Overview and Applicability

Applicability of GST for NPOs

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:

  • Activities pertaining to grant and donation which are completely without consideration and not in the course of furtherance of business are outside the scope of the GST provided no benefits is given back to the donor.
  • Activities having a component of supply which could be considered as “in the course of furtherance of business” are taxable under the GST. However, some of such activities may be specifically exempt under GST.
  • Activities having a component of supply but are not “in the course or furtherance of business” are not taxable under GST. In such cases the onus will be on the NPO to establish that the activity was not “in the course or furtherance of business”.

Applicability of GST to NGOs

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:

  • All forms of supply are covered. Exchange is not spared. Even disposal of any goods will become a supply under GST.
  • For a consideration. These are the saving words. There should be a consideration for any transaction to come within the ambit of supply. Most of the activities of NPEs are without any consideration. So, it saves them in most of the cases.

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.

Eligibility for registration under GST

As per section 22 of the Act, every supplier is liable to be registered:

  • if he makes any taxable supply (and)
  • If his aggregate turnover in a financial year exceeds Rs. 40 Lacs (Rs. 20 Lacs in special category States) for Sale of Goods,
  • For services, the same is 20/10 Lacs

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.

CSR liabilities and GST implications:

GST applicability depends upon the nature of contract. There the various aspects to look at the transactions of CSR projects are as under:

  • A charitable organization may work as a contractor on behalf of a corporate and raise invoices against the deliveries is made. In such cases GST will be applicable based on the type of supply and the applicable provisions .There might be certain type of transactions which may be specifically exempt for instance construction of toilets for sanitation and public convenience.
  • A charitable organization may work as a trustee or an implementing partner on behalf of a corporate. However in such cases the NPO should entirely utilize the grant amount for agreed purpose. In such cases GST will not apply. In the case Apitco Ltd. vs Commissioner of service tax, Hyderabad (2012) 26 taxmann.com 213 (SC) it was held by the Apex court that if grants-in-aid received are totally utilized for the intended welfare purpose, there is no service provider client relationship between assesse and donor. In other words, whenever a corporate give grant to a charitable organization there is no service

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)

  • Training or coaching in recreational activities relating to arts or culture, or sports
  • Public health by way of care and counseling of terminally ill persons or persons with severe physical or mental disability, persons afflicted with HIV or AIDS, 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 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.

> To sum up:

S. No. Transaction Taxability
1 Grants in Aid/ Cash donations Not taxable
2a Grants to external agencies for specified beneficiaries where charitable purposes are covered under exemption notification Not taxable
2b Grants to external agencies for specified beneficiaries where charitable purposes are not covered under exemption notification Taxable
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