This is further to our Blogpost dated: 2nd July 2017 titled “GST & it’s Impact on Charitable organizations/NGOs”
There are still a number and queries that we continue to receive from within the sector and hence the need to address some of these issues in this blogpost.
The most common question that is still asked is: “We are registered under 12AA of Income tax and therefore tax exempt. Why should GST be applicable to us?”
To reiterate Income tax is a ‘Direct Tax’ and GST is an ‘Indirect Tax’, besides also being a separate legislation.
Income tax is paid directly by the assesse on income whereas GST is paid indirectly by the consumer and charged to the consumer by the supplier of goods or services.
In certain cases, the consumer is required to register under GST and pay GST on behalf of the unregistered supplier of goods and services under what is called ‘Reverse Charge Mechanism’ (RCM).
GST is charged only on ‘business activities’. Where the NGO provides goods or services in furtherance to its charitable objects, GST is not applicable. For example, if a company or a corporate foundation enters into a ‘CSR grant agreement’ with an NGO, the latter is merely furthering its charitable objectives and cannot be deemed as carrying out ‘business activities’ as the company or corporate foundation’s commercial vendor of service.
We reiterate that a ‘grant’ is in the nature of ‘gift’ (albeit with various stipulations) and therefore neither TDS nor GST should be charged on grants.
Taxable person under GST
A ‘taxable person’ under GST, is a person who carries on any business at any place in India and who is registered or required to be registered under the GST Act. Any person who engages in economic activity including trade and commerce is treated as taxable person.
‘Person’ here includes individuals, HUF, company, firm, LLP, an AOP/BOI, any corporation or Government company, body corporate incorporated under laws of foreign country, co-operative society, local authority, government, trust, artificial juridical person.
While the definition of ‘taxable person under GST’ includes a trust, as long as the trust is not engaged in economic activity including trade and commerce, it cannot be treated as taxable person under GST!
GST registration is mandatory for any business whose turnover in a financial year exceeds Rs.20 lakhs (Rs.10 lakhs for North Eastern and hill states). Further, if turnover is only supply of exempted goods/services which are exempt under GST, registration is not necessary.
Interstate and intrastate turnover of goods and services
Today several NGOs make and sell their products (usually made by their beneficiaries such as the physically or mentally challenged, marginalized women etc.) or charge fees for various services. It is important to understand when and where registration under GST becomes mandatory.
- If the NGO's total intrastate (i.e. only within the state) turnover from taxable supply of goods and services is below Rs.20 lakh during the fiscal year (Rs.10 lakh in hill states), then GST is not applicable.
- If the NGO sells goods or provides services to anyone outside it’s state, the NGO must register under GST. In such cases, it is immaterial whether the total turnover of goods or services is below the threshold limit of Rs.10 or Rs.20 lakh.
GST would be applicable on all fee based services including membership fees, training or workshop fees, provided the aggregate fee receipts during the fiscal year are below the threshold limit and confined to the state where the NGO is registered.
GST on Sponsorship by companies
While grants and donations are exempt under GST, sponsorship where the company sponsors an NGO event and the name and or logo of the company is widely and prominently displayed would attract GST.
Sponsorship includes naming an event after the sponsor, displaying the sponsor’s company logo or trading name, giving the sponsor exclusive or priority booking rights, sponsoring prizes or trophies for competition; but, to reiterate, does not include any financial or other support in the form of donations or gifts, given by the donor subject to the condition that the service provider (NGO) is under no obligation to provide anything in return to such donor/s.
No General Exemption to NGOs from GST
There is no general exemption from GST for goods or supplies purchased by NGOs. Hence, if the NGO buys computers for office use or it’s programs or grains or vegetables for its staff or program kitchen, there is no GST exemption.
Reverse Charge Mechanism (RCM)
If an NGO is registered under GST, it is also required to pay GST under reverse charge on services or goods received from unregistered vendors. This would include contractors, consultants, caterers, shopkeepers, small traders etc., if these vendors are not registered under GST.
Casual supplies (e.g. stationery, books, refreshments) up to Rs. 5,000 in a day from small vendors are excluded from reverse charge.
For NGOs registered under GST, reverse charge is deductible from GST payable as Input Tax Credit.
List of Exempted Services under GST
The list is quite long and therefore we shall highlight here just a few relevant exempt services.
- Services by an entity registered under section 12AA of the Income Tax Act, 1961 (43 of 1961) by way of charitable activities;
- Services by an educational institution to its students, faculty and staff;
- Services to an educational institution, by way of transportation of students, faculty and staff; catering, including any mid-day meals scheme sponsored by the Government; security or cleaning or house-keeping services performed in such educational institution; services relating to admission to, or conduct of examination by, such institution; up to higher secondary;
- Services by an artist by way of a performance in folk or classical art forms of music, or dance, or theatre, if the consideration charged for such performance is not more than one lakh and fifty thousand rupees: Provided that the exemption shall not apply to service provided by such artist as a brand ambassador;
- Service by an unincorporated body or a non- profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution – As a trade union; For the provision of carrying out any activity which is exempt from the levy of GST; or Up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex;
- Services of public libraries by way of lending of books, publications or any other knowledge-enhancing content or material;
- Services by way of training or coaching in recreational activities relating to, Arts or culture. or sports by charitable entities registered under section 12AA of Income Tax Act, 1961;
- Health care services by a clinical establishment, an authorized medical practitioner or para-medics; services provided by way of transportation of a patient in an ambulance.
“Charitable activities” as defined under GST
Services by an entity registered under section 12AA of the Income Tax Act, 1961 (43 of 1961) by way of charitable activities is exempt under GST. However, under GST the scope of “charitable activities” is narrow and restricted.
“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;
“Clinical establishment” 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.
Noshir H. Dadrawala
CAP with FMSF will be having a workshop on GST in Mumbai on 13th September 2017. Please email email@example.com for more details