Charitable Trust and NGO under GST

 

In this article, I will explain about GST provisions related to charitable trusts and NGOs. what are the transactions taxable under GST or what is the impact of GST on charitable trusts and NGOs? We would also welcome your suggestions and queries on related to GST registration and implications on charitable trusts and NGOs.

 

Read more – Pure Agent Concept in GST

 

What is NGO or Trust

 

NGOs are usually also referred to as Non-Profit Organisations. These organizations are generally formed to promote social welfare, social development, and other charitable purposes. In India, such an organization may be established as a Trust, a Society, or a Section 8 Company.

A trust is an agreement that allows a person (trustor) to give legal responsibility of their estate to another person (trustee) for a receiving third party (beneficiary).

 

Registration provisions under GST

 

GST applies to all types of services and goods in India until it is not covered under the category of exempt or nil rated as notified by the GST council. Every supplier of goods or services or both is liable to get registered under the state or union territory (other than a special category) from where he is making a taxable supply and his aggregate turnover in a financial year exceeds twenty lakh rupees.

Provided also that the Government may, at the request of a State and on the recommendations of the Council, enhance the aggregate turnover from twenty lakh rupees to a such amount not exceeding forty lakh rupees in case of a supplier who is engaged exclusively in the supply of goods, subject to such conditions and limitations, as may be notified.

It means that Charitable Trust and NGO must get registered under the GST regime if the total turnover exceeds the prescribed limit.

 

List of Documents Required for GST Registration of Charitable Trust and NGO

 

If you are Charitable Trust and NGO and applying for GST Registration, you must have the following documents –

ü  Pan Card of society/Trust/NGO

ü  Certificate of Charitable Trust and NGO

ü  Passport size Photographs and PAN Card of Promoter/ Partners

ü  PAN card and Aadhaar card of the authorized signatory.

ü  Board Resolution or any other proof of appointing authorized signatory

ü  Registered Office Address Proof

ü  Bank account details

 

Notification No. 39/2021 – Central Tax dated 21^st December 2021

As per the Notification No. 39/2021 – Central Tax, the services/goods supplied by an association/club to its members are now under the jurisdiction of GST, and that too with effect from 1st July 2017 and thereby they are required to determine the liability.

 

Section -7(1) (aa)

The activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment, or other valuable consideration.

Explanation .-For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree, or order of any Court, tribunal, or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;]

The same concept was also upheld by the Hon’ble Apex Court in the landmark judgment of Calcutta Club Limited in the erstwhile regime of indirect taxes.

Further, with an explanation, it has been clarified that the club/association and its members will be two separate persons.

 

GST exemption for a Charitable Trust and NGO

 

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.

Notification No.12/2017-Central Tax (Rate) dated 28th June 2017 exempts services provided by entity registered under Section 12AA of the Income-tax Act, 1961 by way of charitable activities from whole of GST vide entry No. 1 of the notification, which specifies that “services by an entity registered under Section 12AA of Income-tax Act, 1961 by way of charitable activities” are exempt from whole of the GST. Thus, as per this notification, exemption is given to the charitable trusts, only if the following conditions are satisfied.

·       The entity must be registered under Section 12AA of the Income Tax Act.

·       The services provided by the entity must be a charitable activity.

Under the GST Act, not all services provided by a Trust registered under Section 12AA would be termed as a charitable activity. Only the following activities are termed as charitable activities and exempt from GST:

·       Services relating to public health like:

ü  Care or counselling of terminally ill persons or persons with severe physical or mental disability;

ü  Persons afflicted with HIV or AIDS;

ü  Persons addicted to a dependence-forming substance such as narcotics drugs or alcohol;

·       Public awareness of preventive health, family planning, or prevention of HIV infection;

·       Advancement of religion, spirituality, or yoga;

·       Advancement of educational programs or skill development relating to:

ü  Abandoned, orphaned, or homeless children;

ü  Physically or mentally abused and traumatized persons;

ü  Prisoners; or

ü  Persons over the age of 65 years residing in a rural area;

·       Preservation of the environment including watersheds, forests, and wildlife.

Hence, if a Charitable Trust and NGO does not satisfy any of the two conditions, then GST would be applicable, and the entity must be registered under GST.

 

Applicability of GST on Training Programs, Camps, and Events

If a Charitable Trust and NGO or charitable trust is conducting training programs or other programs that are not free for participants, it will be considered a commercial activity and hence will be liable for GST. Even the donation received for such an activity will be liable for taxation under GST.

Charitable Trust and NGO organise yoga camps or other fitness camps and they generally are not free for participants, as trusts charge some amount from the participants in the name of accommodation or participation. If trusts are arranging residential or non-residential yoga camps by receiving donation or other charges from the participants, these will not be considered charitable activities (as it is different from advancement of religion, spirituality or yoga). Since donation is received for participation, it will be considered commercial activity and it will definitely be covered under the GST. Similarly, if charitable trusts organise fitness camps in reiki, aerobics, etc., and receive donation from participants, such income that comes under health and fitness services and will also be taxable.

 

Applicability of GST on schools, colleges, or other educational institutions run by a Charitable Trust and NGO

If Charitable Trust and NGO are running schools, colleges, or any other educational institutions specifically for abandoned, orphans, homeless children, physically or mentally abused persons, prisoners, or persons over the age of 65 years or above residing in a rural area, such activities will be considered as charitable activities and income from such supplies will be wholly exempt from GST.

 

Services by and to Education Institutions (including institutions run by Charitable Trust and NGO)

If the trust is running school for the purpose which is not covered above (i.e. not coming within the scope of charitable activities as defined in the notification), income from such activity will not be exempt under notification no. 9/2017-Integrated Tax (Rate) or 12/2017-Central Tax (Rate), but will be exempt under entry 66 of notification no.12/2017-Central Tax (Rate). Entry 66 provides for exemption w.r.t supply by and to educational institutions and only the following services received by eligible educational institution are exempt:

1.      Transportation of students, faculty and staff of the eligible educational institution.

2.     Catering service including any mid-day meals scheme sponsored by the Government.

3.     Security or cleaning or house-keeping services in such educational institution.

4.    Services relating to admission to such institution or conduct of examination.

If such a school or other educational institution gives property owned by the such institution on rent to others, no exemption will be available for such services. Therefore, all services received by educational institutions managed by charitable trusts (for other than charitable activities, as defined) except those services mentioned above are taxable.

 

Import of Services

Also, as per entry no. 10 of Notification no.9/2017-Integrated Tax (Rate) dated 28.06.2017, if charitable trusts registered under Section 12AA of the Income-tax Act receive any services from the provider of services located in non-taxable territory, for charitable purposes, such services received are not chargeable to GST under the reverse charge mechanism.

 

GST on running of public libraries by Charitable Trust and NGO

No GST will be applicable if charitable trusts are running public libraries and lend books, other publications, or knowledge-enhancing content/material from their libraries. This activity is specifically excluded by way of entry No. 50 of Notification No. 12/2017- Central Tax Rate (and is applicable for everyone, including charitable trusts); which means services by private libraries are not exempt. Thus, if donors of the public library remain open to all and if it caters to the educational, informational, and recreational needs of their users and finance for such libraries can be provided from donations, subscriptions, a special fund created for this purpose, or from a combination of all such sources, it will be called the public library and no GST will be applicable on such services.

 

GST on hospitals managed by Charitable Trust and NGO

Entry no. 74 of Notification No. 12/2017-Central Tax Rate (applicable to all persons including charitable trusts) exempts healthcare services at the clinical establishment, an authorized medical professional, or paramedics. As per clause (zg), health care services means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality, or pregnancy in any recognized system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of the body affected due to congenital defects, developmental abnormalities, injury or trauma.

Therefore, all treatment or diagnosis, or care for illness, injury, deformity, abnormality, or pregnancy by a clinical establishment is covered. Such services provided by doctors and paramedics either provided as an employee (clinical establishment) or in their individual capacity are exempt. Transportation of patients to and from a clinical establishment is also exempt. The clinical establishment, as per clause (s), means a hospital, nursing home, clinic, sanatorium, or any other institution by, whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India, or a place established as an independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases.

 

So, if Charitable Trusts and NGOs run a hospital and appoint specialist doctors, and nurses, and provide medical services to patients at a concessional rate, such services are not liable to GST. If hospitals hire visiting doctors/ specialists and these deduct some money from consultation/visit fees payable to doctors and the agreement between the hospital and consultant doctors is such that some money is charged for providing services to doctors, there may be GST on the such amount deducted from fees paid to doctors.

 

GST on services provided to Charitable Trust and NGO

Services provided to charitable trusts are not out of the ambit of GST. All services other than those specifically exempted provided to charitable trusts will be subject to GST.

 

GST on supply of goods by Charitable Trust and NGO

There is no exemption for the supply of goods by charitable trusts. Thus, any goods supplied by such Charitable Trusts & NGOs for consideration shall be liable to GST. For instance, the sale of goods shall be chargeable to GST.

 

Read more – Services to Agriculture Sector

 

Source - https://www.cbic.gov.in/

Source - https://www.cbec.gov.in/

Source - https://www.gst.gov.in/