Get into the complexities of GST for charitable trusts and NGOs, unravelling exemptions, regulations, and the nuanced treatment of charitable activities under the tax framework.
How Can an NGO Be Exempted From GST?
Know the Impact of GST on NGOs And Charitable Trusts. NGOs and charitable trusts may qualify for GST exemption if they meet certain requirements. According to GST rules, the following services provided by charity trusts and NGOs are exempt from GST:
- Services offered by a company that has been authorized by the Income Tax Act of 1961’s section 12AA.
- Activities promoting education, public health, sanitation, or any other service to the general public.
- Services rendered to the UN or any other international body.
- Services offered in the form of instruction or coaching in leisure activities related to the arts, cultures, or sports.
What Is a Charitable Activity Under GST?
An activity carried out by a trust or an institution registered under section 12AA of the Income Tax Act, 1961, that is involved in activities relating to public health or sanitation, promotion of education, or any other aim of general public utility is defined as a charity activity under the GST. Activities that help the underprivileged, promote education, or advance any other item of general public benefit are also considered charitable. For trusts or institutions initiating such activities and not previously registered under GST, obtaining a new GST registration is crucial. This registration is important because even charitable organizations must comply with GST laws if their activities fall within taxable categories or if they conduct transactions that are considered supply under GST. A new GST registration will ensure that these organizations manage their tax liabilities correctly and remain compliant with the current tax legislation.
GST Registration Requirements for NGOs and Charitable Trusts
If an NGO or charity trust has a combined annual revenue of more than . ₹ 20 lakhs, they must register for GST. Regardless of their turnover, an NGO or charitable trust must register for GST if they offer services in more than one state. If their annual revenue is less than ₹ 1.5 crores, NGOs and charity trusts may register under the normal plan or choose the composition scheme.
List of Services Provided by Charitable Trust or NGO – Exempt From GST
- Healthcare services delivered by clinical facilities that have government approval.
- Services for education are offered by institutes of higher learning with government approval.
- Services offered by organization’s authorized by the Income Tax Act of 1961’s Section 12AA.
- Services supplied by trusts to the UN or any other international body.
- Services are offered through skill-building or career training.
- Services offered in the form of instruction or coaching in leisure activities related to the arts, cultures, or sports.
- Services offered to the military or paramilitary organisations.
- Services offered in the form of veterinary care or animal care.
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List of Services Provided by Charitable Trust or NGO – Taxable From GST
GST is applicable to the following services rendered by NGOs and charity trusts:
- Services offered through the rental of real estate.
- services offered through the rental of moving property.
- Services are offered through the provision of food or drink at canteens or messes run by NGOs or charitable organisations.
- services delivered through the administration of exams or entrance tests.
- Services offered through the sponsorship of occasions, such as sporting or cultural events.
GST Rates for NGOs, Charitable Religious Trusts
Many services provided by NGOs and charitable organisations are exempt from GST. This exemption includes activities related to the advancement of religion, education, or other charitable purposes. However, if an NGO engages in commercial activities that generate income, it may be liable for GST on those specific transactions.
Religious trusts may also enjoy exemptions on certain services linked to religious activities or the upkeep of places of worship. These exemptions aim to support religious and charitable endeavours while ensuring financial transparency.
NGOs qualify for GST exemptions if registered under specific acts and have an annual turnover below Rs. 20 lakhs (Rs. 10 lakhs for northeastern states). Commercially active or higher turnover NGOs must register for GST, posing challenges for fundraising.
Similarly, charitable trusts meeting certain criteria and registered under specified acts can avail GST exemptions. However, those engaged in commercial activities or surpassing the turnover threshold must register for GST, presenting challenges for fundraising and charitable pursuits.
GST Input Tax Credit for NGOs, Charitable Religious Trusts
To qualify for GST input tax credit, these organisations need to undergo the registration process under the GST framework. This registration ensures that they are recognised participants in the GST system. Additionally, active engagement in taxable supplies, referring to goods or services on which GST is applicable, is a crucial aspect of eligibility.
Exemption Clause:
However, a notable condition accompanies this eligibility. If the organisation is involved in supplying goods or services that fall under the category of exemptions, it forfeits its entitlement to input tax credit. Exempted supplies do not incur GST, and therefore, there is no provision for claiming credit on the tax paid on inputs related to these exempted supplies.
Implications:
In practical terms, the availability of input tax credit becomes contingent on the nature of the supplies these organizations are engaged in. While active participation in taxable supplies ensures the benefit of offsetting tax liabilities, engaging in exempted supplies restricts this advantage, potentially influencing financial considerations and operational decisions for these entities.
NGOs, charitable trusts, and religious trusts can avail of GST input tax credit by fulfilling two primary criteria. Firstly, they must be registered under the GST system. Secondly, these entities should be actively involved in transactions that attract Goods and Services Tax (GST), commonly known as taxable supplies.
The Challenges Faced by GST Exemption on NGOs and Charitable Trusts
The transition to GST has presented significant hurdles for NGOs and charitable trusts, organisations crucial to societal well-being. These nonprofits have encountered several challenges in navigating the new tax regime:
- Increased Compliance Burden: Adhering to GST’s complex rules and regulations has added administrative overhead, diverting resources away from core missions.
- Financial Strain: The inclusion of certain activities within the GST net has increased operational costs, impacting the allocation of funds towards beneficiaries.
- Navigating Complex Exemptions: Understanding the nuances of GST exemptions for charitable activities remains a challenge, leading to uncertainties and potential compliance risks.
These challenges have hindered the ability of NGOs and charitable trusts to effectively serve their communities and achieve their objectives.
Conclusion
Understanding the intricacies of GST for NGOs and charitable trusts is essential for ensuring compliance and maximizing available benefits. While many services offered by these organizations are exempt from GST, there are specific conditions and requirements to meet.
Key takeaways include the importance of registration under Section 12AA of the Income Tax Act, distinguishing between taxable and exempt activities, and understanding the implications for input tax credit.
By carefully navigating the GST landscape, NGOs and charitable trusts can focus on their core missions while fulfilling their tax obligations effectively.
FAQs on Impact of GST On NGOs and Charitable Trusts
Are all NGOs and charity trust services free from the GST?
No, only a limited number of services offered by charity trusts and NGOs are free from the GST..
Under the GST, may an NGO or charitable trust claim an input tax credit (ITC)?
Yes, charitable trusts and NGOs are eligible to claim input tax credits (ITCs) for taxes paid on the goods and services they utilise.
Do charity trusts and NGOs have to register for GST?
If an NGO or charitable trust has a combined annual revenue of more than Rs. 20 lakhs, they must register for GST.
Can charity trusts and NGOs choose the GST composition scheme?
IIf an NGO or charity trust has a turnover under Rs. 1.5 crores, they may choose the composition scheme.
What qualifies as a charitable activity under the GST?
A trust or organization registered under section 12AA of the Income Tax Act, 1961 that engages in activities related to public health or sanitation, promotion of education, or any other object of general public utility is considered to be engaging in a charitable activity under the GST.
