THE EFFECT OF GST ON TRUSTS AND NGOs

Introduction

The provisions concerning the taxation of activities of charitable institutions and non-secular trusts are borrowed and carried over from the erstwhile service tax provisions. All services provided by such entities aren't exempt. In fact, there are many services that are provided by such entities which might be within the ambit of GST. Notification No.12/2017-Central Tax (Rate) dated 28th June 2017 exempts services provided by an entity registered under Section 12AA of the Income-tax Act, 1961 by way of charitable activities, which specifies that “services by an entity registered under Section 12AA of Income-tax Act, 1961 by way of charitable activities” are exempt from the entire of the GST. Thus, as per this notification, the exemption is given to the charitable trusts, as long as the subsequent conditions are satisfied.

GST ON TRUSTS AND NGOs

Implementation of GST has seen as an excellent tax reform which will unify the whole nation, as far as taxation cares. This has been beneficial for various sectors, at an equivalent time, implementation of GST will have social consequences on charities and non-profit organizations. allow us to take a glance at the impact that GST’s implementation had on NGOs and charitable trusts.

• Under GST, charities will come to be subject to pay Goods and Services Tax. this suggests that GST are going to be applicable to a number of the services and goods supplied by a public trust or an NGO.

Taxation of activities of Non-profit organizations has been carried over from erstwhile Service tax legislative provisions. In whole, all services provided by such entities aren't exempt. There are many activities which can fall into the ambit of products and repair Tax Act that are provided by Non-Profit Entities (NPO’s). There are numerous charitable and non-secular institutions in India with the target of promoting Education, Orphanages, Child and lady’s protection, religious activities and welfare. These organizations aren't aimed toward generating revenue but incidentally to the most object, they're going to be earning revenue directly or indirectly. Taxability of Non-profit making entities has got to be decided supported from the point of view of services, such entity undertakes. within the following paragraphs explains the detailed view of provisions concerning taxability of such services under GST.

GST is applicable for all kinds of products and services in India unless exempt or NIL rated by the GST Council. Thus, contrary to popular beliefs, GST might be applicable for a few of the services and goods supplied by a public trust or NGO. during this article, we glance at the provisions of GST concerning charitable trusts and NGOs in India.

Charitable Activity

There are certain criteria for a public trust or an NGO to be exempted from the goods and Services Tax. The public trust or NGO must be registered under Section 12AA of the tax Act, and therefore the services provided by the public trust or the NGO must be for a charitable cause.

If a public trust is conducting training programs, yoga camps, or other programs that aren't free for participants, it'll be considered as a billboard activity and hence are going to be responsible for GST. Even the donation received for such an activity are going to be responsible for taxation under GST.

Services provided by way of coaching or coaching in recreational activities concerning arts and culture, or sports by a charitable entity are going to be exempt from GST.

AS DEFINED UNDER GST LAW

One of the grievous misconceptions within the sector is that the common assumption that each one the charitable activities administered by an NGO are exempt from GST. Actually, this understanding might not be true altogether cases.

The GST law specifically defines the term ‘charitable activities’ and grants certain exemptions only to NGOs carrying such ‘charitable activities. The conditions for claiming exemption with reference to charitable activities are as under–

Condition 1 - Services provided shall be by way of charitable activities as per GST law

Condition 2 - Entity should be registered under section 12AA of the Income-tax Act, 1961

Both the above conditions should be fulfilled for availing the exemption benefit.

Further, the GST law provides an exhaustive list of the activities which might be considered as ‘charitable activities’ to avail the exemption.

EXAMPLES OF CHARITABLE ACTIVITIES AND GST LEVIED ON THEM

Services provided to charitable trusts aren't out of the ambit of GST. All services aside from those specifically exempted provided to charitable trusts are going to be subject to GST.

If trusts are running schools, colleges or the 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 during a country, such activities are going to be considered as charitable activities and income from such supplies are going to be wholly exempt from GST.

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

Charitable trusts organise yoga camps or other fitness camps and that they generally aren't free for participants, as trusts charge some amount from the participants within the name of accommodation or participation. If trusts are arranging residential or non-residential yoga camps by receiving a donation or other charges from the participants, these won't be considered charitable activities (as it's different from the advancement of faith, spirituality or yoga). Since the donation is received for participation, it'll be considered business activity and it'll definitely be covered under the GST. Similarly, if charitable trusts organise fitness camps in reiki, aerobics, etc., and receive a donation from participants, such income that comes under health and fitness services and can even be taxable.

If charitable trusts run a hospital and appoint specialist doctors, nurses and supply medical services to patients at a concessional rate, such services aren't susceptible to GST. If hospitals hire visiting doctors/ specialists and therefore the se deduct some money from consultation/visit fees payable to doctors and the agreement between hospital and consultant doctors is such some money is charged for providing services to doctors, there could also be GST on such amount deducted from fees paid to doctors.

CRITERIA FOR A CHARITABLE TRUST TO BE EXEMPTED FROM GST

If trusts are running schools, colleges or the 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 during a country, such activities are going to be considered as charitable activities and income from such supplies are going to be wholly exempt from GST.

Also, if charitable trusts registered under Section 12AA of Income-tax Act receives any services from the provider of services located in non-taxable territory, for charitable purposes, such services received aren't chargeable to GST under the reverse charge mechanism.

Bottom Line

The impact of GST on NGO is widely spread. Section 12AA has talked about the exemptions provided in GST for NGO. there's an inventory of exemptions provided via notifications laid by the legislature. This all shows how the legislature wants to bring the services within the ambit of taxability of GST. It also wanted to exclude the advantages and useful provided by NGO, where they need got the edge limit. This limit has clearly defined the Income to be computed for NGO. The computation has become much simple due to the exclusive list given by the legislature which describes the sole goods and services which are exempted.