case services (exempted + taxable) provided by Charitable or Religious trusts exceeded threshold limit of Rs 20 lacs –Liable for GST registration.

2. Further, Master exemption available to above stated entities –i.e Registration u/s 12AA but only if indulge in charitable activities mentioned above.

Queries related to above mailed at [email protected].