ACCOUNTING & TAXATION:
With the introduction of Goods & Services Tax Act (GST), the taxability of various transactions in different sectors of the Industry has got changed. In this article, we will discuss about the impact of GST on organizations which works without profit motive i.e. for Charitable & Religious purposes.
Charitable & Religious Trusts are those institutions which works with the objective of providing Social benefits to all or some groups of the society without having any profit earning motive.
There is no definition under GST Act which describes the meaning of these Trusts. So, keeping in mind meaning as explained in the beginning, we will discuss the impact of GST on Charitable & Religious Trusts.
As we all know that GST is applicable on transactions falling within the meaning of “Supply” as per Section 7 of CGST Act.
Activities which falls within the meaning of Supply are taxable under GST unless these are specifically exempted under any Notification by the government. The activities of Charitable & Religious purpose falls within the meaning of Supply, so they are taxable under GST.
One doubt always remains that whether activities of these Trusts are in nature of business or not, i.e., these Trusts works without Profit motive and one could interpret that these activities are not in the course of business. However, as per Section 2 (17), which defines business, the sub-clause (a) which says, business include any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit.
So, activities which are carried out even without profit motive are include within the meaning of business.
However, Charitable & Religious Trusts are provided with some exemptions from GST through Notification issued by the government from time to time.
Notification No 12/ 2017 – Central Tax (Rates) dated 28th June 2017, at Entry No 1 which is specified as below:
|S No||Chapter, Section, Heading, Group or Service Code (Tariff)||Description of Services||Rate
|1||Chapter 99||Services by an entity registered under section 12AA of the Income-tax Act, 1961 (43 of 1961) by way of charitable activities.||Nil||Nil|
Exemption to Charitable & Religious Trusts is available only if below conditions are satisfied:
- Trust is registered under Section 12AA of Income Tax Act, 1961, and
- Services provided by Trusts are falling within the meaning Charitable activities.
If the above two conditions are satisfied, only then exemption is available to Charitable & Religious Trusts under GST. Let us understand these two terms.
- First, which are the entities registered under 12AA of Income Tax Act 1961.
As per section 12AA of Income Tax Act 1961, Trusts or constitutions requiring exemption from payment of Income Tax on Income derived from the sources as prescribed in the section 11 & section 12 of Income Tax Act 1961, required registration under the Act. Section 12AA prescribes the process for obtaining such registration. So, entities with the specified Income, claiming exemption from payment of Income Tax are required to get registered under Section 12AA.
- Second, meaning of Charitable activities
Charitable activities are defined in Notification No 12/2017 – Central Tax (Rates) as below:
Charitable activities” means activities relating to –
- public health by way of, –
- care or counselling of
- terminally ill persons or persons with severe physical or mental disability;
- persons afflicted with HIV or AIDS;
iii. persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or
- public awareness of preventive health, family planning or prevention of HIV infection;
- advancement of religion, spirituality or yoga;
iii. advancement of educational programmes or skill development relating to,-
- abandoned, orphaned or homeless children;
- physically or mentally abused and traumatized persons;
- prisoners; or
- persons over the age of 65 years residing in a rural area;
- preservation of environment including watershed, forests and wildlife;
So, only the activities which are specified in the meaning as above are considered as Charitable Activities.
Also, we need to understand that the difference between the meaning of Charitable Activities as specified in GST Act & Income Tax Act.
Extract Section 2(15) of Income Tax Act 1961,
“charitable purpose” includes 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.
The major difference of Charitable activity as specified in GST Act with that the one specified under Income Tax Act is, Income Tax Act includes the term “the advancement of any other object of general public utility”, in the definition of Charitable activity, which results in inclusion of various activities which may fall within this meaning i.e. advancement of any other object of general public utility.
However, GST Act does recognize all such other activities as Charitable activity, only activities which are specified in notification 12/2017- Central Tax (Rates) are considered as Charitable Activity and are exempt from GST.
For example, there are various activities which Charitable Trusts carried out like in the field of Research, various events for public at large which may not fall within the meaning of Charitable activity as per GST Act, but at the same time these activities can be treated as activities for Charitable purpose under Income Tax Act within the category of “ the advancement of any other object of general public utility”.
It is pertinent to note that for registration requirement under GST, we need to consider the turnover from both the taxable and exempt supplies. Let say, if a Charitable & Religious Trusts has Income of Rs 1 crore from charitable activities as specified in GST and Income of Rs 1 lakh from other activities, he needs to get registered under the GST Act and discharge GST on Rs 1 lakhs.
So, Charitable & Religious Trusts are exempted from GST by virtue of Entry No 1, Notification NO 12/2017 – Central Tax (Rates), if conditions mentioned there are satisfied.
Let us look at various other exemptions available under GST for Charitable & Religious Trusts.
> Services by religious or charitable trusts:
Entry No 13 of Notification No 12/2017 – Central Tax (Rates):
|13||Heading 9963 or
Heading 9972 or
any other Heading of
|Services by a person by way of-
(a) conduct of any religious ceremony;
(b) renting of precincts of a religious place meant for general public, owned or managed by an entity registered as a charitable or religious trust under section 12AA of the Incometax Act, 1961 (hereinafter referred to as the Income-tax Act) or a trust or an institution registered under sub clause (v) of clause (23C) of section 10 of the Income-tax Act or a
Provided that nothing contained in entry (b) of this exemption shall apply to,-
(i) renting of rooms where charges are one thousand rupees or more per day;
(ii) renting of premises, community halls, kalyanmandapam or open area, and the like where charges are ten thousand rupees or more per day;
(iii) renting of shops or other spaces for business or commerce where charges are ten thousand rupees or more per month.
As defined in the notification itself, religious place” means a place which is primarily meant for conduct of prayers or worship pertaining to a religion, meditation, or spirituality;
Thus, activities conducted by religious places by way of religious ceremony, like activities conducted on some solemn or important public or state occasions like Navaratri, Janmashtami, Eid etc are exempted from GST.
In addition, renting of areas precincts to the religious place is also exempt from GST with the condition that:
- Room rents in that case would be less than Rs 1000
- Renting of marriage halls, convention halls, open areas for functions other than religious purpose, shops or open spaces is less than Rs 10,000 per day.
> Activities of Training or Coaching:
Entry No 80 of Notification No 12/2017 – Central Tax (Rates):
Services provided by charitable trusts registered under section 12AA of Income tax Act by way of training or coaching in recreational activities relating to arts or culture or sports such as dance, music, painting, drama, literacy etc. sports will be exempt from tax.
Charitable Trusts also runs Hospitals & Schools for providing Healthcare & Education Services. Exemption from GST to Charitable Trusts registered under section 12AA for providing these services is not available specifically. However, there are other Entries in Notification No 12/2017 – Central Tax (Rates) where GST exemption available on Supply of Healthcare & Education Services. These are explained below:
> Healthcare Services provided by Charitable Trusts
Entry No 74 of Notification No 12/2017 – Central Tax (Rates)
Exemption from GST is available to the Suppliers of below services:
- Services by way of health care services by a clinical establishment, an authorised medical practitioner or para-medics
- Services provided by way of transportation of a patient in an ambulance, other than those specified in (a) above.
- Healthcare Services means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised 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 body affected due to congenital defects, developmental abnormalities, injury or trauma;
- “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 recognised 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;
As per above exemption Entry No 74, we can say the Charitable Trusts providing Healthcare services are exempted from GST. It is pertinent to note that only those services which are falling within the meaning of Healthcare Services are exempt from GST and rest services are taxable. Further, goods supplied along with the healthcare services are also exempt if they are considered or falling within the meaning of Composite supply otherwise, they are taxable.
> Education Services provided by Charitable Trusts
Entry No 66 of Notification No 12/2017 – Central Tax (Rates)
Services provided by Educational Institutions* to its students, faculty and staff is exempt from GST vide notification no 12/2017 – Central Tax (Rates).
In addition to this and to reduce burden on the education sector, some services received by education institutions are also exempt from GST. The exemption is as below:
Educational institutions providing pre-school education and education up to higher secondary school or equivalent, receiving below mentioned services are exempt from GST:
- transportation of students, faculty and staff;
- catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory;
iii. security or cleaning or house-keeping services performed in such educational institution;
- services relating to admission to, or conduct of examination by, such institution
* “Educational institution” means an institution providing services by way of,-
- pre-school education and education up to higher secondary school or equivalent;
- education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;
iii. education as a part of an approved vocational education course;
So, as explained above Charitable Trusts being an Educational Institution as per Entry 66 above, providing Education Services to its students, staff and faculty is exempt from GST. And Services provided to Educational institutions are also exempt wherever applicable.
In addition to this, Charitable Trust running Educational Institutions also provide rental services to third party vendors like book shops, canteen, their Auditorium for carrying out some programs not related to them. These Services are taxable in hands of Charitable Trusts no specific exemption is available against these Services.
Reverse Charge applicability on Charitable Trust
Entry No 10 of Notification No 9/2017 – Integrated Tax (Rates)
The exemption is available from payment of RCM liability on “Services received from a provider of service located in a non-taxable territory by an entity registered under section 12AA of the Income-tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities”.
So, Charitable Trusts are exempted from payment of RCM liability on Import of Service, if such services are received from supplier of Service in non-taxable territory and received by an entity registered under 12AA of Income Tax Act 1961 for providing charitable activities.
Supply of Goods by Charitable Trusts
Exemption from GST is available to Charitable Trusts registered under Section 12AA of Income Tax Act 1961, against the services provided which are falling within the meaning of Charitable Activity. However, no exemption is available against supply of goods by Charitable Trusts. Goods Supplied by Charitable Trusts are taxable under GST unless the goods are specifically exempt under any notification by the government.
Benefit to trusts by way of financial assistance:
Seva Bhoj Yojna – Guidelines for processing of applications for financial assistance under the Central Sector Scheme of the Ministry of Culture
Refer Circular No. 75/49/2018-GST, dated 27-12-2018, where process for claiming reimbursement of central tax and the Central Government’s share of integrated tax paid on the purchase of certain raw food items namely, ghee, edible oil, sugar/burra/jaggery, rice, atta/maida/rava/flour and pulses used for distributing free food to general public/devotees by charitable/religious institutions like Gurudwaras, temples, Dharmik Ashrams, Mosques, Dargahs, Churches, Math, Monasteries, etc
There are many other activities in which Charitable Trusts work, the taxability of those activities will be dealt on case to case basis. However, it is crystal clear that all the activities of Charitable & Religious Trusts are not exempted from taxability under GST. The taxability of activities of Charitable & Religious Trusts registered under Section 12AA of Income Tax Act 1961, would be determined in below manner:
- Firstly, check whether the activities are falling within the meaning of Charitable activities as per GST Act or not.
- Secondly, if the activities are not falling within the meaning of Charitable activity, check whether any specific exemption exists under GST law regarding the taxability of such activities.
- Finally, if no specific exemption exists, the activities are taxable under GST assuming that all other conditions for making it a supply as per Section 7 persists.
Disclaimer – The above writeup is for educational & information purposes only and does not constitute an advice or a legal opinion and are personal views of the author. There may be possibility of different view on the various subject matter discussed. Author does not accept any liability for any loss or damage of any kind arising out of this information set out in the article and any action taken based thereon.