Ever since the Goods & Service Tax (GST) came into effect, it has impacted the Section 8 companies just like any other type of company. Let us learn if GST registration is required for a Section 8 company, and more details, in this article.
The primary reason for forming a Section 8 company is to promote non-profit goals such as trade, commerce, arts, charity, education, religion, environmental protection, social welfare, sports research, and so on.
A minimum of two directors are required to form a Section 8 Company. In addition, no minimum paid-up capital is required for a Section 8 Company. A non-profit organisation in India can be registered with the Registrar of Societies or as a Non-profit company under Section 8 of the Company Act, 2013.
The profits of this company, if any, are used to further the company’s objectives rather than being distributed as dividends to its shareholders. Under the old Companies Act of 1956, a Section 8 Company was the same as a Section 25 Company. Section 25 of the new Companies Act of 2013 has been renamed Section 8.
GST Registration for Section 8 Company
Regarding Section 8 company GST registration, please note that if a Section 8 Company is subject to the GST Act, it must register with GST. Several companies in the market offer company registration and GST registration for Section 8 companies. The cost ranges from ₹10,000 to ₹25,000. Registration for a Section 8 company is more costly than a similar type of organisation, for example, a trust. The reason being a Section 8 company requires Central Government approval and many other additional requirements.
Impact of GST on Section 8 companies
The GST Act impacts Section 8 companies in two ways:
- As Suppliers of Goods and Services
A ‘taxable person under the GST Act is defined as ‘any person who conducts any business in India and is registered or required to be registered under the GST Act. A taxable person is someone who engages in economic activity, such as trade and commerce.
Individuals, HUFs, companies, firms, LLPs, an AOP/BOI, any corporation or government company, body corporate incorporated under the laws of a foreign country, co-operative societies, local authorities, governments, trusts, and artificial juridical persons are all considered “persons” in this context.
While a trust, society, or Section 8 company is included in the definition of a taxable person under GST, these entities cannot be recognised as taxable persons under GST if they are not involved in economic activity such as trade and commerce. However, Maharashtra’s GST Authority of Advanced Ruling (AAR) has declared that products and services offered for a price by non-profit organisations qualify as supplies, making them liable for GST.
The judgement further stipulates that if a charitable organisation’s annual turnover from the sale of goods and services exceeds ₹20 lakh, it must register under GST. As a result, a non-profit that sells things, such as stationery or honey, must register under GST if its revenue from these sales exceeds ₹20 lakhs in any financial year. A non-profit that provides a service, such as digital literacy classes for young women, is also liable under GST.
This means even if a firm is charitable, GST will be imposed on their products or services if its income from the supply of goods
and services exceeds ₹20 lakhs in any financial year. The consumer will bear the cost of paying the GST. However, it increases the non-profit’s accounting and regulatory expenditures.
Exception
Regardless of the magnitude of their fee-based sales, certain ‘charitable activities, as defined by the GST Act, are exempt from this indirect tax. Unfortunately, the GST Act’s definition of “charitable activities” is highly restricted and restrictive, only covering activities related to:
- Public health through:
(A) counselling and care of -.
– people who are terminally ill or have a significant physical or mental handicap
– people who have HIV or AIDS
– people who are addicted to a habit-forming substance like opiates or alcohol
(B) public knowledge of HIV prevention, family planning, and another preventive health measure;
- Religion, spirituality, or yoga advancement
- Promotion of educational programmes or skill development in the areas of:
(A) children who have been abandoned, orphaned, or are homeless
(B) those who have been physically or emotionally mistreated and have been traumatised
(C) detainees or prisoners
(D) people over the age of 65 who live in rural areas
- Environmental protection, including watersheds, forests, and animals.
As a result, if a non-profit charges a fee for counselling services to terminally ill people and earns more than ₹ 20 lakhs from these services in a particular financial year, it is excluded from charging GST on the services it offers. However, in order to claim this exemption, it is still necessary to register for GST.
- As the Consumers of Goods and Services
The Income Tax Department may recognise non-profits registered under Section 12A or 12AA of the Income Tax Act of 1961 as ‘tax-free. The tax exemption, however, is restricted to the non-profit’s income from direct taxation. It does not provide any exemptions from indirect taxes such as GST. If the organisation works out of a commercial office building, it can’t show the landlord its 12A or 12AA certificate and claim GST exemption on the rent.
Similarly, the non-profit’s so-called “tax-exempt” status (from direct tax) does not provide any protection from GST when purchasing things like computers, laptops, tablets, or a car for its charitable activities. Non-profits are subject to GST on any products and services they receive. A non-profit is thus just a regular consumer or client to a supplier of commodities or a provider of services.
Conclusion
Section 8 organisations have traditionally been viewed as special purpose vehicles (SPVs) that operate as instruments and are seen as the driving force in assisting the government in accomplishing the things that they always want to do for the welfare of society but are unable to achieve due to a variety of circumstances.
These firms are the direct link between society and people’s well-being. They give a platform where people may come together to work for the betterment of society and community and, eventually, the globe. Visit Vakilsearch for more information on Section 8 corporations, including the registration process. We also offer GST services like GST registration, GST filing and advisory services on GST. Please register on the website by entering your details, and our legal experts will contact you for assistance at the earliest.
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