Until recent past the count of NGOs outnumbered the count of schools in India. Such being the spread of NGOs, arguably the biggest economic reform in India which is GST would certainly have its impact on NGO sector. One of the major question which people at helm of affairs of NGOs have is whether their organisation need to get registered under GST? The article attempts to put before the readers relevant extracts of statue which would facilitate in answering above question.
Normally, all fiscal statute provides minimum amount on which taxable person is not required to pay the tax. For example, under Service Tax if the value of taxable service does not exceed Rs. 10 lakhs, then service tax is not payable by the service provider.The GST Act also specifies that, if the aggregate turnover in a Financial Year does not exceed Rs. 20 lakhs (10 lakhs for special category states), the taxable person is not required to obtain registration. Such exemptions are called Threshold Exemption.
Turnover, in common parlance, is the total volume of a business. As per section 2(6) of The Central Goods and Services Tax Act, 2017(“CGST”), the term ‘Aggregate Turnover’ has been defined to include all taxable supplies, exempt supplies, exports of goods or services or both and inter-State supplies to be computed on all India basis.Further, exempt supply means all supplies which attract nil rate of tax or which may be exempted by way of a notification and includes a non-taxable supply.
GST Registration For NGO- Sec 2 (6) and Sec 22 (1) Of CGST Act 2017
As compared to the earlier law whereby only taxable services were considered for the threshold limit, in the current provisions even exempt supplies have been included in determining the threshold limit.Thus on combined reading of Sec 2(6) Of CGST Act 2017 (which speaks about “Aggregate Turnover”) and Sec 22(1) Of CGST Act 2017 (which speaks of registration under GST), it becomes evident that all NGOs making a taxable supply and having exempt supply, the aggregate turnover of which exceeds 20,00,000, would be required to get itself registered as per section 22(1) of CGST.
Exemption By Notification
The provisions relating to taxation of activities of charitable institutions and religious trusts have been borrowed and carried over from the erstwhile service tax provisions. All services provided by such entities are not exempt.In fact, there are many services that are provided by such entities which would be within the ambit of GST. Section 11 of CGST Act and Section 6 of the IGST Act provides power to Central Government to exempt on recommendation of the council.
As per notification No.12/2017-Central Tax (Rate) dated 28th June 2017 exemption is given to the charitable trusts, only if the following conditions are satisfied.
A. Entities must be registered under Section 12AA of the Income-tax Act, and
B. Such services or activities by the entity are by way of charitable activities. Thus, it is essential that the activities must conform to the term “charitable activities”.
Clause 2(r) of the said notification defines “Charitable activities”as those relating to:
1. Public health by way of:
1. Care, or counselling of:
(1)Terminally ill persons or persons with severe physical or mental disability;
(2)Persons afflicted with HIV or AIDS;
(3)Persons addicted to a dependence forming substance such as narcotics drugs or alcohol; or
2. Public awareness of preventive health, family planning or prevention of HIV infection;
3. Advancement of religion, spirituality or yoga;
4. Advancement of educational programmes or skill development relating to
(1) Abandoned, orphaned or homeless children;
(2) Physically or mentally abused and traumatised persons;
(3) Prisoners; or
(4) Persons over the age of 65 years residing in a rural area;
5. Preservation of environment including watershed, forests and wildlife.
While the income from only those activities listed above is exempt from GST, income from the activities other than those mentioned above is taxable. Thus, there could be many services provided by charitable and religious trust which are not considered as charitable activities and hence, such services come under the GST net.
Diligence To Be Exercised While Making Use Of Any Notification
Burden To Prove Eligibility Is On The Taxable Person:
A party claiming exemption has to establish that he is eligible for claiming exemption contained in the notification (Commissioner of C.Excise New Delhi v. Hari Chand Shri Gopal).
Terminology in Notification:
It has been consistently held that exemption under notification must depend on terminology which have been used in the notification.The meaning cannot be determined by the provisions of any rule.
Every Word in the Notification Should Be Strictly Construed:
There is no room for intendment in interpreting the notification and unless the meaning flows from the clear language of the notification, the benefit cannot be granted. (Hemraj Gordhandas v. H.H.Dave (SC)). An exemption Notification has to be construed strictly but that does not mean that the object and purpose of the notification is to loose sight of and the wording used therein ignored. Where the wordings of the notification are clear and unambiguous they have to be given effect to. Exemption cannot be denied by giving a construction not justified by the wordings of the Notification.
With above inputs, we conclude our discussion giving quick checklist for any Charitable Trust or NGO which they could walkthrough and conclude:
A) Whether each stream of revenue/activity of the organisation is being analysed from perspective of whether the same fits into the definition of “Charitable Activity”?
B) What is the Total Aggregate Turnover?
C) What is the final conclusion of organisation – is it needed to be registered ? or it need not register ?
D) Does the organisation have any documentation to substantiate its conclusion? ( this is particularly important since when any regulator shall pose query, the organisation should be in a position to substantiate its conclusion based on concrete documentation).
At end one should remember the famous quote “It takes 20 years to build reputation and 5 minutes to ruin it”. This quote is particularly relevant to several of those NGOs who have carved their repute and image out of sheer hard work and therefore would prefer to exercise needed diligence rather than being caught by regulator for non compliance out of mere inadvertence.
(CA Rajeev.Joshi ( CA,CISA,DISA,BSc (Microbiology)) The author is a Senior Management & Tax Consultant with over two decades of comprehensive industrial experience.He could be reached at [email protected]/9619912774)