Goods and Services Tax Implications for Non-Governmental Organizations and Charitable Entities
The Goods and Services Tax (GST) has introduced significant changes for non-governmental organizations and charitable trusts in India. This article details how these entities are now subject to GST on certain services and goods, alongside recent legislative amendments to Section 7 of the CGST Act affecting supply definitions. It also clarifies criteria for GST exemption, outlines what constitutes a charitable activity under GST, and explains the tax implications for goods sold, training programs, and rental income from religious premises.
The introduction of the Goods and Services Tax (GST) represents a significant tax reform aimed at national unification in taxation. While many sectors have benefited, GST implementation also brings social implications for non-profit organizations and charitable trusts. This article examines how GST affects these entities, noting that charities are now subject to GST on GST on certain services and goods they provide.
Recent Legislative Changes Regarding GST
Significant updates have been made to the GST framework concerning associations and bodies of persons. As of December 21, 2021, Paragraph 7 of Schedule II was removed and integrated into Section 7 as new clause (aa). This amendment formally classifies the provision of goods by an unincorporated association or body of individuals to its members as a taxable supply.Further, the Union Budget 2021, effective February 1, 2021, introduced an amendment to Section 7 of the CGST Act. This amendment broadened the definition of 'supply' to encompass activities where goods or services are provided by any non-individual entity to its members or constituents, or vice-versa, in exchange for cash, deferred payment, or other valuable consideration. Previously, such transactions were exclusively categorized as goods supply under Schedule II; however, their scope for levy has now been expanded.
Frequently Asked Questions
Requirements for GST Exemption for Charitable Trusts
To qualify for Goods and Services Tax exemption, a charitable trust or non-governmental organization must fulfill specific conditions. Primarily, the entity needs to be registered under Section 12AA of the Income Tax Act. Additionally, the services offered by the trust or NGO must align with recognized charitable objectives.
Defining Charitable Activities Under GST
The Goods and Services Act outlines precise criteria for activities to be considered charitable. These include:
- Public health services: This encompasses counseling for individuals who are terminally ill, physically disabled, affected by HIV or AIDS, or dependent on alcohol.
- Promotion of religion, spirituality, or yoga: This involves spreading awareness and engaging in activities related to these fields.
- Public awareness initiatives: Such as campaigns for health and family planning.
- Educational programs and skill development: Specifically targeted at physically or mentally abused persons, prisoners, orphaned, homeless, or abandoned children, and rural residents aged 65 or older.
- Environmental conservation: Charitable services dedicated to safeguarding watershed areas, forests, and wildlife.
If a charitable trust or NGO fails to meet at least two of these outlined criteria, it becomes subject to GST and is mandated to register under the GST regime.
Taxation of Goods Sold by Charitable Trusts
Goods retailed by a charitable trust are generally taxable. The trust is obligated to pay the applicable GST rate when procuring these supplies.
GST on Training Programs, Camps, and Events
When a charitable trust organizes training programs, yoga camps, or similar events that require participants to pay a fee, these activities are categorized as commercial and are therefore subject to GST. Even donations received for such events may be liable for GST. However, services involving training or coaching in recreational activities related to arts, culture, or sports, when provided by a charitable entity, are exempt from GST.
Exemption for Educational Activities of Charitable Trusts
Income generated from educational institutions operated by trusts specifically for vulnerable groups—such as abandoned, orphaned, homeless, physically or mentally abused children, prisoners, or rural residents aged 65 and above—is entirely exempt from GST. These activities are recognized as charitable.
GST on Rental Income from Religious Premises
GST law provides exemptions for rental income when a charitable trust, registered under Section 12AA of the Income Tax Act, 1961, rents out religious premises for public use. These exemptions apply under specific conditions:
- Room charges are less than Rs. 1,000 per day.
- Kalyanamandapam or open areas are rented for less than Rs. 10,000 per day.
- Shops and other commercial spaces within the religious premises are rented for less than Rs. 10,000 per month.