There are Lacs of religious and charitable trusts in India. They may be Religious Temples, Halls or Dharamshalas, Charitable Trusts like schools, orphanages, Gaushala’s or other Non- Government Organizations like those whose purpose is child protection, women empowerment, etc. Hereinafter we will call them NPEs (Not for Profit-Making Entities). Basic purpose of any such organization is not doing any kind of commercial activity. Their motive is never that of profit making. But, they are always indulged in some or the other kind of activity for earning revenue, directly or indirectly. In these chapters, we will analyze NPEs and their revenue generating activities from GST point of view. The activities of NPOs can be divided into three categories from GST perspective:
It may be noted that section 2(84) of GST Act defines the term “person”, this definition is much broader then the definition of a “person” under the income Tax Act. It includes Trusts, Societies and all type of artificial juridical persons. Therefore, charitable organizations irrespective of their mode of registration are included in the definition of “person”, and are not exempt from GST. It may be noted that during pre-GST era also, similar definitions were present in erstwhile service tax and VAT laws. All NPEs carry out different activities for revenue. In GST, for any activity to be considered as supply, it has to first to pass the test of business under section 2(17) of the CGST Act (hereinafter called the Act) and should be covered in scope of supply under section 7 of the Act. First and foremost thing to be considered is clause (a) of section 2(17) of the Act which clearly states that for an activity to be considered as business, profit making is not a required condition. That means even if the activity is not for making any profit it can still fall under the term supply. So, any NPE can become liable to GST. Now, let’s look at scope of supply from NPE point of view. As per section 7(1) of the Act, supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course of business or furtherance of business. So, major conditions to be satisfied for a transaction for it to become a supply will be:
In the course or furtherance of business. So, any transaction must first satisfy that it is an activity for doing a business. Business has very vast definition and covers almost everything. However, course or furtherance of business has not been defined anywhere in the Act, so has to be considered as in common parlance. We should also note that according to Schedule of the Act, there can be some transactions that will be considered a Supply even if there is no consideration involved. Grant/donations received from NGO shall not be covered as supply as these are without consideration and also not in course of furtherance of business. However it through the grant agreement, any benefits directly or indirectly, goes to the donor then such grant may be subject to GST.
As per section 22 of the Act, every supplier is liable to be registered:
In short, 2 conditions need to be satisfied. First, there should be a taxable supply. Second, the turnover should be more than Rs. 40 Lacs/ 20 Lacs. Important thing that should be kept in mind is that even if NPE generally supplies exempted/Nil rated items; but if it supplies any other item in the course of business even if the value is very less, it will become liable to get registered. For example, an NGO has some extra space in its office that it gives on rent to someone for Rs. 50,000 per month and has other income of Rs. 40 Lacs from exempted activities; it will become liable to get registered because the aggregate turnover includes exempted supply.
GST applicability depends upon the nature of contract. There the various aspects to look at the transactions of CSR projects are as under:
CSR activities undertaken by the company on its own through its employees: No GST liability since no payment made to the external agency. No ITC available on the goods distributed free of cost in CSR activities. Through External Agency: GST applicable except the following services stated in Exemption Notification (provided by entities registered under section 12AA of Income Tax Act)
|Grants in Aid/ Cash donations
|Grants to external agencies for specified beneficiaries where charitable purposes are covered under exemption notification
|Grants to external agencies for specified beneficiaries where charitable purposes are not covered under exemption notification